~~UNITED~~Table ~~STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549~~of Contents

~~FORM~~UNITED ~~10-Q~~STATES

~~QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE~~ SECURITIES AND EXCHANGE ~~ACT OF 1934~~COMMISSION

~~For the Quarterly Period ended June 30~~Washington, ~~2009~~D.C. 20549

~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934~~FORM 10-Q

~~For~~x QUARTERLY ~~the~~REPORT ~~Transition~~PURSUANT ~~Period~~TO SECTION 13 ~~from~~OR ~~___________~~15(D) toOF ~~_____________~~THE SECURITIES EXCHANGE ACT OF 1934

~~Commission~~For ~~file~~the ~~number 333-127409~~Quarterly Period ended September 30, 2009

~~BANKGREENVILLE FINANCIAL CORPORATION(Exact name of small business issuer as specified in its charter)~~OR

South Carolina		20-2645711
(State or other jurisdiction		(I.R.S. Employer
of incorporation)		Identification No.)

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

~~499~~For ~~Woodruff~~the ~~RoadGreenville,~~Transition ~~South~~Period ~~Carolina 29607~~from ~~(Address of principal executive offices)~~ to

~~(864)~~Commission ~~335-2200(Issuer’s~~File ~~telephone~~Number ~~number)~~333-127409

~~Not~~BANKGREENVILLE ~~Applicable(Former~~FINANCIAL ~~name, former address and former fiscal year, if changed since last report)~~CORPORATION

~~Indicate by check mark whether the registrant~~ (1)Exact ~~has~~name ~~filed all reports required to be filed by Section 13 or 15(d)~~ of ~~the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period~~ ~~that the~~ registrant ~~was~~as ~~required~~specified toin ~~file~~its ~~such reports~~charter) ~~and (2) has been subject to such filing requirements for the past 90 days. Yes No~~

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

South Carolina

20-2645711

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

~~Indicate~~499 byWoodruff check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Road

~~Large~~Greenville, South ~~accelerated~~Carolina ~~filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company~~29607

~~Indicate~~(Address ~~by check mark whether the registrant is shell company~~of asprincipal ~~defined~~executive inoffices) ~~Rule~~(Zip ~~12b-2 of the Exchange Act. Yes No~~ Code)

~~Indicate the number of shares~~(864) outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,180,000 shares of common stock, no par value per share, were issued and outstanding as of August 12, 2009. 335-2200

~~BANKGREENVILLE~~(Registrant’s telephone ~~FINANCIAL~~number, ~~CORPORATION~~including area code)

~~INDEX~~Not Applicable

~~Part~~(Former Iname, former –address ~~Financial Information~~and former fiscal year, if changed since last report)

~~Item~~Indicate ~~1. Financial~~by ~~Statements~~check mark whether the registrant (~~unaudited~~1) ~~Item~~ has ~~2. Management’s~~filed ~~Discussion~~all ~~and~~reports ~~Analysis~~required to be filed by Section 13 or ~~Plan~~15(d) of the Securities Exchange Act of ~~Operation~~1934 during the preceding 12 ~~Item~~months ~~3. Quantitative~~(or ~~and~~for ~~Qualitative~~such ~~Disclosures~~shorter ~~About~~period ~~Market~~that ~~Risk~~the registrant was required to file ~~Item~~such ~~4. Controls~~reports) and ~~Procedures~~(2) has been subject to such filing requirements for the past 90 days. Yes x No o

~~Part~~Indicate IIby –check ~~Other~~mark ~~Information~~whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

~~Item~~Indicate ~~1. Legal~~by ~~Proceedings~~check mark ~~Item~~whether ~~2. Unregistered~~the ~~Sales~~registrant ofis ~~Equity~~a ~~Securities~~large ~~and~~accelerated ~~Use~~filer, ofan ~~Proceeds~~accelerated filer, a ~~Item~~non-accelerated ~~3. Default~~filer, ~~Upon~~or ~~Senior~~a ~~Securities Item~~smaller 4reporting company. ~~Submission~~ See the definitions of ~~Matters~~“large toaccelerated filer,” a“accelerated ~~Vote~~filer” ofand ~~Security~~“smaller ~~Holders Item~~reporting ~~5. Other~~company” ~~Information~~in Rule 12b-2 ~~Item~~of 6the Exchange Act. ~~Exhibits~~

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

~~EXHIBIT~~Indicate ~~INDEX~~by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

2Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,180,000 shares of common stock, no par value per share, were issued and outstanding as of November 12, 2009.

~~BANKGREENVILLE~~Table of ~~FINANCIAL CORPORATION~~Contents

~~PART I –~~ BANKGREENVILLE FINANCIAL ~~INFORMATION~~CORPORATION

~~Item 1. Financial Statements~~INDEX

Consolidated Balance Sheets

Part I - Financial Information

Item 1.	Financial Statements (unaudited)
Item 2.	Management’s Discussion and Analysis or Plan of Operation
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures

Part II - Other Information

Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Default Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits

SIGNATURES

EXHIBIT INDEX

	June 30,			December 31,
	2009			2008
	(unaudited)			(audited)
Assets
Cash and due from banks	$	856,545		$	1,171,498
Federal funds sold		6,001,218			2,153,000
Total cash and cash equivalents		6,857,763			3,324,498
Investment securities available for sale		23,042,497			21,149,100
Federal Home Loan Bank Stock		799,300			755,900
Loans, net of allowance for loan losses of $769,878 and $665,442 at June 30, 2009 and
December 31, 2008, respectively		58,680,006			53,994,983
Property and equipment, net		2,732,005			2,772,907
Accrued interest receivable		520,041			443,492
Other real estate		1,060,193			-
Other assets		360,509			182,285
Total assets	$	94,052,314		$	82,623,165
Liabilities and Shareholders’ Equity
Liabilities
Deposits
Non-interest bearing	$	2,299,125		$	3,462,092
Interest bearing		66,623,715			54,216,125
Total deposits		68,922,840			57,678,217
Federal Home Loan Bank advances		14,455,000			14,455,000
Accrued interest payable		308,567			301,016
Accounts payable and accrued liabilities		310,379			601,506
Total liabilities		83,996,786			73,035,739
Shareholders’ Equity
Preferred stock, no par value; 10,000,000 shares authorized; 1,000 shares of Series A
issued and outstanding at June 30, 2009, and		943,169			-
50 shares of Series B issued and outstanding at June 30, 2009		59,495			-
Common stock, no par value; 10,000,000 shares
authorized; 1,180,000 shares issued and outstanding at
June 30, 2009 and December 31, 2008		11,224,686			11,197,692
Accumulated other comprehensive loss		(424,643	)		(27,761	)
Accumulated deficit		(1,747,179	)		(1,582,505	)
Total shareholders’ equity		10,055,528			9,587,426
Total liabilities and shareholders’ equity	$	94,052,314		$	82,623,165

~~The accompanying notes are an integral part~~ Table of ~~these financial statements.~~ Contents

3BANKGREENVILLE FINANCIAL CORPORATION

~~BANKGREENVILLE~~PART I — FINANCIAL ~~CORPORATION Consolidated Statements of Operations (Unaudited)~~INFORMATION

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Interest income
Loans and fees	$	756,156		$	683,827		$	1,486,136		$	1,376,699
Investment securities and Federal Home Loan Bank stock		303,715			282,272			602,087			538,320
Federal funds sold		1,240			8,582			1,371			11,309
Total interest income		1,061,111			974,681			2,089,594			1,926,328
Interest expense
Deposits		444,202			493,748			849,077			973,528
Federal funds purchased		-			2,644			1,084			10,424
Federal Home Loan Bank borrowings		112,954			46,017			226,830			80,445
Total interest expense		557,156			542,409			1,076,991			1,064,397
Net interest income		503,955			432,272			1,012,603			861,931
Provision for loan losses		281,085			79,000			353,185			112,608
Net interest income after provision for loan losses		222,870			353,272			659,418			749,323
Non-interest income
Gains on investment securities sales and calls		87,002			-			143,098			38,924
Mortgage brokerage fees		16,687			1,700			30,121			5,245
Service charges on deposit accounts		18,014			18,860			34,816			26,744
Total non-interest income		121,703			20,560			208,035			70,913
Non-interest expense
Compensation and employee benefits		265,165			271,390			529,751			538,909
Occupancy and equipment		50,598			51,293			101,209			99,669
Data processing and related costs		59,853			53,673			121,151			100,599
Marketing, advertising and shareholder communications		12,218			11,620			24,153			22,043
Legal and audit		14,718			14,604			49,772			34,139
Other professional fees		9,924			13,586			18,954			19,474
Supplies, postage and telephone		9,667			10,683			20,204			18,612
Insurance		4,288			3,952			8,575			7,904
Credit related expenses		10,457			5,725			13,634			7,435
Courier and armored carrier service		3,162			4,756			7,876			9,440
Regulatory fees and FDIC insurance		69,256			12,341			93,586			23,954
Other		11,476			12,374			26,669			23,492
Total non-interest expense		520,782			465,997			1,015,534			905,670
Loss before income taxes		(176,209	)		(92,165	)		(148,081	)		(85,434	)
Income tax provision		-			-			-			-
Net loss	$	(176,209	)	$	(92,165	)	$	(148,081	)	$	(85,434	)
Dividends and net accretion of discount on preferred stock		16,108			-			23,556			-
Net income available to common shareholders		(192,317	)		(92,165	)		(171,637	)		(85,434	)
Basic and diluted loss per common share	$	(0.16	)	$	(0.08	)	$	(0.15	)	$	(0.07	)
Weighted average common shares outstanding-basic and diluted		1,180,000			1,180,000			1,180,000			1,180,000

Item 1. Financial Statements

~~The~~Consolidated ~~accompanying~~Balance ~~notes are an integral part of these financial statements.~~ Sheets

	September 30,			December 31,
	2009			2008
	(unaudited)			(audited)
Assets
Cash and due from banks	$	1,727,201		$	1,171,498
Federal funds sold	10,600,175			2,153,000
Total cash and cash equivalents	12,327,376			3,324,498
Investment securities, available for sale	24,720,885			21,149,100
Federal Home Loan Bank Stock	799,300			755,900
Loans, net of allowance for loan losses of $841,525 and $665,442 at September 30, 2009 and December 31, 2008, respectively	58,856,012			53,994,983
Property and equipment, net	2,708,377			2,772,907
Accrued interest receivable	458,403			443,492
Other real estate	2,110,341			—
Other assets	183,505			182,285
Total assets	$	102,164,199		$	82,623,165

Liabilities and Shareholders’ Equity
Liabilities
Deposits
Non-interest bearing	$	3,610,689		$	3,462,092
Interest bearing	74,815,205			54,216,125
Total deposits	78,425,894			57,678,217
Federal Home Loan Bank advances	12,455,000			14,455,000
Accrued interest payable	319,823			301,016
Accounts payable and accrued liabilities	269,741			601,506
Total liabilities	91,470,458			73,035,739

Shareholders’ Equity
Preferred stock, no par value; 10,000,000 shares authorized; 1,000 shares of Series A issued and outstanding at September 30, 2009, and	945,824			—
50 shares of Series B issued and outstanding at September 30, 2009	58,838			—
Common stock, no par value; 10,000,000 shares authorized; 1,180,000 shares issued and outstanding at September 30, 2009 and December 31, 2008	11,238,183			11,197,692
Accumulated other comprehensive income (loss)	205,288			(27,761		)
Accumulated deficit	(1,754,392		)	(1,582,505		)
Total shareholders’ equity	10,693,741			9,587,426
Total liabilities and shareholders’ equity	$	102,164,199		$	82,623,165

~~BANKGREENVILLE~~The ~~FINANCIAL~~accompanying ~~CORPORATION~~notes are an integral part of these financial statements.

~~Consolidated Statements of Changes In Shareholders’ Equity and Comprehensive Income (Loss) (Unaudited)~~3

										Accumulated
										other						Total
	Preferred Stock					Common Stock				comprehensive			Accumulated			shareholders’
	Shares		Amount			Shares		Amount		income (loss)			deficit			equity
Balance, December 31, 2007		-	$	-			1,180,000	$	11,142,669	$	57,834		$	(1,521,642	)	$	9,678,861
Stock compensation expense		-		-			-		28,029		-			-			28,029
Comprehensive loss:
Net loss		-		-			-		-		-			(85,434	)		(85,434	)
Unrealized losses on investment
securities available for sale,
no tax effect		-		-			-		-		(615,508	)		-			(615,508	)
Total comprehensive loss		-		-			-		-		-			-			(700,942	)
Balance, June 30, 2008		-	$	-			1,180,000	$	11,170,698	$	(557,674	)	$	(1,607,076	)	$	9,005,948
Balance, December 31, 2008		-	$	-			1,180,000	$	11,197,692	$	(27,761	)	$	(1,582,505	)	$	9,587,426
Issue Series A preferred stock at a
discount		1,000		939,629			-		-		-			-			939,629
Issue Series B preferred stock at a
premium		50		60,371			-		-		-			-			60,371
Accretion of Series A preferred
stock discount		-		3,540			-		-		-			(3,540	)		-
Amortization of Series B preferred
stock premium		-		(876	)		-		-		-			876			-
Dividends on preferred stock		-		-			-		-		-			(13,929	)		(13,929	)
Stock compensation expense		-		-			-		26,994		-			-			26,994
Comprehensive loss:
Net loss		-		-			-		-		-			(148,081	)		(148,081	)
Unrealized losses on investment
securities available for sale,
net of tax benefit		-		-			-		-		(396,882	)		-			(396,882	)
Total comprehensive loss		-		-			-		-		-			-			(544,963	)
Balance, June 30, 2009		1,050	$	1,002,664			1,180,000	$	11,224,686	$	(424,643	)	$	(1,747,179	)	$	10,055,528

Table of Contents

~~The~~BANKGREENVILLE ~~accompanying~~FINANCIAL ~~notes are an integral part of these financial statements.~~ CORPORATION

5Consolidated Statements of Operations

~~BANKGREENVILLE FINANCIAL CORPORATION~~(Unaudited)

Consolidated Statements of Cash FlowsFor the Six Months Ended (Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008		2009			2008
Interest income
Loans and fees	$	765,167		$	763,881	$	2,251,303		$	2,140,580
Investment securities and Federal Home Loan Bank stock	318,346			309,159		920,433			847,479
Federal funds sold	3,215			2,086		4,586			13,395
Total interest income	1,086,728			1,075,126		3,176,322			3,001,454

Interest expense
Deposits	461,346			471,600		1,310,423			1,445,128
Federal funds purchased	—			2,884		1,084			13,307
Federal Home Loan Bank borrowings	109,921			87,319		336,751			167,765
Total interest expense	571,267			561,803		1,648,258			1,626,200

Net interest income	515,461			513,323		1,528,064			1,375,254

Provision for loan losses	75,000			70,382		428,185			182,990

Net interest income after provision for loan losses	440,461			442,941		1,099,879			1,192,264

Non-interest income
Gains on investment securities sales and calls	29,183			—		172,281			38,924
Mortgage brokerage fees	8,975			—		39,096			5,245
Service charges on deposit accounts	20,746			14,787		55,662			41,531
Other income	9,074			—		8,974			—
Total non-interest income	67,978			14,787		276,013			85,700

Non-interest expense
Compensation and employee benefits	258,895			261,894		788,646			800,803
Occupancy and equipment	50,495			52,165		151,704			151,834
Data processing and related costs	61,913			57,861		183,064			158,460
Marketing, advertising and shareholder communications	8,364			5,992		32,517			28,035
Legal and audit	22,738			14,525		72,510			48,664
Other professional fees	13,043			11,601		31,997			31,075
Supplies, postage and telephone	9,150			8,077		29,354			26,689
Insurance	4,672			4,505		13,247			12,409
Credit related expenses	15,148			1,168		28,782			8,603
Courier and armored carrier service	1,779			4,795		9,655			14,235
Regulatory fees and FDIC insurance	44,610			15,208		138,196			39,162
Other	9,223			15,229		35,892			38,721
Total non-interest expense	500,030			453,020		1,515,564			1,358,690

Income (loss) before income taxes	8,409			4,708		(139,672		)	(80,726		)

Income tax provision	—			—		—			—

Net income (loss)	$	8,409		$	4,708	$	(139,672	)	$	(80,726	)
Dividends and net accretion of discount on preferred stock	15,926			—		39,482			—
Net income (loss) available to common shareholders	(7,517		)	4,708		(179,154		)	(80,726		)
Basic and diluted income (loss) per common share	$	—		$	—	$	(0.15	)	(0.07		)
Weighted average common shares outstanding-basic and diluted	1,180,000			1,180,000		1,180,000			1,180,000

	June 30,			June 30,
	2009			2008
Operating activities
Net loss	$	(148,081	)	$	(85,434	)
Provision for loan losses		353,185			112,608
Stock compensation expense		26,994			28,029
Depreciation		47,800			52,473
Net amortization of premiums on investment securities		25,912			8,210
Gains on sales and calls of investment securities		(143,098	)		(38,924	)
Increase in interest receivable		(76,549	)		(53,218	)
Increase in other assets		(178,224	)		(6,799	)
Increase (decrease) in accrued interest payable		7,551			(118,034	)
Decrease in accounts payable and accrued liabilities		(291,127	)		(180,433	)
Net cash used for operating activities		(375,637	)		(281,522	)
Investing activities
Increase in loans, net		(6,098,401	)		(10,449,995	)
Purchase of investment securities available for sale		(12,802,062	)		(10,524,896	)
Proceeds from sales of investment securities available for sale		9,237,094			3,356,522
Proceeds from called investment securities available for sale		-			2,748,575
Proceeds from principal paydowns on mortgage-backed securities		1,391,875			841,724
Purchase of FHLB Stock		(43,400	)		(275,900	)
Purchase of property and equipment		(6,898	)		(5,121	)
Net cash used for investing activities		(8,321,792	)		(14,309,091	)
Financing activities
Proceeds from issuance of preferred stock		1,000,000			-
Preferred stock dividend		(13,929	)		-
Increase in deposits, net		11,244,623			11,721,698
Proceeds from Federal Home Loan Bank advances		-			5,415,000
Decrease in federal funds purchased		-			(1,648,000	)
Net cash provided by financing activities		12,230,694			15,488,698
Net increase in cash and cash equivalents		3,533,265			898,085
Cash and cash equivalents, beginning of period		3,324,498			830,543
Cash and cash equivalents, end of period	$	6,857,763		$	1,728,628
Supplemental information
Cash paid for:
Interest	$	1,069,440		$	1,182,431
Non-cash activities:
Loans transferred to other real estate		1,060,193			-
Loans charged-off		248,749			-
Unrealized losses on investment securities		(396,882	)		(615,508	)
Net accretion of discount on preferred stock		2,664			-

The accompanying notes are an integral part of these financial statements.

~~The accompanying notes are an integral part of these financial statements.~~ 4

6Table of Contents

BANKGREENVILLE FINANCIAL CORPORATION

~~Notes~~Consolidated Statements toof ~~Consolidated~~Changes ~~Financial~~In ~~Statements~~Shareholders’ Equity

~~NOTE~~and 1Comprehensive –Income ~~NATURE OF BUSINESS AND BASIS OF PRESENTATION~~(Loss)

~~BankGreenville Financial Corporation~~ (~~the “Company”~~Unaudited) is a South Carolina corporation organized to operate as a bank holding company pursuant to the Federal Bank Holding Company Act of 1956 and the South Carolina Bank Holding Company Act, and to own and control all of the capital stock of BankGreenville (the “Bank”). The Bank is a state chartered institution organized under the laws of South Carolina to conduct general banking business in Greenville, South Carolina. From our inception on March 18, 2005 and before opening the Bank for business on January 30, 2006, we engaged in organizational and pre-opening activities necessary to obtain regulatory approvals and to prepare our subsidiary, the Bank, to commence business as a financial institution. The Company sold 1,180,000 shares of its common stock at $10.00 per share and raised $11.80 million in its initial public offering. Proceeds, net of brokerage commissions and other offering costs totaled approximately $11.04 million and the Bank was capitalized with $11 million of the net proceeds. In addition, on February 13, 2009 the Company issued shares of its Series A and Series B preferred stock to the U.S. Treasury under the Treasury’s Capital Purchase Program as part of the Emergency Economic Stabilization Act of 2008. The Bank is primarily engaged in the business of accepting deposits, insured by the FDIC, and providing commercial, consumer and mortgage loans to the general public in Greenville County, South Carolina.

The following is a description of the more significant accounting and reporting policies that the Company follows in preparing and presenting consolidated financial statements.

	Preferred Stock				Common Stock			Accumulated other comprehensive			Accumulated			Total
	Shares	Amount			Shares	Amount		income (loss)			deficit			shareholders’ equity

Balance, December 31, 2007	—	$	—		1,180,000	$	11,142,669	$	57,834		$	(1,521,642	)	$	9,678,861

Stock compensation expense	—	—			—	41,526		—			—			41,526

Comprehensive loss:

Net loss	—	—			—	—		—			(80,726		)	(80,726		)

Unrealized losses on investment securities available for sale, no tax effect	—	—			—	—		(619,323		)	—			(619,323		)

Total comprehensive loss	—	—			—	—		—			—			(700,049		)

Balance, September 30, 2008	—	$	—		1,180,000	$	11,184,195	$	(561,489	)	$	(1,602,368	)	$	9,020,338

Balance, December 31, 2008	—	$	—		1,180,000	$	11,197,692	$	(27,761	)	$	(1,582,505	)	$	9,587,426

Issue Series A preferred stock at a discount	1,000	939,629			—	—		—			—			939,629

Issue Series B preferred stock at a premium	50	60,371			—	—		—			—			60,371

Accretion of Series A preferred stock discount	—	6,195			—	—		—			(6,195		)	—

Amortization of Series B preferred stock premium	—	(1,533		)	—	—		—			1,533			—

Dividends on preferred stock	—	—			—	—		—			(27,553		)	(27,553		)

Stock compensation expense	—	—			—	40,491		—			—			40,491

Comprehensive loss:

Net loss	—	—			—	—		—			(139,672		)	(139,672		)

Unrealized gains on investment securities available for sale, net of income tax	—	—			—	—		233,049			—			233,049

Total comprehensive income	—	—			—	—		—			—			93,377

Balance, September 30, 2009	1,050	$	1,004,662		1,180,000	$	11,238,183	$	205,288		$	(1,754,392	)	$	10,693,741

~~Basis~~The accompanying notes are an integral part of ~~Presentation~~these financial statements.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. 5

~~The~~Table ~~accompanying consolidated financial statements include the accounts~~ of the Company and its wholly-owned subsidiary, the Bank. In consolidation, all significant intercompany transactions have been eliminated. The accounting and reporting policies conform to accounting principles generally accepted in the United States of America and to general practices in the banking industry. The Company uses the accrual basis of accounting. Contents

~~Operating results~~BANKGREENVILLE ~~for~~FINANCIAL the six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission. CORPORATION

~~In accordance~~Consolidated ~~with~~Statements ~~SFAS~~of ~~165,~~Cash “Subsequent Events”, issued in May 2009 and effective for periods ending after June 15, 2009, management performed an evaluation to determine whether or not there have been any subsequent events since the balance sheet date. The evaluation was performed through August 12, 2009, the date on which the Company’s 10-Q was issued as filed with the Securities and Exchange Commission. Flows

~~NOTE~~For the 2Nine –Months ~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~Ended

A summary of the Company’s significant accounting policies is included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2008. For further information, refer to the financial statements and footnotes thereto included in that filing. Accounting standards that have been issued or proposed by the Financial Accounting Standards Board (~~“FASB”~~Unaudited) ~~that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.~~

Net Loss per Common Share

	September 30, 2009			September 30, 2008
Operating activities
Net loss	$	(139,672	)	$	(80,726	)
Provision for loan losses	428,185			182,990
Stock compensation expense	40,491			41,526
Depreciation	71,428			78,578
Net amortization of premiums on investment securities	36,547			8,166
Gains on sales and calls of investment securities	(172,281		)	(38,924		)
Increase in interest receivable	(14,911		)	(102,232		)
Increase in other assets	(1,220		)	(292,679		)
Increase (decrease) in accrued interest payable	18,807			(96,981		)
(Decrease) increase in accounts payable and accrued liabilities	(331,765		)	710,674
Net cash (used for) provided by operating activities	(64,391		)	410,392

Investing activities
Increase in loans, net	(7,399,555		)	(16,408,726		)
Purchase of investment securities available for sale	(17,440,919		)	(11,178,725		)
Proceeds from sales of investment securities available for sale	10,436,892			3,356,522
Proceeds from called investment securities available for sale	2,250,000			3,748,575
Proceeds from principal pay-downs on mortgage-backed securities	1,551,025			1,460,139
Purchase of FHLB Stock	(43,400		)	(572,900		)
Purchase of property and equipment	(6,898		)	(5,120		)
Net cash used for investing activities	(10,652,855		)	(19,600,235		)

Financing activities
Proceeds from issuance of preferred stock	1,000,000			—
Payment of preferred stock dividend	(27,553		)	—
Increase in deposits, net	20,747,677			10,717,797
(Repayment of) proceeds from Federal Home Loan Bank advances	(2,000,000		)	12,015,000
Decrease in federal funds purchased	—			(1,648,000		)
Net cash provided by financing activities	19,720,124			21,084,797
Net increase in cash and cash equivalents	9,002,878			1,894,954
Cash and cash equivalents, beginning of period	3,324,498			830,543
Cash and cash equivalents, end of period	$	12,327,376		$	2,725,497

Supplemental information
Cash paid for:
Interest	$	1,629,451		$	1,723,181
Non-cash activities:
Loans transferred to other real estate	2,110,341			—
Loans charged-off	252,102			3,279
Unrealized gains (losses) on investment securities available for sale	233,049			(619,323		)
Net accretion of discount on preferred stock	4,662			—

~~Basic loss~~The ~~per~~accompanying ~~common~~notes share represents net loss to common shareholders divided by the weighted-average number of common shares outstanding during the period. Potential common shares that may be issued by the Company relate to outstanding stock options and warrants, and are ~~determined~~an ~~using~~integral ~~the~~part ~~treasury stock method. For the quarters and six months ended June 30, 2009 and 2008, the stock options and warrants were not “in-the-money”, as the exercise price~~ of ~~the stock options and warrants exceeded the weighted average fair~~these ~~market~~financial ~~value of the common stock~~statements. ~~The outstanding stock options and warrants were anti-dilutive, and basic and dilutive shares and loss per common share, respectively, were the same.~~

~~Stock~~Table ~~Compensation~~of ~~Plans~~Contents

~~Upon completion~~BANKGREENVILLE ofFINANCIAL the offering, the Company issued stock warrants to the organizing directors for the purchase of three shares of common stock at $10.00 per share for every four shares purchased in the stock offering, up to a maximum of 10,000 warrants per director. The Company issued a total of 107,500 warrants, all of which immediately vested upon completion of the offering. Of these warrants, 10,000 warrants expired in February 2008, due to the death of one of our organizing directors in 2007. The average fair value per share of warrants issued amounted to approximately $1.83. The fair value of each warrant granted was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions used for grants: expected volatility of 6.0%, risk-free interest rate of 4.0% and expected lives of five years. CORPORATION

~~In addition,~~Notes ~~during~~to ~~2006~~Consolidated ~~the~~Financial Company adopted a stock option plan. The stock options for 212,400 shares which are authorized under the plan vest over a five-year period from the date of grant and have a contractual term of ten years. Statements

OnNOTE ~~January~~ 1, ~~2006,~~— ~~the~~NATURE ~~Company~~OF ~~adopted~~BUSINESS ~~the~~AND ~~fair~~BASIS ~~value~~OF recognition provisions of FASB SFAS No. 123(R), “Accounting for Stock-Based Compensation”, to account for compensation costs under its stock option plan. Previously, stock option plans were accounted for using the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees (as amended)” (“APB 25”). Under the intrinsic value method prescribed by APB 25, the Company would not have recognized compensation cost for stock options because the option exercise price in its plan equals the market price on the date of grant. In adopting SFAS No. 123(R), the Company elected to use the modified prospective method to account for the transition from the intrinsic value method to the fair value recognition method. Under the modified prospective method, compensation cost is recognized from the grant date for all new stock options granted and for any outstanding unvested awards, applying the fair value method to those awards as of the date of grant, and is expensed over the employee’s requisite service period. PRESENTATION

~~There were~~BankGreenville noFinancial ~~options~~Corporation (the ~~forfeited~~“Company”) ~~and~~is noa ~~options~~South ~~granted~~Carolina ~~during~~corporation ~~the~~organized ~~six~~to ~~months~~operate ~~ended~~as ~~June~~a ~~30,~~bank ~~2009.~~holding Atcompany ~~June~~pursuant ~~30,~~to ~~2009~~the ~~and~~Federal ~~December~~Bank ~~31,~~Holding ~~2008, the~~ Company ~~had~~Act ~~95,900~~of ~~options~~1956 ~~outstanding~~and atthe ~~$10.00~~South ~~per~~Carolina ~~share.~~Bank ~~Vested~~Holding ~~options~~Company ~~amounted~~Act, and to ~~57,240~~own and ~~38,060~~control atall ~~June~~of ~~30,~~the capital ~~2009~~stock ~~and December~~of ~~31,~~BankGreenville ~~2008,~~(the ~~respectively~~“Bank”). ~~Options~~The ~~outstanding~~Bank atis ~~June 30, 2009 have~~ a ~~weighted~~state chartered ~~average~~institution ~~remaining~~organized ~~contractual~~under ~~term~~the laws of ~~approximately~~South ~~6.75~~Carolina ~~years.~~to ~~Total~~conduct ~~unrecognized~~general ~~compensation~~banking ~~cost~~business ~~related~~in toGreenville, ~~non-vested~~South ~~options~~Carolina. ~~granted~~From asour ofinception ~~June~~on 30March 18, 2005 ~~2009~~and ~~was~~before ~~$80~~opening the Bank for business on January 30,~~557~~ 2006, we engaged in organizational and ispre-opening ~~expected~~activities necessary to beobtain regulatory ~~expensed~~approvals ~~ratably~~and ~~over~~to prepare the ~~remaining~~Bank ~~vesting~~to ~~periods~~commence ofbusiness ~~the~~as ~~stock~~a ~~options~~financial institution. ~~Net~~The ~~loss,~~Company assold ~~reported~~1,180,000 ~~included~~shares ~~stock-based~~of ~~employee~~its ~~compensation~~common ~~expense~~stock ofat $~~13,497~~10.00 ~~for~~per ~~the~~share ~~three~~and ~~months~~raised ~~ended~~$11.80 ~~June~~million 30in its initial public offering. Proceeds, ~~2009~~net of brokerage commissions and ~~$26~~other offering costs,~~994~~ ~~for~~totaled approximately $11.04 million and the ~~six~~Bank ~~month~~was ~~period ended~~capitalized ~~June~~with ~~30,~~$11 ~~2009,~~million ~~and~~of the net ~~loss~~proceeds. In addition, ason ~~reported~~February 13, 2009 ~~included~~the ~~stock-based~~Company ~~employee~~issued ~~compensation expense~~shares of ~~$13,497~~its Series A and ~~$28,029~~Series B ~~for~~preferred stock to the ~~three~~U.S. ~~months~~Treasury ~~and~~under ~~six~~the ~~months~~Treasury’s ~~ended~~Capital ~~June~~Purchase ~~30,~~Program ~~2008,~~as ~~respectively.~~part ~~The~~of ~~exercise~~the orEmergency ~~conversion~~Economic ~~ratio~~Stabilization Act of ~~all~~2008. The ~~stock~~Bank ~~options~~is ~~granted~~primarily ~~was~~engaged ~~1:1~~in ~~and~~the business of accepting deposits, insured by the ~~aggregate~~FDIC, ~~intrinsic~~and ~~value~~providing ofcommercial, consumer and mortgage loans to the ~~stock~~general ~~options~~public ~~was~~in ~~zero~~Greenville ~~for~~County, ~~both~~South ~~periods~~Carolina.

~~Statement~~The following is a description of ~~Cash~~the ~~Flows~~more significant accounting and reporting policies that the Company follows in preparing and presenting consolidated financial statements.

~~For purposes~~Basis of ~~reporting cash flows, cash equivalents include amounts due from banks and~~ ~~federal funds sold. Generally, federal funds are sold for one-day periods. Federal funds sold were $6,001,218 as of June 30, 2009 and $1,078,000 at June 30, 2008.~~ Presentation

~~Investment~~The ~~Securities~~accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

~~Investment~~The ~~securities are accounted for in accordance with SFAS No. 115, “Accounting~~accompanying ~~for~~consolidated ~~Certain~~financial ~~Investments~~statements ininclude ~~Debt and Equity Securities.” Management classifies securities at~~ the ~~time~~accounts of ~~purchase~~the ~~into~~Company ~~securities held to maturity, trading securities~~ and ~~securities available for sale. Securities held to maturity are securities which the~~its ~~Company~~wholly-owned ~~has the positive intent and ability to hold to maturity~~subsidiary, ~~and are reported at amortized cost. Trading securities are purchased and held principally for~~ the ~~purpose of selling them in the near future and are reported at fair value, with unrealized gains and losses included in earnings~~Bank. ~~Securities available for sale are securities that may be sold~~ In ~~under certain conditions~~consolidation, ~~and~~all ~~are~~significant ~~reported~~intercompany attransactions ~~fair~~have ~~value, with unrealized gains and losses~~been ~~excluded~~eliminated. The ~~from~~accounting ~~earnings~~ and ~~reported as a separate component of shareholders’ equity~~reporting aspolicies ~~accumulated~~conform ~~other~~to ~~comprehensive~~accounting ~~income~~principles ~~(loss).~~generally Ataccepted ~~June~~in ~~30, 2009,~~ the ~~Company’s~~United ~~investment~~States ~~securities were classified as available for sale. The amortization~~ of ~~premiums~~ America and ~~accretion of discounts on investment securities are recorded as adjustments~~ to ~~interest~~ ~~income.~~general ~~Gains~~practices orin ~~losses on sales of investment securities are based on~~ the ~~net proceeds~~banking ~~and the adjusted carrying amount of the securities sold using the specific identification method~~industry. ~~Unrealized~~The ~~losses on securities, reflecting a decline in value or~~Company ~~impairment~~uses ~~judged by~~ the ~~Company~~accrual tobasis ~~be other than temporary, are charged to earnings in the consolidated statements~~ of ~~operations~~accounting.

~~NOTE~~Operating 3results –for ~~FAIR~~the nine ~~VALUE~~months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission.

~~Effective~~Subsequent January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. SFAS 157 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, Events

8In accordance with FASB ASC 855, “Subsequent Events”, issued in May 2009 and effective for periods ending after June 15, 2009, management performed an evaluation to determine whether or not there have been any subsequent events since the balance sheet date. The evaluation was performed through November 12, 2009, the date on which the Company’s 10-Q was issued as filed with the Securities and Exchange Commission.

~~whether~~NOTE ~~the~~2 ~~measurements are made on~~— aSUMMARY ~~recurring~~OF ~~basis~~SIGNIFICANT ~~(for~~ACCOUNTING ~~example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans).~~ POLICIES

~~SFAS 157~~A ~~defines~~summary ~~fair~~of ~~value as~~ the ~~exchange~~Company’s significant ~~price~~accounting ~~that~~policies ~~would~~is beincluded ~~received~~in ~~for~~our anAnnual ~~asset~~Report oron ~~paid~~Form 10-K tofiled ~~transfer~~with athe ~~liability~~Securities ~~(an~~and ~~exit~~Exchange ~~price)~~Commission infor the ~~principal~~year orended ~~most~~December 31, 2008. For ~~advantageous~~further ~~market~~information, ~~for~~refer to the ~~asset~~financial orstatements ~~liability~~and infootnotes anthereto ~~orderly~~included ~~transaction~~in ~~between~~that ~~market participants on the measurement date~~filing. Accounting ~~SFAS~~standards ~~157~~that ~~also~~have ~~establishes~~been aissued ~~fair value hierarchy which requires an~~or ~~entity~~proposed toby ~~maximize~~ the ~~use~~Financial ofAccounting ~~observable~~Standards ~~inputs~~Board ~~and~~(“FASB”) ~~minimize~~that ~~the~~do ~~use of unobservable~~not ~~inputs~~require ~~when~~adoption ~~measuring~~until ~~fair~~a ~~value.~~future ~~The~~date ~~standard~~are ~~describes~~not ~~three~~expected ~~levels~~to ofhave ~~inputs~~a ~~that~~material ~~may~~impact beon ~~used~~the toconsolidated ~~measure~~financial ~~fair~~statements ~~value:~~upon adoption.

Level 1			Quoted prices in active markets for identical assets or liabilities. Level 1 assets and
			liabilities include debt and equity securities and derivative contracts that are traded in
			an active exchange market, as well as U.S. Treasury, other U.S. Government and agency
			mortgage-backed debt securities that are highly liquid and are actively traded in
			over-the-counter markets.
Level 2			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 for substantially the full
			term of the assets or liabilities. Level 2 assets and liabilities include debt securities
			with quoted prices that are traded less frequently than exchange-traded instruments and
			derivative contracts whose value is determined using a pricing model with inputs that are
			observable in the market or can be derived principally from or corroborated by observable
			market data. This category generally includes certain derivative contracts and impaired
			loans.
Level 3			Unobservable inputs that are supported by little or no market activity and that are
			significant to the fair value of the assets or liabilities. Level 3 assets and liabilities
			include financial instruments whose value is determined using pricing models, discounted
			cash flow methodologies, or similar techniques, as well as instruments for which the
			determination of fair value requires significant management judgment or estimation. For
			example, this category generally includes certain private equity investments, retained
			residual interests in securitizations, residential mortgage servicing rights, and
			highly-structured or long-term derivative contracts.

Net Income (Loss) per Common Share

~~Available~~Basic income (loss) per ~~for~~common ~~sale~~share ~~investment~~represents ~~securities~~net income (~~$23,042,497~~loss) atto ~~June~~common ~~30,~~shareholders ~~2009)~~divided ~~are~~by the weighted-average ~~only~~number ~~assets~~of ~~whose~~common shares outstanding during the period. ~~fair~~Potential ~~values~~common ~~are~~shares ~~measured~~that onmay abe ~~recurring~~issued ~~basis~~by ~~using~~the ~~Level~~Company 1relate ~~inputs~~to ~~(active~~outstanding stock ~~market~~options ~~quotes)~~and warrants and are determined using the treasury stock method. For the quarters and nine months ended September 30, 2009 and 2008, the stock options and warrants were not “in-the-money”, as the exercise price of the

The Company is predominantly a collateral-based lender with real estate serving as collateral on a substantial majority of loans. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be level 2 inputs. The aggregate carrying amount of impaired loans at June 30, 2009 was $1.2 million. 7

~~Certain assets~~Table such as Other Real Estate are measured at fair value less cost to sell. The Company considers such fair values to be level 2 inputs. Management believes the fair value component in its valuation follows the provisions of ~~SFAS 157. The carrying amount of Other Real Estate was $1.1 million at June 30, 2009.~~ Contents

~~The Company~~stock ~~has~~options ~~no assets or liabilities whose fair values are measured using level 3 inputs~~ and warrants ~~has~~exceeded nothe ~~liabilities~~weighted ~~carried~~average at fair ~~value~~market ~~or measured at fair~~ value onof athe ~~nonrecurring~~common ~~basis~~stock. The ~~table~~outstanding ~~below~~stock ~~presents~~options ~~assets~~ and warrants ~~liabilities~~were ~~measured~~anti-dilutive, atand ~~fair~~basic ~~value~~and ~~(in thousands)~~dilutive onshares aand ~~recurring~~loss ~~basis~~per atcommon share, ~~June 30~~respectively, ~~2009.~~were the same.

			Total			Level 1			Level 2			Level 3
Investment securities available for sale			$	23,042		$	23,042			-			-

Stock Compensation Plans

~~The~~Upon completion of the ~~table~~offering, ~~below~~the ~~presents~~Company ~~assets~~issued ~~and~~stock ~~liabilities~~warrants ~~measured~~to the organizing directors for the purchase of three shares of common stock at $10.00 per share for every four shares purchased in the stock offering, up to a maximum of 10,000 warrants per director. The Company issued a total of 107,500 warrants, all of which immediately vested upon completion of the offering. Of these warrants, 10,000 expired in February 2008 due to the death of one of our organizing directors in 2007. The average fair value ~~(in~~per ~~thousands)~~share of warrants issued amounted to approximately $1.83. The fair value of each warrant granted was estimated on athe date of grant using the Black-Scholes pricing model with the ~~nonrecurring~~following ~~basis~~assumptions atused ~~June~~for 30grants: expected volatility of 6.0%, risk-free ~~2009~~interest rate of 4.0% and expected lives of five years.

			Total			Level 1			Level 2			Level 3
Impaired loans			$	1,168			-		$	1,168			-
Other real estate				1,126			-			1,126			-

In addition, during 2006 the Company adopted a stock option plan. The stock options for 212,400 shares which are authorized under the plan vest over a five-year period from the date of grant and have a contractual term of ten years.

~~The~~On January 1, 2006, ~~carrying~~the ~~amounts~~Company ~~and~~adopted ~~estimated~~the fair ~~values~~value recognition provisions of FASB ASC 718, “Accounting for Stock-Based Compensation”, to account for compensation costs under its stock option plan. Previously, stock option plans were accounted for using the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees (inas ~~thousands~~amended)” (“APB 25”). Under the intrinsic value method prescribed by APB 25, the Company would not have recognized compensation cost for stock options because the option exercise price in its plan equals the market price on the date of grant. In adopting ASC 718, the Company’s ~~financial~~elected to ~~instruments~~use atthe ~~December~~modified 31prospective method to account for the transition from the intrinsic value method to the fair value recognition method. Under the modified prospective method, compensation ~~2008~~cost is recognized from the grant date for all new stock options granted and ~~June~~for 30any outstanding unvested awards, ~~2009~~applying ~~were~~the fair value method to those awards as ~~follows:~~of the date of grant, and is expensed over the employee’s requisite service period.

9There were no options forfeited and no options granted during the nine months ended September 30, 2009. At September 30, 2009 and December 31, 2008, the Company had 95,900 options outstanding at $10.00 per share. Vested options amounted to 57,240 and 38,060 at September 30, 2009 and December 31, 2008, respectively. Options outstanding at September 30, 2009 have a weighted average remaining contractual term of approximately 6.50 years. Total unrecognized compensation cost related to non-vested options granted as of September 30, 2009 was $67,060 and is expected to be expensed ratably over the remaining vesting periods of the stock options. Net loss, as reported, included stock-based employee compensation expense of $13,497 for the three months ended September 30, 2009 and $40,491for the nine month period ended September 30, 2009, and net loss, as reported, included stock-based employee compensation expense of $13,497 and $41,526 for the three months and nine months ended September 30, 2008, respectively. The exercise or conversion ratio of all stock options granted was 1:1 and the aggregate intrinsic value of the stock options was zero for both periods.

	June 30, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Assets:
Cash and due from banks	$	857	$	857	$	1,171	$	1,171
Federal funds sold		6,001		6,001		2,153		2,153
Investment securities available for sale		23,042		23,042		21,149		21,149
Federal Home Loan Bank stock		799		799		756		756
Loans, net		58,680		55,859		53,995		50,014
Other real estate		1,060		1,126		-		-
Liabilities:
Deposits		68,923		68,820		57,678		57,583
Federal funds purchased		-		-		1,648		1,648
Federal Home Loan Bank borrowings		14,455		14,202		14,455		13,979

Statement of Cash Flows

~~Item~~For 2.purposes ~~Management’s~~of ~~Discussion~~reporting cash flows, cash equivalents include amounts due from banks and ~~Analysis~~federal offunds sold. Generally, ~~Financial~~federal ~~Condition~~funds are sold for one-day periods. Federal funds sold were $10,600,175 and ~~Results~~$1,936,000 at of ~~Operations~~September 30, 2009 and 2008, respectively.

Investment The following discussion reviews our results of operations and assesses our financial condition. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements. The commentary should be read in conjunction with the discussion of forward-looking statements, the financial statements, and the related notes and the other statistical information included in this report and in our 2008 Form 10-K. Securities

~~DISCUSSION~~Investment OFsecurities ~~FORWARD~~are accounted for in accordance with FASB ASC 320 “Investments-~~LOOKING~~Debt ~~STATEMENTS~~and Equity Securities.” Management classifies securities at the time of purchase into securities held to maturity, trading securities and securities available for sale. Securities held to maturity are securities which the Company has the positive intent and ability to hold to maturity, and are reported at amortized cost. Trading securities are purchased and held principally for the purpose of selling them in the near future and are reported at fair value, with unrealized gains and losses included in earnings. Securities available for sale are securities that may be sold under certain conditions, and are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity as accumulated other comprehensive income (loss). At September 30, 2009, the Company’s investment securities were classified as available for sale. The amortization of premiums and accretion of discounts on investment securities are recorded as adjustments to interest income. Gains or losses on sales of investment securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method. Unrealized losses on securities, reflecting a decline in value or impairment judged by the Company to be other than temporary, are charged to earnings in the consolidated statements of operations.

~~This~~Management’s report contains “forward-looking statements” relating to, without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of management, as well as assumptions made by and information currently available to management. The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are intended to identify forward-looking statements. Our actual results may differ materially from the results discussed in the forward-looking statements, and our operating performance each quarter is subject to various risks and uncertainties that are discussed in detail in our 2008 Form 10-K under the “Risk Factors” heading as filed with the Securities and Exchange Commission (the “SEC”) and that include, without limitation, the following: Estimates

•The preparation ~~reduced~~of ~~earnings~~consolidated ~~due~~financial tostatements ~~higher~~in ~~credit~~conformity ~~losses~~with generally accepted ~~and~~accounting ~~specifically~~principles ~~because~~requires ~~losses~~management ~~in the sectors of our loan portfolio secured by real estate are greater than expected due~~ to ~~economic~~make ~~factors,~~estimates ~~including~~and assumptions ~~declining~~that ~~real~~affect ~~estate~~the ~~values,~~reported ~~increasing~~amounts ~~interest~~of ~~rates,~~assets ~~increasing~~and ~~unemployment,~~liabilities orand disclosure ~~changes in payment behavior or other factors;~~of

~~• reduced earnings due to higher credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral;~~8

•Table ~~the amount~~ of ~~our real estate-based loan portfolio collateralized by real estate, and the weakness in the commercial real estate market;~~Contents

•contingent ~~our~~assets ~~short~~and liabilities ~~operating~~at ~~history;~~the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

~~• significant increases in competitive pressure in the banking and financial services industries;~~Reclassifications

•Certain captions ~~changes~~and amounts in the ~~interest~~prior ~~rate~~financial ~~environment~~statements ~~which~~were ~~could~~reclassified ~~reduce~~to conform ~~anticipated~~to 2009 presentation. Such reclassifications had no effect on previously reported net income (loss) or ~~actual~~on shareholders’ ~~margins;~~equity.

•NOTE ~~our~~3 ~~ability~~— FAIR ~~to control costs, expenses and loan delinquency rates;~~VALUE

•Effective ~~changes~~January 1, 2008, the Company adopted FASB ASC 820 “Fair Value Measurements and Disclosure” (“ASC 820”) which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. ASC 820 requires disclosures about the fair value of assets and liabilities recognized in ~~political~~the ~~conditions~~balance orsheet in periods subsequent to initial recognition, whether the ~~legislative~~measurements are made on a recurring basis (for example, available for sale investment securities) or on ~~regulatory~~a ~~environment;~~nonrecurring basis (for example, impaired loans).

•ASC ~~general~~820 ~~economic~~defines ~~conditions,~~fair value ~~either~~as ~~nationally~~the exchange price that would be received for an asset or ~~regionally~~paid ~~and~~to transfer ~~especially~~a liability (an exit price) in ~~our~~the ~~primary~~principal ~~service~~or ~~area,~~most ~~becoming~~advantageous market ~~less~~for ~~favorable~~the ~~than~~asset ~~expected~~or ~~resulting~~liability in, ~~among~~an ~~other~~orderly ~~things,~~transaction between market participants on the measurement date. ASC 820 also establishes a ~~deterioration~~fair invalue hierarchy ~~credit~~which ~~quality;~~requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

• changes occurring in business conditions and inflation;

Level 1	Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2	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 for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts and impaired loans.

Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly-structured or long-term derivative contracts.

•Available ~~changes~~for insale investment ~~technology;~~securities ($24,720,885 at September 30, 2009) are the only assets whose fair values are measured on a recurring basis using Level 1 inputs (active market quotes).

•The ~~changes~~Company inis predominantly ~~deposit~~a ~~flows;~~collateral-based lender with real estate serving as collateral on a substantial majority of loans. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be level 2 inputs. The aggregate carrying amount of impaired loans at September 30, 2009 was $2.7 million.

•Certain assets such as other real estate and repossessed collateral are measured at fair value less cost to sell. The Company considers such fair values to be level 2 inputs. Management believes the ~~lack~~fair value component in its valuation follows the provisions of ~~seasoning~~ASC 820. The carrying amounts of ~~our~~other ~~loan~~real ~~portfolio;~~estate and repossessed collateral were $2.1 million and $30 thousand, respectively, at September 30, 2009.

•The ~~changes~~Company inhas ~~monetary~~no assets or liabilities whose fair values are measured using level 3 inputs and ~~tax~~has ~~policies;~~no liabilities carried at fair value or measured at fair value on a nonrecurring basis. The table below presents assets and liabilities measured at fair value (in thousands) on a recurring basis at September 30, 2009.

~~• the level of allowance for loan loss;~~9

•Table ~~the rate~~ of ~~delinquencies and amounts of charge-offs;~~Contents

• the rates of loan growth;

	Total		Level 1		Level 2	Level 3
Investment securities available for sale	$	24,721	$	24,721	—	—

•The ~~adverse~~table ~~changes~~below inpresents assets ~~asset~~and ~~quality~~liabilities ~~and~~measured ~~resulting~~at ~~credit~~fair ~~risk-related~~value ~~losses~~(in ~~and~~thousands) ~~expenses;~~on a nonrecurring basis at September 30, 2009.

• loss of consumer confidence and economic disruptions resulting from terrorist activities;

	Total		Level 1	Level 2		Level 3
Impaired loans	$	2,735	—	$	2,735	—
Other real estate	2,110		—	2,110		—
Repossessed collateral	30		—	30		—

•The ~~changes~~carrying amounts and estimated fair values (in thousands), of the ~~securities~~Company’s ~~markets;~~financial instruments at December 31, 2008 and September 30, 2009 were as follows:

• other risks and uncertainties detailed from time to time in our filings with the SEC.

	September 30, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial Assets:
Cash and due from banks	$	1,727	$	1,727	$	1,171	$	1,171
Federal funds sold	10,600		10,600		2,153		2,153
Investment securities available for sale	24,721		24,721		21,149		21,149
Federal Home Loan Bank stock	799		799		756		756
Loans, net	58,856		55,818		53,995		50,014
Other real estate	2,110		2,110		—		—
Repossessed collateral	30		30		—		—
Financial Liabilities:
Deposits	78,426		78,034		57,678		57,583
Federal funds purchased	—		—		—		—
Federal Home Loan Bank borrowings	12,455		12,372		14,455		13,979

~~The above~~Item ~~risks are exacerbated by the recent developments in national and international financial markets, and we are unable to predict what effect these uncertain market conditions will have on our Company~~2. ~~During~~Management’s ~~2008~~Discussion and ~~thus~~Analysis ~~far~~of inFinancial ~~2009,~~Condition ~~the capital~~ and ~~credit~~ ~~markets~~Results ~~have experienced unprecedented levels~~ of ~~extended volatility and disruption~~Operations. ~~There can be no assurance~~

The following discussion reviews our results of operations and assesses our financial condition. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements. The commentary should be read in conjunction with the discussion of forward-looking statements, the financial statements, and the related notes and the other statistical information included in this report and in our 2008 Form 10-K.

~~that these unprecedented recent~~DISCUSSION ~~developments~~OF ~~will~~FORWARD-LOOKING ~~not materially and adversely affect our business, financial condition and results of operations.~~ STATEMENTS

~~All~~ This report contains “forward-looking statements” inrelating ~~this~~to, ~~report~~without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of management, as well as assumptions made by and information currently available to usmanagement. The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” and “intend,” as ofwell as other similar words ~~the~~and ~~date~~expressions of ~~this~~the ~~report~~future, are intended to identify forward-looking statements. WeOur ~~undertake~~actual noresults ~~obligation~~may todiffer ~~publicly~~materially ~~update~~from orthe ~~otherwise~~results ~~revise~~discussed ~~any~~in the forward-looking statements, ~~whether~~and our operating performance each quarter is subject to various risks and uncertainties that are discussed in detail in our 2008 Form 10-K under the “Risk Factors” heading as afiled ~~result~~with ofthe Securities ~~new~~and ~~information,~~Exchange ~~future~~Commission ~~events~~(the “SEC”) and that include, orwithout ~~otherwise.~~limitation, the following:

~~General~~· reduced earnings due to higher credit losses generally and specifically because losses in the sectors of our loan portfolio secured by real estate are greater than expected due to economic factors, including declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors; · reduced earnings due to higher credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral; · the amount of our real estate-based loan portfolio collateralized by real estate, and the weakness in the commercial real estate market; · our short operating history; · significant increases in competitive pressure in the banking and financial services industries; · changes in the interest rate environment which could reduce anticipated or actual margins; · our ability to control costs, expenses and loan delinquency rates; · changes in political conditions or the legislative or regulatory environment; · general economic conditions, either nationally or regionally and especially in our primary service area, becoming less favorable than expected resulting in, among other things, a deterioration in credit quality; · changes occurring in business conditions and inflation;

Like most community banks, we derive the majority of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, also known as net interest margin, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and borrowings. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities, which is referred to as net interest spread. 10

~~There are~~Table risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the following section, we have included a detailed discussion of ~~this process.~~ Contents

~~In addition~~· tochanges ~~earning~~in ~~interest~~technology; on· ~~our~~changes ~~loans~~in ~~and~~deposit ~~investments,~~flows; we· ~~earn~~the ~~income~~lack ~~through~~of ~~fees~~seasoning of our loan portfolio; · changes in monetary and ~~other~~ ~~expenses~~tax wepolicies; ~~charge~~· tothe ~~our~~level ~~clients.~~of Weallowance ~~describe~~for loan loss; · the ~~various~~rate ~~components~~of delinquencies and amounts of ~~this non~~charge-~~interest~~offs; ~~income,~~· asthe ~~well~~rates asof ~~our~~loan ~~non~~growth; · adverse changes in asset quality and resulting credit risk-~~interest~~related losses and expenses,; · loss of consumer confidence and economic disruptions resulting from terrorist activities; · changes in the ~~following~~securities ~~discussion.~~markets; and · other risks and uncertainties detailed from time to time in our filings with the SEC.

~~Effect~~The above risks are exacerbated by the recent developments in national and international financial markets, and we are unable to predict what effect these uncertain market conditions will have on our Company. During 2008 and thus far in 2009, the capital and credit markets have experienced unprecedented levels of ~~Economic~~extended ~~Trends~~volatility and disruption. There can be no assurance that these unprecedented recent developments will not materially and adversely affect our business, financial condition and results of operations.

~~Following~~All ~~an economic decline and historically low interest rates that ended in the first six months of 2004, the Federal Reserve began increasing short~~forward-~~term~~looking ~~rates~~statements as the economy showed signs of strengthening. Between July 2004 and July 2006, the Federal Reserve increased rates at 17 of their meetings for a total of 425 basis points. Between July 2006 and September 18, 2007, the Federal Reserve allowed short-term rates to remain unchanged. Beginning in ~~July 2004~~this ~~and~~report ~~continuing~~are ~~until~~based ~~September 18, 2007, rates~~ on ~~both~~information ~~short-term~~available ~~and variable rate~~to ~~interest-earning~~us ~~assets~~as ~~and interest-bearing liabilities increased. The momentum~~ of the ~~17 rate~~date ~~increases resulted in higher rates on interest-earning assets and interest-bearing liabilities during the first nine months~~ of ~~2007~~this ~~and as fixed rate loans, deposits, and borrowings matured they repriced at higher interest rates~~report. ~~In late September 2007, the~~ We ~~Federal~~undertake ~~Reserve~~no ~~reversed~~obligation ~~their~~to ~~position~~publicly ~~and~~update ~~has since lowered the short-term rates by 500 basis points through December 2008, causing the rates on our short-term~~ or ~~variable~~otherwise ~~rate assets~~revise ~~and liabilities to decline. The majority of economic analysts predict little to no~~any ~~change in short~~forward-~~term~~looking ~~rates~~statements, ~~throughout~~whether ~~the~~as ~~remainder~~a ofresult ~~2009. The following discussion includes our analysis~~ of ~~the~~new ~~effect that we anticipate changes in interest rates will have on our financial condition. However~~information, ~~we can give no assurances as to the~~ future ~~actions of~~ ~~the~~events, ~~Federal Reserve~~ or ~~to the anticipated results that will actually occur~~otherwise.

~~Recent Legislative and Regulatory Initiatives to Address Financial and Economic Crises~~General

~~Markets~~Like ~~in the~~most ~~United~~community ~~States and elsewhere have experienced extreme volatility and disruption for~~banks, ~~more~~we ~~than~~derive 12the ~~months.~~majority ~~These~~of ~~circumstances~~our ~~have~~income ~~exerted~~from ~~significant~~interest ~~downward~~we ~~pressure~~receive on ~~prices~~ ofour ~~equity~~loans ~~securities~~ and investments. ~~virtually~~Our ~~all~~primary ~~other~~source ~~asset~~of ~~classes,~~funds ~~and~~for ~~have~~making ~~resulted~~these ~~in substantially~~loans ~~increased market volatility, severely constrained credit~~ and ~~capital~~investments ~~markets,~~is ~~particularly~~our ~~for financial institutions~~deposits, ~~and~~on anwhich ~~overall~~we ~~loss~~pay ~~of investor confidence~~interest. ~~Loan~~Consequently, ~~portfolio~~one ~~performances~~of ~~have~~the ~~deteriorated at many institutions resulting~~key ~~from,~~measures ~~among~~of ~~other~~our ~~factors,~~success ais ~~weak~~our ~~economy~~amount ~~and~~of anet ~~decline~~interest inincome, ~~the~~also ~~value~~known ofas ~~the collateral~~net ~~supporting~~interest ~~their~~margin, ~~loans.~~or ~~Dramatic~~the ~~slowdowns~~difference inbetween the ~~housing~~income ~~industry,~~on ~~due~~our ~~in part to falling~~interest-earning ~~home~~assets, ~~prices~~such ~~and~~as ~~increasing~~loans ~~foreclosures~~ and ~~unemployment~~investments, ~~have~~and ~~created~~the ~~strains~~expense on ~~financial~~ ~~institutions.~~our ~~Many~~interest-bearing liabilities, ~~borrowers~~such ~~are~~as ~~now~~deposits ~~unable~~and toborrowings. ~~repay~~Another ~~their~~key ~~loans,~~measure ~~and~~is the spread ~~collateral~~between ~~securing~~the ~~these~~yield ~~loans~~we ~~has,~~earn inon ~~some~~these ~~cases,~~interest-earning ~~declined~~assets ~~below~~and the ~~loan~~rate ~~balance.~~we Inpay ~~response~~on toour ~~the~~interest-bearing ~~challenges facing the financial services sector~~liabilities, ~~several~~which ~~regulatory~~is ~~and governmental~~referred ~~actions~~to ~~have~~as ~~recently~~net ~~been announced including:~~ interest spread.

•There ~~The~~are ~~Emergency~~risks ~~Economic~~inherent in ~~Stabilization~~all ~~Act~~loans, ofso ~~2008~~we ~~(“EESA”),~~maintain ~~approved~~an byallowance ~~Congress~~for ~~and~~loan ~~signed~~losses byto ~~President~~absorb ~~Bush~~probable losses on ~~October~~existing 3,loans ~~2008,~~that ~~which,~~may ~~among~~become ~~other provisions, allowed the U~~uncollectible.S. ~~Treasury~~We toestablish ~~purchase up to $700 billion of mortgages, mortgage-backed securities~~ and maintain ~~certain~~this ~~other~~allowance ~~financial~~by ~~instruments~~charging ~~from~~a ~~financial~~provision ~~institutions~~ for ~~the~~loan ~~purpose~~losses ofagainst ~~stabilizing~~our operating ~~and~~earnings. ~~providing~~In ~~liquidity to~~ the ~~U.S.~~following ~~financial~~section, ~~markets.~~we ~~EESA~~have ~~also~~included ~~raised~~a ~~the~~detailed discussion ~~basic limit~~ of ~~FDIC~~this ~~deposit insurance from $100,000 to $250,000 through December 31, 2013;~~process.

•In Onaddition ~~October~~to 7,earning interest ~~2008~~on our loans and investments, ~~the~~we ~~FDIC~~earn ~~approved~~income athrough ~~plan~~fees and other expenses we charge to ~~increase~~our clients. We describe the ~~rates~~various ~~banks~~components ~~pay~~of ~~for~~this non-interest ~~deposit~~income, ~~insurance;~~as well as our non-interest expenses, in the following discussion.

•Effect ~~On October 14, 2008, the U.S. Treasury announced the creation~~ of Economic a new program, the Troubled Asset Relief Program (the “TARP”) Capital Purchase Program (the “CPP”) that encourages and allows financial institutions to build capital through the sale of senior preferred shares to the U.S. Treasury on terms that are non-negotiable;Trends

11Following an economic decline and historically low interest rates that ended in the first six months of 2004, the Federal Reserve began increasing short-term rates as the economy showed signs of strengthening. Between July 2004 and July 2006, the Federal Reserve increased rates at 17 of their meetings for a total of 425 basis points. Between July 2006 and September 18, 2007, the Federal Reserve allowed short-term rates to remain unchanged. Beginning in July 2004 and continuing until September 18, 2007, rates on both short-term and variable rate interest-earning assets and interest-bearing liabilities increased. The momentum of the 17 rate increases resulted in higher rates on interest-earning assets and interest-bearing liabilities during the first nine months of 2007 and as fixed rate loans, deposits, and borrowings matured they repriced at higher interest rates. In late September 2007, the Federal Reserve reversed their position and has since lowered the short-term rates by 500 basis points through December 2008, causing the rates on our short-term or variable rate assets and liabilities to decline. The majority of economic analysts predict little to no change in short-term rates throughout the remainder of 2009. The following discussion may include our analysis of the effect that we anticipate changes in interest rates will have on our financial condition. However, we can give no assurances as to the future actions of the Federal Reserve or to the anticipated results that will actually occur.

•Recent OnLegislative ~~October~~and ~~14,~~Regulatory ~~2008,~~Initiatives ~~the FDIC announced the creation of the Temporary Liquidity Guarantee Program (the “TLGP”), which seeks~~ to ~~strengthen~~Address ~~confidence~~Financial and Economic ~~encourage liquidity in the banking system. The TLGP has two primary components that are available on a voluntary basis to financial institutions:~~Crises

oMarkets ~~The~~in ~~Transaction~~the ~~Account~~United ~~Guarantee~~States ~~Program~~and ~~(“TAGP”),~~elsewhere ~~which~~have ~~provides~~experienced ~~unlimited~~extreme volatility ~~deposit~~and ~~insurance~~disruption ~~coverage~~for ~~through~~more ~~December~~than 3112 months. These circumstances have exerted significant downward pressure on prices of equity securities and virtually all other asset classes, ~~2009~~and ~~for~~have ~~noninterest-bearing~~resulted ~~transaction~~in ~~accounts~~substantially ~~(typically~~increased ~~business~~market ~~checking~~volatility, severely ~~accounts)~~constrained credit and ~~certain~~capital ~~funds~~markets, ~~swept~~particularly ~~into~~for ~~noninterest-bearing~~financial institutions, ~~savings~~and ~~accounts~~an overall loss of investor confidence. Loan ~~Institutions~~portfolio ~~participating~~performances inhave ~~the~~deteriorated at ~~TLGP~~many ~~pay~~institutions aresulting 10from, ~~basis~~among ~~points~~other ~~fee~~factors, ~~(annualized)~~a onweak economy and a decline in the ~~balance~~value of ~~each~~the ~~covered~~collateral ~~account~~supporting their loans. Dramatic slowdowns in ~~excess~~the ofhousing ~~$250~~industry,~~000,~~ due ~~while~~in ~~the~~part ~~extra~~to ~~deposit~~falling ~~insurance~~home isprices inand ~~place;~~increasing foreclosures and unemployment,

o The Debt Guarantee Program (“DGP”), under which the FDIC guarantees certain senior unsecured debt of FDIC-insured institutions and their holding companies. The unsecured debt must be issued on or after October 14, 2008 and not later than June 30, 2009, and the guarantee is effective through the earlier of the maturity date or June 30, 2012. The DGP coverage limit is generally 125% of the eligible entity’s eligible debt outstanding on September 30, 2008 and scheduled to mature on or before June 30, 2009 or, for certain insured institutions, 2% of their liabilities as of September 30, 2008. Depending on the term of the debt maturity, the nonrefundable DGP fee ranges from 50 to 100 basis points (annualized) for covered debt outstanding until the earlier of maturity or June 30, 2012. The TAGP and DGP are in effect for all eligible entities, unless the entity opted out on or before December 5, 2008.11

•Table ~~On February 17, 2009 President Obama signed into law The American Recovery and Reinvestment Act~~ of 2009 (“ARRA”), more commonly known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients, including our Company, that are in addition to those previously announced by the U.S. Treasury. These new limits are in place until the institution has repaid the Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient institution’s appropriate regulatory agency.Contents

•have created Onstrains ~~March~~on ~~23,~~financial ~~2009,~~institutions. Many ~~the~~borrowers ~~U.S.~~are ~~Treasury,~~now inunable ~~conjunction~~to ~~with~~repay ~~the~~their ~~FDIC~~loans, and the ~~Federal~~collateral securing ~~Reserve~~these loans has, ~~announced~~in ~~the~~some ~~Public-Private~~cases, ~~Partnership~~declined ~~Investment~~below ~~Program~~the ~~for~~loan ~~Legacy~~balance. In ~~Assets~~response ~~which~~to ~~consists~~the ofchallenges ~~two~~facing ~~separate~~the ~~plans~~financial services sector, ~~addressing~~several ~~two~~regulatory ~~distinct~~and ~~asset~~governmental ~~groups~~actions have recently been announced including:

o · The ~~Legacy~~Emergency ~~Loan~~Economic ~~Program,~~Stabilization inAct ~~which~~of ~~the~~2008 ~~primary~~(“EESA”), approved ~~purpose~~by ~~will~~Congress beand tosigned ~~facilitate~~by ~~the~~President ~~sale~~Bush ofon ~~troubled mortgage loans by eligible institutions~~October 3, 2008, which, ~~include~~among ~~FDIC-insured~~other ~~federal~~provisions, orallowed ~~state~~the ~~banks and savings associations~~U.S. ~~Eligible~~Treasury ~~assets~~to ~~may~~purchase ~~not~~up ~~be strictly limited~~ to ~~loans;~~$700 billion ~~however~~of mortgages, ~~what~~mortgage-backed ~~constitutes~~securities anand ~~eligible~~certain ~~asset~~other ~~will~~financial instruments befrom ~~determined~~financial byinstitutions ~~participating~~for ~~banks,~~the ~~their~~purpose ~~primary~~of ~~regulators,~~stabilizing ~~the~~and providing ~~FDIC~~liquidity ~~and~~to the ~~Treasury~~U.S. ~~Additionally,~~financial ~~the~~markets. EESA ~~Loan~~also ~~Program’s~~raised ~~requirements~~the ~~and~~basic ~~structure~~limit ~~will~~of beFDIC deposit ~~subject~~insurance tofrom ~~notice~~$100,000 ~~and~~to ~~comment~~$250,000 ~~rulemaking~~through December 31, ~~which may take some time to complete.~~2013;

o· On ~~The Securities Program~~October 7, ~~which will be administered by the Treasury~~2008, ~~involves~~ the ~~creation~~FDIC ofapproved ~~public-private~~a ~~investment~~plan ~~funds~~ to increase ~~target investments in eligible residential mortgage-backed securities and commercial mortgage-backed securities issued before 2009 that originally were rated AAA or~~ the ~~equivalent~~rates bybanks ~~two~~pay orfor ~~more~~deposit nationally recognized statistical rating organizations, without regard to rating enhancements (collectively, “Legacy Securities”). Legacy Securities must be directly secured by actual mortgage loans, leases or other assets, and may be purchased only from financial institutions that meet TARP eligibility requirements.insurance;

It· On October 14, 2008, the U.S. Treasury announced isthe ~~likely~~creation ~~that~~of ~~further~~a ~~regulatory~~new ~~actions~~program, ~~may~~the ~~arise~~Troubled asAsset Relief Program (the ~~Federal~~“TARP”) Capital ~~government~~Purchase ~~continues~~Program to(the “CPP”) that encourages and allows financial ~~attempt~~institutions to ~~address~~build capital through the ~~economic~~sale ~~situation~~of senior preferred shares to the U.S. Treasury on terms that are non-negotiable;

· On ~~December~~ 26October 14, 2008, ~~we received preliminary approval to participate in~~ the ~~CPP~~FDIC inannounced the ~~amount~~creation of ~~$1,891,000, which represented~~ the ~~maximum~~Temporary 3%Liquidity ofGuarantee ~~our~~Program ~~risk-weighted~~(the ~~assets at September 30~~“TLGP”), ~~2008. After careful evaluation by our executive management and board of~~which ~~directors,~~seeks ~~including the impact of our participation on our capital ratios and operations as well as on our common shareholders, we elected~~ to ~~participate~~strengthen atconfidence ~~$1 million~~ and ~~were able~~encourage toliquidity ~~participate under the private company terms, which resulted~~ in ~~less dilution to our common shareholders than~~ the ~~public company terms~~banking system. The ~~transaction~~TLGP ~~closed~~has ontwo ~~February 13,~~primary ~~2009~~components ~~and on~~ that ~~date~~are weavailable ~~issued~~on ~~shares~~a voluntary ofbasis ~~our Series A and Series B Preferred Stock~~ to ~~the~~ ~~U.S.~~financial ~~Treasury.~~ institutions:

12· The Transaction Account Guarantee Program (“TAGP”), which provides unlimited deposit insurance coverage through June 30, 2010 for noninterest-bearing transaction accounts (typically business checking accounts) and certain funds swept into noninterest-bearing savings accounts. Institutions participating in the TLGP pay a 10 basis points fee (annualized) on the balance of each covered account in excess of $250,000, while the extra deposit insurance is in place;

~~Critical~~· The ~~Accounting~~Debt ~~Policies~~Guarantee Program (“DGP”), under which the FDIC guarantees certain senior unsecured debt of FDIC-insured institutions and their holding companies. The unsecured debt must be issued on or after October 14, 2008 and not later than June 30, 2009, and the guarantee is effective through the earlier of the maturity date or June 30, 2012. The DGP coverage limit is generally 125% of the eligible entity’s eligible debt outstanding on September 30, 2008 and scheduled to mature on or before June 30, 2009 or, for certain insured institutions, 2% of their liabilities as of September 30, 2008. Depending on the term of the debt maturity, the nonrefundable DGP fee ranges from 50 to 100 basis points (annualized) for covered debt outstanding until the earlier of maturity or June 30, 2012. The TAGP and DGP are in effect for all eligible entities, unless the entity opted out on or before December 5, 2008.

We· On February 17, 2009 President Obama ~~have~~signed ~~adopted~~into ~~various~~law ~~accounting~~The ~~policies~~American ~~that~~Recovery ~~govern~~and ~~the~~Reinvestment ~~application~~Act of ~~accounting~~2009 (“ARRA”), ~~principles~~more ~~generally~~commonly ~~accepted~~known inas the ~~United~~economic ~~States~~stimulus ~~and~~or ~~with~~economic ~~general~~recovery ~~practices~~package. ~~within~~ARRA includes a wide variety of programs intended to stimulate the economy and ~~banking~~provide ~~industry~~for inextensive ~~the~~infrastructure, ~~preparation~~energy, ofhealth, ~~our~~and ~~financial~~education ~~statements~~needs. In ~~Our~~addition, ~~significant~~ARRA imposes certain new ~~accounting~~executive ~~policies~~compensation ~~are~~and ~~described~~corporate inexpenditure ~~footnote~~limits 1on toall current and future TARP recipients, including our ~~audited~~Company, ~~consolidated~~that ~~financial~~are in addition to those ~~statements~~previously asannounced ofby ~~December~~the 31U.S. Treasury. These new limits are in place until the institution has repaid the Treasury, ~~2008~~which is now permitted under ARRA without penalty and without the need to raise new capital, assubject ~~filed~~to onthe Treasury’s ~~our~~consultation ~~annual~~with ~~report~~the onrecipient ~~Form~~institution’s ~~10-K.~~appropriate regulatory agency.

~~Certain accounting~~· On ~~policies~~March 23, ~~involve~~2009, ~~significant judgments and assumptions by us that have a material impact on~~ the ~~carrying value of certain assets and liabilities~~U. ~~We consider these accounting policies to be critical accounting policies~~S. ~~The judgment and assumptions we~~ ~~use are based on historical experience and other factors~~Treasury, ~~which~~in weconjunction ~~believe~~with ~~to be reasonable under~~ the ~~circumstances.~~FDIC ~~Because~~and of the ~~nature~~Federal ofReserve, ~~the~~announced ~~judgment and assumptions~~the wePublic-Private ~~make,~~Partnership ~~actual~~Investment ~~results~~Program ~~could~~for ~~differ~~Legacy ~~from~~Assets ~~these~~which ~~judgments and estimates that could have a~~consists ~~material impact on the carrying values~~ of ~~our~~two ~~assets~~separate ~~and~~plans, ~~liabilities~~addressing ~~and~~two ~~our~~distinct ~~results~~asset ~~of operations.~~ groups:

~~Allowance~~· The ~~for~~Legacy Loan ~~Losses~~Program, in which the primary purpose will be to facilitate the sale of troubled mortgage loans by eligible institutions, which include FDIC-insured federal or state banks and savings associations. Eligible assets may not be strictly limited to loans; however, what constitutes an eligible asset will be determined by participating banks, their primary regulators, the FDIC and the Treasury. Additionally, the Loan Program’s requirements and structure will be subject to notice and comment rulemaking, which may take some time to complete.

~~We believe~~· The ~~the~~Securities ~~allowance~~Program, ~~for~~which ~~loan~~will ~~losses~~be administered isby the ~~critical~~Treasury, ~~accounting~~involves ~~policy~~the ~~that~~creation ~~requires~~of ~~the~~public-private ~~most~~investment ~~significant~~funds ~~judgments~~to ~~and~~target ~~estimates~~investments ~~used~~ in ~~preparation~~eligible ofresidential ~~our consolidated financial~~mortgage-backed ~~statements.~~securities ~~Some~~and ofcommercial ~~the~~mortgage-backed ~~more~~securities ~~critical~~issued ~~judgments~~before ~~supporting~~2009 ~~the amount of our allowance for~~that ~~loan~~originally ~~losses~~were ~~include~~rated ~~judgments~~AAA ~~about~~or the ~~creditworthiness~~equivalent ofby ~~borrowers,~~two ~~the~~or ~~estimated~~more ~~value~~nationally ofrecognized ~~the~~statistical ~~underlying~~rating ~~collateral~~organizations, ~~cash~~without ~~flow~~regard ~~assumptions,~~to ~~determination of loss factors for~~rating ~~estimating~~enhancements ~~credit losses~~(collectively, ~~the~~“Legacy ~~impact~~Securities”). ofLegacy ~~current~~Securities ~~events,~~must ~~and conditions, and other factors~~be ~~impacting~~directly ~~the~~secured ~~level~~by ofactual ~~probable~~mortgage ~~inherent~~loans, ~~losses.~~leases ~~Under different conditions~~ or ~~using different~~other ~~assumptions~~assets, ~~the~~and ~~actual amount of credit losses incurred by us~~ may be ~~different~~ ~~from~~purchased ~~management’s~~only ~~estimates~~from ~~provided in our consolidated~~ financial ~~statements.~~institutions ~~Refer to the portion of this discussion~~ that ~~addresses~~meet ~~our~~TARP ~~allowance for loan losses for a more~~eligibility ~~complete discussion of our processes and methodology for determining our allowance for loan losses~~requirements.

~~Income Taxes~~12

~~We use~~Table assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax liabilities and assets for events recognized differently in our financial statements and income tax returns, and income tax benefit or expense. Determining these amounts requires analysis of ~~certain transactions and interpretation of~~ tax laws and regulations. Management exercises judgment in evaluating the amount and timing of recognition of resulting tax liabilities and assets. These judgments and estimates are re-evaluated on a continual basis as regulatory and business factors change. Valuation allowances are established to reduce deferred tax assets if it is determined that it is “more likely than not” that all or some portion of the potential deferred tax asset will not be realized. No assurance can be given that either the tax returns submitted by us or the income tax reported on the financial statements will not be adjusted by either adverse rulings by the United States Tax Court, changes in the tax code, or assessments made by the Internal Revenue Service. We are subject to potential adverse adjustments, including, but not limited to, an increase in the statutory federal or state income tax rates, the permanent non-deductibility of amounts currently considered deductible either now or in future periods, and the dependency on the generation of future taxable income, including capital gains, in order to ultimately realize deferred income tax assets. Contents

~~Results~~It ofis likely ~~Operations~~that further regulatory actions may arise as the Federal government continues to attempt to address the economic situation.

~~Three~~On ~~months~~December 26, 2008, ~~ended~~we ~~June~~received preliminary approval to participate in the CPP in the amount of $1,891,000, which represented the maximum 3% of our risk-weighted assets at September 30, 2008. After careful evaluation by our executive management and board of directors, including the impact of our participation on our capital ratios and operations as well as on our common shareholders, we elected to participate at $1 million and were able to participate under the private company terms, which resulted in less dilution to our common shareholders than the public company terms. The transaction closed on February 13, 2009 and ~~2008~~on that date we issued shares of our Series A and Series B Preferred Stock to the U.S. Treasury.

~~General~~Critical Accounting Policies

~~Our~~We ~~net~~have ~~loss~~adopted ~~for~~various ~~the~~accounting ~~quarter~~policies ~~ended~~that ~~June~~govern ~~30,~~the ~~2009~~application ~~was $176,209, or $0.16 per basic and diluted~~of ~~common~~accounting ~~share,~~principles ~~compared~~generally toaccepted ~~net~~in ~~loss~~the ofUnited ~~$92,165,~~States orand ~~$0.08~~with ~~per~~general practices ~~share,~~within ~~for~~ the ~~quarter~~banking ~~ended June~~industry ~~30, 2008, for an increase~~ in ~~net~~the ~~loss~~preparation of ~~$84,044,~~our ~~or 91%~~financial statements. AsOur ~~described~~significant ~~below,~~accounting ~~the increase~~policies inare ~~net~~described ~~loss~~in isfootnote ~~attributable primarily to:~~ 1) ~~continued pressure on our net~~to ~~interest margin, 2) an increase in~~ our ~~provision~~audited ~~for~~consolidated ~~loan~~financial ~~losses~~statements ~~and~~as ~~3) an emergency special assessment~~ of ~~$42~~December 31,~~000~~ ~~from~~2008, ~~the FDIC insurance fund. Partially offsetting these~~as ~~negative~~filed ~~factors~~on ~~were~~our ~~gains~~annual ofreport ~~$87,002~~ on ~~investment securities sales~~Form 10-K.

~~Net~~Certain accounting ~~Interest~~policies ~~Income~~involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgment and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgment and assumptions we make, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

~~Our primary~~Allowance ~~source~~for ofLoan revenue is net interest income. Net interest income is the difference between income earned on interest-bearing assets and interest paid on deposits and borrowings used to support such assets. The level of net interest income is determined by the balances of interest-earning assets and interest-bearing liabilities and corresponding interest rates earned and paid on those assets and liabilities, respectively. In addition to the volume of and corresponding interest rates associated with these interest-earning assets and interest-bearing liabilities, net interest income is affected by the timing of re-pricing these interest-earning assets and interest-bearing liabilities. Losses

~~Net~~We ~~interest~~believe ~~income~~the allowance for loan losses is the ~~quarter~~critical ~~ended~~accounting ~~June~~policy ~~30,~~that requires ~~2009~~the ~~was~~most ~~$503,955,~~significant anjudgments ~~increase~~and estimates used in preparation of our ~~$71,683,~~consolidated financial statements. Some of the more critical judgments orsupporting ~~17%,~~the ~~over~~amount ~~net~~of ~~interest~~our ~~income~~allowance for loan losses include judgments about the creditworthiness of ~~$432~~borrowers,~~272~~ ~~for~~the estimated value of the ~~quarter~~underlying collateral, ~~ended~~cash ~~June~~flow 30assumptions, ~~2008.~~determination ~~Interest income~~of ~~increased~~loss ~~$86~~factors for estimating credit losses,~~430,~~ orthe 9%impact of current events, toand $1conditions,~~061,111~~ ~~for~~and other factors impacting the ~~quarter~~level ~~ended~~of ~~June~~probable ~~30,~~inherent ~~2009~~losses. Under different conditions or using different ~~Although~~assumptions, the ~~volume~~actual amount of ~~average~~credit ~~interest-earning~~losses ~~assets~~incurred ~~increased~~by ~~$20.2~~us ~~million~~may ~~from~~be ~~June~~different ~~30,~~from ~~2008~~management’s estimates provided in our consolidated financial statements. Refer to ~~June~~the portion of this discussion that addresses our allowance for loan losses for a more complete discussion of our processes and methodology for determining our allowance for loan losses.

13Other Real Estate

~~30,~~Other real ~~2009,~~estate asrepresents ~~shown~~properties inacquired through the ~~table below,~~foreclosure weprocess ~~did~~and is ~~not~~recorded ~~experience~~at asthe ~~significant~~lower of annet ~~increase~~principal inloan ~~corresponding~~balance ~~interest income~~outstanding ~~due~~or toestimated fair ~~the~~market ~~183~~value ~~basis~~less ~~point~~estimated ~~drop~~selling incosts. Estimated ~~the~~fair ~~average~~market ~~prime~~values ~~rate~~are ~~from~~based ~~period~~on toappraisals ~~period. Interest~~obtained ~~expense~~at ~~for~~ the time ~~quarter~~of ~~ended~~acquisition ~~June~~of ~~30,~~the ~~2009~~properties ~~increased~~by ~~$14,747 over~~ the ~~same~~ Bank. Holding period incosts ~~2008.~~are ~~Although~~charged ~~interest-bearing~~to ~~liabilities~~expense as ~~grew $22~~incurred.2 Examples ~~million,~~of asholding ~~interest~~period ~~rates~~costs ~~declined~~include ~~and~~real ~~higher-priced~~property ~~certificates of deposit matured~~taxes, ~~our~~maintenance ~~deposits were re-priced at lower rates~~ and ~~resulted in only a 3% increase in interest expense~~insurance.

~~The following~~Income table sets forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the quarters ended June 30, 2009 and 2008. We derived these yields and rates by dividing annualized income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated. The net amount of capitalized loan fees is amortized into interest income over the lives of the loans. Taxes

Average Balances, Income and Expenses, Yields and Rates for the Quarter Ended June 30,
	2009							2008
	Average		Income/		Yield/			Average		Income/		Yield/
	balance		expense		rate			balance		expense		rate
Interest-earning assets:
Federal funds sold	$	2,530,511	$	1,240		0.20	%	$	1,374,033	$	8,582		2.51	%
Investment securities and FHLB stock		23,620,438		303,715		5.16			20,685,229		282,272		5.49
Loans (1)		59,007,771		756,156		5.14			43,712,415		683,827		6.29
Total interest-earning assets		85,158,720		1,061,111		5.00	%		65,771,677		974,681		5.96	%
Non-earning assets		7,151,479							4,005,748
Total assets	$	92,310,199						$	69,777,425
Interest-bearing liabilities:
Interest checking	$	4,586,661	$	27,454		2.40	%	$	1,973,133	$	10,143		2.07	%
Savings and money market		19,203,755		93,103		1.94			12,884,565		93,703		2.92
Time deposits		40,420,488		323,645		3.21			35,263,801		389,903		4.45
Federal funds purchased		-		-		-			358,956		2,644		2.96
FHLB borrowings		14,455,000		112,954		3.13			5,942,912		46,018		3.11
Total interest-bearing liabilities		78,665,904		557,156		2.84	%		56,423,367		542,409		3.87	%
Non-interest bearing liabilities		3,368,342							3,991,496
Shareholders’ equity		10,275,953							9,362,562
Total liabilities and shareholders' equity	$	92,310,199						$	69,777,425
Net interest spread						2.16	%						2.09	%
Net interest income/margin			$	503,955		2.37	%			$	432,272		2.64	%

We use assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax liabilities and assets for events recognized differently in our financial statements and income tax returns, and income tax benefit or expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations. Management exercises judgment in evaluating the amount and timing of recognition of resulting tax liabilities and assets. These judgments and estimates are re-evaluated on a continual basis as regulatory and business factors change. Valuation allowances are established to reduce deferred tax assets if it is determined that it is “more likely than not” that all or some portion of the potential deferred tax asset will not be realized. No assurance can be given that either the tax returns submitted by us or the income tax reported on the financial statements will not be adjusted by either adverse rulings by the United States Tax Court, changes in the tax code, or assessments made by the Internal Revenue Service. We are subject to potential adverse adjustments, including, but not limited to, an increase in the statutory federal or state income tax rates, the permanent non-deductibility of amounts currently considered deductible either now or in future periods, and the dependency on the generation of future taxable income, including capital gains, in order to ultimately realize deferred income tax assets.

(1) Loan fees, which are immaterial, are included in interest income. There was one nonaccrual loan of $1,168,000 at June 30, 2009 and no nonaccrual loans at June 30, 2008. Nonaccrual loans are included in the average balances above and income on nonaccrual loans is included on the cash basis for yield computation purposes. 13

~~Our consolidated~~Table ~~net interest margin for the quarter ended June 30, 2009 was 2.37%, a decrease~~ of 27 basis points from the net interest margin of 2.64% for the same period in 2008. In May 2009, a loan of $1,168,000 was placed on nonaccrual status and $28,000 of previously accrued interest was reversed. This reversal of interest in the second quarter of 2009 was the primary reason that our quarterly loan yield declined from 5.35% in the first quarter of 2009 to 5.14% in the quarter ended June 30, 2009. The average prime interest rate was 5.08% during the three months ended June 30, 2008, while the average prime interest rate during the three-month period ended June 30, 2009 was 3.25%. With a 183 basis point decrease in the average prime rate during the comparable periods, and with approximately 56% of our loan portfolio tied to the prime rate, we experienced an immediate decrease in loan yields as the prime rate decreases occurred as evidenced by the 115 basis point decline in loan yield over the comparable periods. The cost of interest-bearing liabilities decreased 103 basis points, as we reduced our rates on transaction deposit accounts, and as higher priced certificates of deposits matured and were replaced at lower interest rates. Fixed maturity certificates of deposit are priced higher than core deposits and have stated maturity dates, so there is not an immediate decrease in the interest rates paid on these time deposits to offset the immediate decrease in loan yields. The net interest margin is calculated by dividing annualized net interest income by year-to-date average earning assets. Our net interest spread was 2.16% and 2.09% for the quarters ended June 30, 2009 and 2008, respectively. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. In pricing deposits, we consider our liquidity needs, the direction and levels of interest rates and local market conditions. Contents

~~Provision~~Results ~~for~~of ~~Loan Losses~~ Operations

~~We have~~Three ~~established~~months anended ~~allowance for loan losses through a provision for loan losses charged~~September 30, as2009 ~~a non-cash expense to our statements of operations. We review our loan portfolio periodically to evaluate our outstanding loans~~ and ~~to measure both the performance of the portfolio and the adequacy of the allowance for loan losses.~~ 2008

14General

Our ~~provision~~net ~~for~~income ~~loan losses~~ for the quarter ended ~~June~~ September 30, 2009 was $~~281~~8,~~085~~409 compared to net income of $794,~~000~~708 for the quarter ended ~~June~~ September 30, 2008., ~~The~~for ~~increase was primarily due to charges~~an ~~necessary~~improvement ~~to replenish the allowance for loan losses after charging-off loans~~ in ~~the second~~net ~~quarter~~income of ~~2009. During the second quarter our charge-offs totaled~~ $~~248~~3,~~749.~~701, or 79%.

~~Refer to~~Net ~~the~~Interest discussion below under “Allowance for Loan Losses” for a description of the factors we consider in determining the amount of the provision we expense each period in order to maintain an appropriate allowance for loan losses. Income

~~Non~~Our primary source of revenue is net interest income. Net interest income is the difference between income earned on interest-bearing assets and interest ~~Income~~paid on deposits and borrowings used to support such assets. The level of net interest income is determined by the balances of interest-earning assets and interest-bearing liabilities and corresponding interest rates earned and paid on those assets and liabilities, respectively. In addition to the volume of and corresponding interest rates associated with these interest-earning assets and interest-bearing liabilities, net interest income is affected by the timing of re-pricing these interest-earning assets and interest-bearing liabilities.

~~Non-interest~~Net interest income ~~totaled $121,703~~ for the ~~three-month~~quarter ~~period~~ ended ~~June,~~ September 30, 2009 ~~compared~~was to$515,461, an increase of $202,~~560~~138, ~~for~~or ~~the~~0.42%, ~~same~~over ~~period~~net ininterest ~~2008~~income of $513,323 for anthe quarter ~~improvement~~ended ofSeptember 30, 2008. Interest income increased $~~101~~11,~~143~~602, or ~~492~~1%., ~~During~~to $1,086,728 for the quarter ~~three~~ended ~~months~~September 30, ~~ended~~2009. Although the ~~June~~volume of average interest-earning assets increased $20 million from September 30, 2008 to September 30, 2009, weas ~~recorded~~shown ~~gains~~in ofthe ~~$87~~table below,~~002~~ onwe ~~investment~~did ~~securities~~not ~~sold~~experience ~~during~~as ~~the~~significant ~~period~~of ~~compared~~an increase in corresponding interest income due to ~~none~~the ~~for~~175 basis point drop in the ~~quarter~~average ~~ended~~prime ~~June~~rate 30from period to period. Additionally, ~~2008~~$2.4 ~~Two~~million ~~agency~~of ~~bonds~~our loans were ~~called~~placed ~~and~~on ~~four mortgage~~non-~~backed~~accrual ~~securities~~status ~~were~~in ~~sold~~the third quarter of 2009 compared to none during the quarter ended September 30, 2008. Interest ~~These proceeds~~expense ~~were~~for ~~reinvested~~the inquarter ~~agency~~ended ~~bonds~~September 30, 2009 ~~and~~increased ~~taxable~~$9,464 ~~municipal~~over ~~bonds~~the same period in 2008. Although ~~Mortgage~~average ~~brokerage~~interest-bearing liabilities ~~fees~~grew ~~increased~~$20.9 ~~882%~~million from quarter to ~~$16~~quarter,~~687~~ ~~for~~as ~~the~~interest ~~three~~rates declined and higher-~~month~~priced ~~period~~certificates ~~ended~~of ~~June,~~deposit 30matured, ~~2009~~our ~~from~~deposits ~~$1,700~~were re-priced at lower rates and resulted in ~~the~~a ~~comparable~~2% ~~period~~decrease in ~~2008~~interest ~~due~~expense toon ~~increased~~deposits. Interest ~~mortgage~~expense ~~volume~~on ~~associated~~Federal ~~with~~Home ~~the~~Loan Bank ~~lower~~advances ~~mortgage~~grew ~~rate~~26% ~~environment~~as the average balance outstanding increased $2.8 million from quarter to quarter.

~~Non-~~The following table sets forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the quarters ended September 30, 2009 and 2008. We derived these yields and rates by dividing annualized income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated. The net amount of capitalized loan fees is amortized into interest income ~~Expenses~~over the lives of the loans.

~~The following~~Average ~~table~~Balances, ~~sets~~Income ~~forth~~and ~~our~~Expenses, ~~non-interest~~Yields ~~expenses~~and Rates for the ~~second~~Quarter ~~quarter~~Ended ~~of 2009 and 2008.~~ September 30,

		Three Months Ended
	2009								2008
		June 30,
	Average balance			Income/ expense			Yield /rate		Average balance		Income/ expense		Yield /rate
		2009			2008
Interest-earning assets:
Compensation and employee benefits		$	265,165		$	271,390
Federal funds sold	$	6,731,443		$	3,215		0.19	%	$	387,692	$	2,086	2.14	%
Occupancy and equipment			50,598			51,293
Investment securities and FHLB stock	25,062,296			318,346			5.04		21,936,987		309,159		5.61
Data processing and related costs			59,853			53,673
Loans (1)	60,327,368			765,167			5.03		49,752,270		763,881		6.11
Marketing, advertising and shareholder communications			12,218			11,620
Total interest-earning assets	92,121,107			1,086,728			4.68	%	72,076,949		1,075,126		5.93	%
Legal and audit			14,718			14,604
Non-earning assets	5,531,247								3,781,863
Other professional fees			9,924			13,586
Total assets	$	97,652,354							$	75,858,812
Supplies, postage and telephone			9,667			10,683
Interest-bearing liabilities:
Insurance			4,288			3,952
Interest checking	$	5,884,251		$	36,877		2.49	%	$	2,361,396	$	13,057	2.20	%
Credit related expenses			10,457			5,725
Savings and money market	19,209,772			85,920			1.77		15,001,931		105,235		2.79
Courier and armored carrier service			3,162			4,756
Time deposits	44,932,730			338,549			2.99		34,187,150		353,308		4.11
Regulatory fees and FDIC insurance			69,256			12,341
Federal funds purchased	—			—			—		402,750		2,884		2.85
Other			11,476			12,374
FHLB advances	13,868,043			109,921			3.14		11,035,435		87,319		3.15
Total non-interest expense		$	520,782		$	465,997
Total interest-bearing liabilities	83,894,796			571,267			2.70	%	62,988,662		561,803		3.55	%
Non-interest bearing liabilities	3,553,634								4,069,422
Shareholders’ equity	10,203,924								8,800,728
Total liabilities and shareholders’ equity	$	97,652,354							$	75,858,812
Net interest spread							1.98	%					2.38	%
Net interest income/margin				$	515,461		2.22	%			$	513,323	2.83	%

Non-interest expenses totaled $520,782 for the quarter ended June 30, 2009 compared to $465,997 for the quarter ended June 30, 2008, for an increase of $54,785, or 12%. Regulatory and FDIC insurance expense increased from $12,341 for the quarter ended June 30, 2008 to $69,256, or 461% for the quarter ended June 30, 2009. This substantial increase was due to an FDIC special assessment of $42,000 as well as general increases in FDIC assessment rates associated with economic recovery programs and continued growth in the Bank’s deposits. This special assessment is being charged to all financial institutions to aid in replenishing the FDIC’s insurance fund, and is based on a percentage of total assets minus Tier 1 capital at June 30, 2009. Pursuant to the FDIC’s final ruling on the special assessment, the percentage used in calculating our Bank’s special assessment was .05%. The FDIC’s final ruling indicated the possibility of additional special assessments to financial institutions as the FDIC replenishes the insurance fund. Credit and related expenses increased from $5,725 for the quarter ended June 30, 2008 to $10,457, or 83%, due to attorney fees incurred on loan-related foreclosures. 14

~~Six months~~Table ~~ended~~of ~~June 30, 2009 and 2008~~ Contents

~~General~~(1) Loan fees, which are immaterial, are included in interest income. There were five nonaccrual loans totaling $2,362,104 at September 30, 2009 and no nonaccrual loans at September 30, 2008. Nonaccrual loans are included in the average balances above and income on nonaccrual loans is included on the cash basis for yield computation purposes.

Our consolidated net ~~loss~~interest margin for the ~~six~~quarter ~~months~~ ended ~~June~~ September 30, 2009 was 2.22%, a decrease of 61 basis points from the net interest margin of 2.83% for the same period in 2008. In September 2009, loans totaling $~~148~~2,~~081~~362,104 orwere placed on nonaccrual status and $034,121 of previously accrued interest was reversed.15 This ~~per~~reversal ~~common~~of ~~share,~~interest in the third quarter of 2009 was the primary ~~compared~~reason tothat aour ~~net~~quarterly ~~loss~~loan yield declined from 5.14% in the second quarter of ~~$85,434~~2009 orto $05.0703% ~~per~~in ~~share~~the quarter ended September 30, ~~for~~2009. The average prime interest rate was 5.00% during the ~~six~~three months ended ~~June~~ September 30, 2008, ~~for~~while anthe ~~increase~~average inprime interest ~~net~~rate ~~loss~~during ofthe ~~$62~~three-month period ended September 30,~~647,~~ or2009 73was 3.25%. AsWith ~~described~~a ~~previously,~~175 basis point decrease in the average prime rate during the ~~increase~~comparable inperiods, ~~net~~and ~~loss~~with isapproximately ~~attributable~~55% ~~primarily~~of toour ~~net~~loan ~~interest~~portfolio ~~margin~~tied ~~deterioration~~to ~~between~~ the ~~comparable~~prime ~~periods~~rate, we experienced an ~~increase~~immediate decrease in ~~our~~loan ~~provision~~yields ~~for~~as the prime rate decreases occurred as evidenced by the 109 basis point decline in loan ~~losses,~~yield ~~and~~over the ~~FDIC~~comparable periods. ~~special~~The ~~assessment~~cost of interest-bearing liabilities decreased 85 basis points, as we ~~well~~reduced our rates on transaction deposit accounts, and as ~~general~~higher ~~increases~~priced certificates inof ~~FDIC~~deposits ~~insurance~~matured ~~costs~~and were replaced at lower interest rates. Fixed ~~This~~maturity ~~loss~~certificates ~~was~~of ~~partially~~deposit ~~offset~~are bypriced ~~improvements~~higher than core deposits and have stated maturity dates, so there is not an immediate decrease in ~~gains~~the interest rates paid on ~~investment~~these ~~securities~~time deposits ~~sales,~~to ~~mortgage~~offset the immediate decrease in loan yields. The net interest margin is calculated by ~~fees~~dividing annualized net interest income by year-to-date average earning assets. Our net interest spread was 1.98% and ~~other~~2.38% ~~non~~for the quarters ended September 30, 2009 and 2008, respectively. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing ~~income~~liabilities. In pricing deposits, we consider our liquidity needs, the direction and levels of interest rates and local market conditions.

15Provision for Loan Losses

~~Net~~We have ~~Interest~~established ~~Income~~an allowance for loan losses through a provision for loan losses charged as a non-cash expense to our statements of operations. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of the allowance for loan losses.

~~Net~~Our ~~interest~~provision ~~income~~for ~~was~~loan ~~$1,012,603~~losses for the ~~six~~quarter ~~months~~ ended ~~June~~ September 30, 2009 ~~an increase of~~was $~~150~~75,~~672,~~000 orcompared ~~17%,~~to ~~over net interest income of~~ $~~861~~70,~~931~~382 for the ~~six~~quarter ~~months~~ ended ~~June~~ September 30, 2008. Current ~~Interest~~economic ~~income~~conditions ~~increased~~and ~~$163,266,~~credit challenges orresulted ~~8%,~~in tothe ~~$2,089,594~~increase ~~for~~in the ~~six~~allowance ~~months~~for ~~ended June~~loan ~~30, 2009~~losses. Management ~~Average~~evaluates ~~earning assets increased to $81 million for~~ the ~~six~~adequacy ~~months~~of ~~ended~~the ~~June~~reserve ~~30,~~for ~~2009~~probable ~~from~~loan ~~$62~~losses ~~million~~given ~~for~~ the ~~six months ended June 30~~size, ~~2008~~mix, anand ~~increase~~quality of ~~$19 million, or 31%. Although~~ the ~~volume of average interest-earning assets increased $19~~ ~~million~~current ~~from~~loan ~~June~~portfolio ~~30, 2008 to June 30, 2009,~~ as ~~shown~~well ~~in the table below, we did not experience~~ as ~~significant~~other ~~an increase in corresponding interest income due to the 240 basis point drop in the average prime rate from period to period. Loan interest and related fees improved $109~~factors,~~437,~~ orincluding ~~8%,~~local ~~over the same period ended 2008 due to continued~~economic ~~growth in the loan portfolio~~conditions. Management ~~Interest~~also ~~expense~~relies ~~for the six months ended June 30, 2009~~on ~~increased~~our ~~only~~history ~~$12,594,~~of ~~or 1.2%, over the same period in 2008 as higher~~past-~~priced~~dues ~~certificates of deposit matured~~ and ~~were~~charge-offs, ~~replaced~~as ~~with~~well ~~lower~~as ~~rates~~peer ~~and~~data ~~rates~~to ~~were~~determine ~~lowered on all deposit~~our ~~transaction~~loan ~~accounts~~loss ~~due to the market decrease in rates~~allowance.

~~The~~Refer ~~following table sets forth information related~~ to ~~our~~the ~~average~~discussion ~~balance~~below ~~sheet,~~under ~~average yields~~“Allowance onfor ~~assets,~~Loan ~~and~~Losses” ~~average costs of liabilities~~ for ~~the~~a ~~six~~description ~~months ended June 30, 2009~~of ~~and~~the ~~2008.~~factors Wewe ~~derived~~consider ~~these~~in ~~yields~~determining ~~and rates by dividing annualized income or expense by~~ the ~~average~~amount ~~balance~~ of the ~~corresponding~~provision ~~assets~~we orexpense each ~~liabilities.~~period Wein ~~derived~~order ~~average balances~~to ~~from~~maintain ~~the~~an ~~daily~~appropriate ~~balances~~allowance ~~throughout~~for ~~the~~loan ~~periods indicated~~losses.

Average Balances, Income and Expenses, Yields and Rates for the Six Months Ended June 30,
	2009							2008
	Average		Income/		Yield/			Average		Income/		Yield/
	balance		expense		rate			balance		expense		rate
Interest-earning assets:
Federal funds sold	$	1,380,660	$	1,371		0.20	%	$	1,017,702	$	11,309		2.23	%
Investment securities and FHLB stock		22,865,445		602,087		5.31			19,668,573		538,320		5.50
Loans (1)		57,159,647		1,486,136		5.24			41,273,910		1,376,699		6.71
Total interest-earning assets		81,405,752		2,089,594		5.18	%		61,960,185		1,926,328		6.25	%
Non-earning assets		7,013,544							3,775,886
Total assets	$	88,419,296						$	65,736,071
Interest-bearing liabilities:
Interest checking	$	4,003,381	$	46,887		2.36	%	$	1,936,157	$	19,416		2.02	%
Savings and money market		18,384,599		177,771		1.95			11,679,074		177,110		3.05
Time deposits		37,993,964		624,419		3.31			33,074,591		777,002		4.72
Federal funds purchased		239,397		1,084		0.91			600,835		10,424		3.49
FHLB borrowings		14,455,000		226,830		3.16			5,158,159		80,445		3.14
Total interest-bearing liabilities		75,076,341		1,076,991		2.89	%		52,448,816		1,064,397		4.08	%
Non-interest bearing liabilities		3,291,331							3,844,464
Shareholders’ equity		10,051,624							9,442,791
Total liabilities and shareholders’ equity	$	88,419,296						$	65,736,071
Net interest spread						2.29	%						2.17	%
Net interest income/margin			$	1,012,603		2.51	%			$	861,931		2.80	%

Non-interest Income

~~(1)~~ Non-interest income totaled ~~Loan~~$67,978 ~~fees~~for the three-month period ended September 30, ~~which~~2009 ~~are~~compared ~~immaterial~~to $14,787 ~~are~~for ~~included~~the same period in ~~interest~~2008 ~~income~~for an improvement of $53,191. During ~~There~~the ~~were~~three months ended September 30, 2009, we recorded gains of $129,~~168,000~~183 inon ~~nonaccrual~~investment ~~loans~~securities atsold ~~June~~and called during the period compared to none for the quarter ended September 30, 2008. One ~~2009~~agency bond was called and noone corporate ~~nonaccrual~~and ~~loans~~two atmunicipal ~~June~~securities were sold during the quarter. These proceeds were reinvested in agency bonds and taxable municipal bonds. Mortgage brokerage fees increased $8,975 for the three-month period ended September 30, 2009 from none in the comparable period in 2008 due to mortgage activity associated with the lower mortgage rate environment. ~~Nonaccrual~~Other income ~~loans~~totaled ~~are~~$9,074 ~~included~~for the three-month period ended September 30, 2009 compared to none in the ~~average~~same ~~balances~~period ~~above~~in ~~and~~2008. During ~~income~~the three months ended September 30, 2009, we recorded a gain of $8,260 on ~~nonaccrual~~the ~~loans~~sale isof ~~included~~other real estate owned. Service charges on ~~the~~deposit ~~cash~~accounts ~~basis~~increased $5,959, or 40%, from $14,787 for ~~yield~~the ~~computation~~period ended September 30, 2008 to ~~purposes.~~$20,746 for the comparable period in 2009 due to deposit growth.

Our consolidated net interest margin for the quarter ended June 30, 2009 was 2.51%, a decrease of 29 basis points from the net interest margin of 2.80% for the same period in 2008. The average prime interest rate was 5.65% during the six months ended June 30, 2008, while the average prime interest rate during the six-month period ended June 30, 2009 was 3.25%. With a 240 basis point decrease in the average prime rate during the comparable periods, and with approximately 56% of our loan portfolio tied to the prime rate, we experienced an immediate decrease in loan yields as the prime rate decreases occurred as evidenced by the 147 basis point decline in loan yield over the comparable periods. The cost of interest-bearing liabilities decreased 119 basis points as rates on transaction deposit accounts were reduced and as higher priced certificates of deposits matured and were replaced at lower interest rates. Fixed maturity certificates of deposit are priced higher than core deposits and have stated maturity dates, so there is not an immediate decrease in the interest rates paid on these time deposits to offset the immediate decrease in loan yields. The net interest margin is calculated by dividing annualized net interest income by year-to-date average earning assets. Our net interest spread was 2.29% and 2.17% for the six months ended June 30, 2009 and 2008, respectively. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. In pricing deposits, we consider our liquidity needs, the direction and levels of interest rates and local market conditions. 15

16Table of Contents

~~Provision~~Non-interest ~~for Loan Losses~~ Expenses

~~Our provision for loan losses for the six months ended June 30, 2009 was $353,185 compared to $112,608 for the six months ended June 30, 2008.~~ The ~~increase was primarily due to charges~~ ~~necessary~~following totable ~~replenish~~sets ~~the~~forth ~~allowance~~our ~~for loan losses after charging~~non-~~off~~interest ~~loans~~expenses ~~in the second quarter of 2009. Continued growth in the loan portfolio as well as a general increase in the allowance~~ for ~~loan losses as a percentage of loans also contributed to~~ the ~~increase~~ inthird ~~the~~quarter ~~loan loss provision. Management evaluates the adequacy~~ of ~~the reserve for~~ ~~probable~~2009 ~~loan losses given the size, mix,~~ and ~~quality of the current loan portfolio~~2008. Management also relies on our limited history of past-dues and charge-offs, as well as peer data to determine our loan loss allowance. Refer to the discussion below under “Allowance for Loan Losses” for a description of the factors we consider in determining the amount of provision we expense each period in order to maintain an appropriate allowance for loan losses.

We maintained an allowance as a percentage of outstanding loans of 1.30% at June 30, 2009 compared to 1.20% at June 30, 2008.

	Three Months Ended September 30,
	2009		2008
Compensation and employee benefits	$	258,895	$	261,894
Occupancy and equipment	50,495		52,165
Data processing and related costs	61,913		57,861
Marketing, advertising and shareholder communications	8,364		5,992
Legal and audit	22,738		14,525
Other professional fees	13,043		11,601
Supplies, postage and telephone	9,150		8,077
Insurance	4,672		4,505
Credit related expenses	15,148		1,168
Courier and armored carrier service	1,779		4,795
Regulatory fees and FDIC insurance	44,610		15,208
Other	9,223		15,229
Total non-interest expense	$	500,030	$	453,020

Non-interest expenses ~~Income~~totaled $500,030 for the quarter ended September 30, 2009 compared to $453,020 for the quarter ended September 30, 2008, for an increase of $47,010, or 10%. Legal and audit fees totaled $22,738 for the quarter ended September 30, 2009 compared to $14,525 for the quarter ended September 30, 2008, for an increase of $8,213 or 57%. Credit related expenses increased from $1,168 for the quarter ended September 30, 2008 to $15,148 for the quarter ended September 30, 2009, due to attorney fees incurred on loan-related collection and foreclosure efforts as well as real estate taxes incurred on other real estate owned. Regulatory and FDIC insurance expense increased from $15,208 for the quarter ended September 30, 2008 to $44,610, or 193% for the quarter ended September 30, 2009. This increase was due to general increases in FDIC assessment rates associated with economic recovery programs and continued growth in the Bank’s deposits. The FDIC continues to evaluate the insurance fund level and may impose further special assessments in future quarters. The FDIC currently has submitted a proposal that would require us to prepay the deposit insurance premiums for a period of three years at our current assessment rate. In the event this proposal is finalized we would recognize the expense over the three year prepayment period.

~~Non-interest income~~Nine ~~totaled $208,035 for the six~~ months ended ~~June~~ September 30, 2009, an increase of $137,121, or 193%, over the six months ended June 30, 2008. During the six months ended June 30, 2009, we recognized $143,098 in gains on investment securities called or sold during the period, compared to $38,924 in gains for the six months ended June 30, 2008. Two mortgage-backed securities and one corporate bond were sold in the first quarter of 2009. Two agency bonds were called and four mortgage-backed securities were sold during the second quarter of 2009. These proceeds were reinvested in agency bonds and taxable municipal bonds. Total customer service fees, which include mortgage fees and service charges on accounts, increased 233% in the six-month period. Mortgage loan fees increased 474% to $30,121 for the six-month period ended June, 30, 2009 from $5,245 in the comparable period in 2008 due to increased mortgage volume associated with the lower mortgage rate environment. Service charges on deposit accounts increased $2,610, or 40%, from $6,568 for the period ended June 30, 2008 to $9,178 for the comparable period in 2009 due to continued growth in deposits.

~~Non-interest Expenses~~General

~~The~~Our ~~following~~net ~~table~~loss ~~sets~~for ~~forth~~the ~~our~~nine ~~non-interest~~months ~~expenses~~ended September 30, 2009 was $139,672, or $0.15 per common share (after preferred stock dividends), compared to a net loss of $80,726 or $0.07 per share, for the ~~six~~nine ~~month~~months ~~periods~~ended September 30, 2008, for an increase in net loss of ~~2009~~$58,946, or 73%. The increase in net loss is attributable primarily to net interest margin deterioration between the comparable periods, an increase in our provision for loan losses, and the FDIC special assessment ~~2008~~as well as general increases in FDIC insurance costs. This loss was partially offset by improvements in gains on investment securities sales and calls, mortgage loan fees, deposit service charges and increase in net interest income due to growth in earning assets.

	Six Months Ended
	June 30,
	2009		2008
Compensation and employee benefits	$	529,751	$	538,909
Occupancy and equipment		101,209		99,669
Data processing and related costs		121,151		100,599
Marketing, advertising and shareholder communications		24,153		22,043
Legal and audit		49,772		34,139
Other professional fees		18,954		19,474
Supplies, postage and telephone		20,204		18,612
Insurance		8,575		7,904
Credit related expenses		13,634		7,435
Courier and armored carrier service		7,876		9,440
Regulatory fees and FDIC insurance		93,586		23,954
Other		26,669		23,492
Total non-interest expense	$	1,015,534	$	905,670

Net Interest Income

~~Non-interest~~Net ~~expenses~~interest ~~were~~income was $1,~~015~~528,~~534~~064 for the ~~six~~nine months ended ~~June~~ September 30, 2009 ~~compared to $905~~,~~670~~ ~~for the~~which ~~same~~was ~~period~~an ~~ended~~increase ~~June~~of 30$152, ~~2008~~810, ~~for~~or an11%, ~~increase~~over ofnet ~~12%.~~interest Asincome ~~stated previously~~of $1,375,254 for the ~~most~~ ~~significant~~nine ~~increase~~months ~~was~~ended inSeptember 30, ~~regulatory~~2008. Interest ~~fees~~income ~~and~~increased ~~FDIC insurance~~$174,868, ~~which~~or ~~increased~~6%, ~~from~~to $233,~~954~~176,322 for the ~~six~~nine months ended ~~June~~ September 30, ~~2008~~2009. Average earning assets increased to $~~93,586~~85.5 million for the ~~same~~nine ~~period~~months ended ~~June~~ September 30, 2009 from $65.3 ~~The~~million ~~FDIC~~for ~~special~~the ~~assessment~~nine ~~fee~~months ofended ~~$42~~September 30,~~000~~ as2008, ~~well~~an increase asof a$20.2 ~~general~~million, ~~increase~~or ~~in FDIC~~32%. ~~insurance~~Although ~~assessments~~the ~~impacted~~volume ~~this~~of ~~increase.~~average ~~Data~~interest-earning ~~processing~~assets ~~costs~~ increased ~~from~~ $~~100,599~~20.2 million ~~for~~from ~~the six months ended June~~ September 30, 2008 to ~~$121~~September 30,~~151~~ ~~for~~2009, ~~the~~as ~~same~~shown ~~period~~in the ~~ended~~table ~~June 30~~below, ~~2009.~~we ~~This~~did ~~increase~~not ~~represents~~experience ~~our~~as ~~core~~significant ~~processor~~of ~~charges,~~an ~~which~~increase ~~are,~~ in corresponding ~~part,~~interest ~~based on~~income ~~growth~~due ofto the ~~Bank’s~~218 ~~deposit~~basis ~~accounts.~~point ~~Legal~~drop ~~and~~in ~~audit~~the ~~fees~~average prime ~~increased~~rate from ~~$34,139 for~~period ~~the~~to ~~six~~period. ~~months~~Loan ~~ended~~interest ~~June~~and ~~30,~~related ~~2008~~fees to improved $49110,~~772~~723, ~~for~~or 5%, over the same period ended ~~June~~2008 ~~30, 2009~~ due to ~~increases~~continued growth in the loan ~~costs~~portfolio. ~~for~~Interest ~~both~~expense ~~auditor~~on ~~and~~deposits ~~legal~~decreased ~~reviews~~$134,705, ofor ~~SEC~~9%, ~~filings~~ for ~~2009.~~the ~~Credit~~nine ~~related~~months ~~expenses~~ended ~~increased~~September 30, ~~from~~2009 ~~$7,435~~as ~~for~~higher-priced ~~the~~certificates ~~six~~of ~~months~~deposit matured ~~ended~~and ~~June~~were ~~30,~~replaced ~~2008~~with tolower rates and rates were lowered on all ~~$13,634~~deposit ~~for~~transaction accounts due to the ~~same~~market ~~period~~decrease ~~ended~~in ~~June~~rates. Interest ~~30,~~expense ~~2009~~on Federal Home Loan Bank advances increased $168,986 due to ~~attorney~~growth ~~fees~~of ~~associated~~$7.1 ~~with~~million in the average ~~loan-related~~balance ~~collection~~from ~~and~~period ~~foreclosures~~to ~~efforts~~period.

~~Balance~~The following ~~Sheet~~table ~~Review~~sets forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the nine months ended September 30, 2009 and 2008. We derived these yields and rates by dividing

1716

~~General~~Table of Contents

~~At June~~annualized ~~30,~~income ~~2009, total assets were $94.1 million compared to $82.6 million at December 31, 2008, for an increase of $11.5 million,~~ or ~~14%. The increase in assets included volume~~ ~~increases~~expense inby ~~our~~the ~~loan~~average ~~and~~balance ~~investment portfolios as well as our federal funds sold balances, all~~ of ~~which~~the ~~were~~corresponding ~~increased primarily from growth in local deposits. Interest-earning~~ assets ~~comprised approximately 95% of total assets at June 30, 2009 and December 31, 2008. Gross loans totaled $59.4 million, an increase of $4.7 million,~~ or ~~8.8%,~~ ~~from $54~~liabilities.7 ~~million at December 31, 2008. Investment securities and Federal Home Loan~~We ~~Bank~~derived ~~stock~~average ~~amounted~~balances tofrom ~~$23.8~~the ~~million~~daily atbalances ~~June~~throughout ~~30,~~the ~~2009. At June 30, 2009, we had federal~~periods ~~funds sold balances of $6~~indicated.~~0 million.~~

~~Deposits totaled~~Average ~~$68.9 million at June 30~~Balances, ~~2009,~~Income anand ~~$11.2 million~~Expenses, orYields ~~20%,~~and ~~increase~~Rates ~~from $57.7~~for ~~million~~the atNine ~~December~~Months ~~31,~~Ended ~~2008. Federal Home Loan Bank borrowings remained unchanged at $14.5 million. Shareholders’ equity totaled $10.1 million at June~~ September 30, 2009, a $468,000, or 5%, increase from $9.6 million at December 31, 2008. The increase in shareholders’ equity was primarily attributable to our sale of preferred stock pursuant to our participation in the U.S. Treasury’s CPP.

Investments

	2009						2008
	Average balance		Income/ expense		Yield /rate		Average balance		Income/ expense		Yield /rate
Interest-earning assets:
Federal funds sold	$	3,183,854	$	4,586	0.19	%	$	806,165	$	13,395	2.22	%
Investment securities and FHLB stock	24,121,725		920,433		5.10		20,430,230		847,479		5.54
Loans (1)	58,227,158		2,251,303		5.17		44,106,205		2,140,580		6.48
Total interest-earning assets	85,532,737		3,176,322		4.98	%	65,342,600		3,001,454		6.14	%
Non-earning assets	5,998,031						3,793,348
Total assets	$	91,530,768					$	69,135,948
Interest-bearing liabilities:
Interest checking	$	4,637,227	$	83,763	2.42	%	$	2,078,938	$	32,474	2.09	%
Savings and money market	18,662,679		263,691		1.89		12,794,778		282,345		2.95
Time deposits	40,334,158		962,969		3.19		33,448,151		1,130,309		4.51
Federal funds purchased	158,721		1,084		0.91		535,325		13,307		3.32
FHLB borrowings	14,257,198		336,751		3.16		7,131,551		167,765		3.14
Total interest-bearing liabilities	78,049,983		1,648,258		2.82	%	55,988,743		1,626,200		3.88	%
Non-interest bearing liabilities	3,377,836						3,919,997
Shareholders’ equity	10,102,949						9,227,208
Total liabilities and shareholders’ equity	$	91,530,768					$	69,135,948
Net interest spread					2.15	%					2.26	%
Net interest income/margin			$	1,528,064	2.39	%			$	1,375,254	2.81	%

On(1) ~~June~~Loan 30fees, ~~2009~~which ~~and~~are ~~December 31~~immaterial, ~~2008,~~are ~~the~~included ~~fair~~in ~~values~~interest ~~of our investment securities portfolio amounted to $23~~income.0 There ~~million~~were ~~and~~ $~~21.1 million and represented 26% and 27%~~2, ~~respectively~~362,104 ofin ~~interest-earning~~nonaccrual ~~assets.~~loans ~~Unrealized~~at ~~losses~~September 30, ~~net of tax benefit, on~~ ~~available~~2009 ~~for~~and ~~sale~~no ~~investment~~nonaccrual ~~securities~~loans ~~amounted to $424,643 and $27,761~~ at ~~June~~ September 30, ~~2009 and December 31,~~ 2008~~, respectively~~. Nonaccrual ~~Our~~loans ~~portfolio~~are ~~consisted~~included ofin ~~U.S.~~the ~~government sponsored~~average ~~agencies,~~balances ~~mortgage-backed~~above ~~agencies, taxable municipal securities~~ and ~~corporate~~income ~~(bank) bonds.~~on ~~All~~nonaccrual ofloans ~~our~~is ~~investment~~included ~~securities~~on ~~are~~the ~~classified~~cash asbasis ~~available~~ for ~~sale. The~~ ~~amortized~~yield ~~costs~~computation ~~and the fair value of our investment securities are shown in the following table~~purposes.

	June 30, 2009				December 31, 2008
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
U.S. Government sponsored agencies	$	11,517,894	$	11,294,829	$	7,519,147	$	7,630,533
Mortgage-backed agencies		3,032,971		3,055,445		8,342,833		8,477,722
Taxable municipal securities		5,387,535		5,261,483		925,359		900,650
Corporate bonds		3,747,495		3,430,740		4,403,823		4,140,195
Total	$	23,685,895	$	23,042,497	$	21,191,162	$	21,149,100

Our consolidated net interest margin for the quarter ended September 30, 2009 was 2.39%, a decrease of 42 basis points from the net interest margin of 2.81% for the same period in 2008. The average prime interest rate was 5.43% during the nine months ended September 30, 2008, while the average prime interest rate during the nine-month period ended September 30, 2009 was 3.25%. With a 218 basis point decrease in the average prime rate during the comparable periods, and with approximately 55% of our loan portfolio tied to the prime rate, we experienced an immediate decrease in loan yields as the prime rate decreases occurred as evidenced by the 131 basis point decline in loan yield over the comparable periods. The cost of interest-bearing liabilities decreased 106 basis points as rates on transaction deposit accounts were reduced and as higher priced certificates of deposits matured and were replaced at lower interest rates. Fixed maturity certificates of deposit are priced higher than core deposits and have stated maturity dates, so there is not an immediate decrease in the interest rates paid on these time deposits to offset the immediate decrease in loan yields. The net interest margin is calculated by dividing annualized net interest income by year-to-date average earning assets. Our net interest spread was 2.15% and 2.26% for the nine months ended September 30, 2009 and 2008, respectively. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. In pricing deposits, we consider our liquidity needs, the direction and levels of interest rates and local market conditions.

~~During the~~Provision six-month period ended June 30, 2009, two agency bonds were called and one corporate bond and six agency-mortgage-backed bonds were sold. The proceeds from the sales were reinvested in agency bonds and taxable municipal bonds. Although the corporate (bank) bond was considered investment grade at the time of sale, we had the opportunity to sell the bond at a gain and believed disposal was prudent in light of the current market conditions. The overall yield and/or average lives improved on the sales and replacement bonds. All sales resulted in gains totaling $143,098 for ~~the~~Loan ~~six months ended June 30, 2009.~~ Losses

Our ~~corporate~~provision ~~(bank)~~for ~~bonds~~loan ~~continue~~losses tofor bethe ~~designated~~nine ~~investment~~months ~~grade~~ended bySeptember 30, ~~Moody’s~~2009 ~~and~~was ~~Standard~~$428,185 &compared ~~Poors.~~to ~~Seven~~$182,990 offor ~~our~~the ~~corporate~~nine ~~bonds~~months ~~had~~ended ~~been~~September 30, 2008. inThis ~~unrealized~~134% ~~loss~~increase ~~positions for~~was ~~more~~primarily ~~than~~due 12to ~~months~~continued atgrowth ~~June~~in ~~30,~~the ~~2009.~~loan portfolio Weas ~~believe,~~well ~~based~~as ona ~~industry~~general ~~analyst~~increase ~~reports and~~in ~~credit~~the ~~ratings,~~allowance ~~that~~for ~~deterioration~~loan inlosses ~~fair~~as ~~values~~a percentage of ~~these~~loans ~~bonds~~due asto ~~well~~the ascurrent ~~other~~credit environment. Management evaluates ~~individual~~the ~~investment~~adequacy ~~securities~~of ~~available~~the reserve for ~~sale~~probable isloan ~~attributed~~losses togiven ~~changes~~the insize, ~~market~~mix, and ~~interest~~quality ~~rates~~of ~~and~~the ~~not~~current inloan ~~the~~portfolio. Management ~~credit~~also ~~quality~~relies ofon ~~the~~our ~~issuer~~limited ~~and~~history ~~therefore~~of past-dues and charge-offs, ~~these~~as ~~losses~~well ~~are not~~as ~~considered~~peer ~~other-than-temporary.~~data Weto ~~have~~determine ~~the~~our ~~ability~~loan ~~and~~loss ~~intent~~allowance. Refer to ~~hold~~the ~~these~~discussion below under “Allowance ~~securities~~for ~~until~~Loan ~~such~~Losses” ~~time~~for asa description of the ~~value~~factors ~~recovers~~we orconsider in determining the ~~securities~~amount ~~mature.~~of provision we expense each period in order to maintain an appropriate allowance for loan losses.

~~Investment~~We ~~securities~~increased ~~with~~our ~~market~~allowance ~~values~~as ofa ~~approximately~~percentage ~~$6.6~~of ~~million~~outstanding ~~and~~loans ~~$10.~~to 1.41% ~~million~~ at ~~June~~ September 30, 2009 ~~and~~from ~~December~~1.22% ~~31,~~at ~~2008~~September 30, ~~respectively, were pledged to secure public deposits and Federal Home Loan Bank borrowings~~2008.

At June 30, 2009 and December 31, 2008, we held non-marketable equity securities, which consisted of Federal Home Loan Bank stock of $799,300 and $755,900, respectively. Federal Home Loan Bank stock purchases are required as the level of Federal Home Loan Bank advances increase. No ready market exists for this stock and it has no quoted market value. Redemptions of this stock have historically been at par value. Accordingly, this investment is carried at cost, which approximates fair market value. This stock has historically paid a quarterly dividend, but is currently not paying a dividend due to the current economic environment and we are no longer accruing a dividend on this stock. 17

~~Loans~~Table of Contents

~~Since loans typically provide higher interest yields than other interest~~Non-~~earning assets, it is~~interest ~~our goal to ensure that the highest percentage of our earning assets is invested in our loan portfolio. Gross loans outstanding at June 30, 2009 and December~~ Income

18Non-interest income totaled $276,013 for the nine months ended September 30, 2009, an increase of $190,313, or 222%, over $85,700 during the nine months ended September 30, 2008. During the nine months ended September 30, 2009, we recognized $172,281 in gains on investment securities called or sold during the period, compared to $38,924 in gains for the nine months ended September 30, 2008. Mortgage loan fees increased to $39,096 for the nine-month period ended September, 30, 2009 from $5,245 in the comparable period in 2008 due to increased mortgage volume associated with the lower mortgage rate environment. Service charges on deposit accounts increased $14,131, or 34%, from $41,531 for the period ended September 30, 2008 to $55,662 for the comparable period in 2009 due to continued growth in deposits.

~~31, 2008 were $59.5 million and $54.7 million, respectively and represented 68% and 69% of interest~~Non-~~earning~~interest assets for each of the periods. The loan portfolio increased $4.8 million during the first six months of 2009. This measured growth level is indicative of the slowdown in the economy as well as of our desire to manage our credit risk in the current economic environment. Expenses

The ~~percentage~~following oftable ~~loans~~sets inforth ~~each~~our ~~category~~non-interest ~~remained~~expenses ~~relatively~~for ~~stable from December 31, 2008 to June 30, 2009, as shown in~~ the ~~table~~nine ~~below.~~month ~~Loans secured by real estate mortgages~~periods ~~comprised~~ended ~~approximately 83% of loans outstanding at June~~ September 30, 2009 and ~~82% at December 31,~~ 2008. Most of our real estate loans are secured by residential and commercial properties. We do not generally originate traditional long-term residential mortgages, but we do issue traditional second mortgage residential real estate loans and home equity lines of credit. We obtain a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans we make to 80%.

Due to the short time our portfolio has existed, the loan mix shown below may not be indicative of the ongoing portfolio mix. Management believes that the loan portfolio is adequately diversified, although loans secured by real estate comprise the majority of our portfolio.

	Nine Months Ended September 30,
	2009		2008
Compensation and employee benefits	$	788,646	$	800,803
Occupancy and equipment	151,704		151,834
Data processing and related costs	183,064		158,460
Marketing, advertising and shareholder communications	32,517		28,035
Legal and audit	72,510		48,664
Other professional fees	31,997		31,075
Supplies, postage and telephone	29,354		26,689
Insurance	13,247		12,409
Credit related expenses	28,782		8,603
Courier and armored carrier service	9,655		14,235
Regulatory fees and FDIC insurance	138,196		39,162
Other	35,892		38,721
Total non-interest expense	$	1,515,564	$	1,358,690

Non-interest expenses were $1,515,564 for the nine months ended September 30, 2009 compared to $1,358,690 for the same period ended September 30, 2008, for an increase of 12%. The most significant increase was in regulatory fees and ~~following~~FDIC ~~table~~insurance, ~~summarizes~~which increased from $39,162 for the ~~composition~~nine months ended September 30, 2008 to $138,196 for the same period ended September 30, 2009. The FDIC special assessment fee (charged to all federally-insured banks) of $41,840 as well as an increase in overall assessment rates to support economic recovery programs impacted this increase. Our deposit growth also contributed to the increase in FDIC insurance assessments. Data processing costs increased from $158,460 for the nine months ended September 30, 2008 to $183,064 for the same period ended September 30, 2009. This increase primarily represented our ~~loan~~core processor ~~portfolio~~charges, atwhich ~~June~~are, in part, based on growth of the Bank’s deposit accounts. Legal and audit fees increased from $48,664 for the nine months ended September 30, 2008 to $72,510 for the same period ended September 30, 2009 due to increases in the costs for both auditor and legal reviews of SEC ~~December~~filings 31for 2009. Credit related expenses increased from $8,603 for the nine months ended September 30, 2008. to $28,782 for the same period ended September 30, 2009 due to attorney fees associated with loan-related collection and foreclosures efforts and real estate taxes paid on foreclosed properties.

	June 30,						December 31,
	2009						2008
				Percentage						Percentage
	Amount			of Total			Amount			of Total
Real Estate:
Construction and development and land	$	18,123,105			30.5	%	$	16,853,472			30.8	%
Commercial		17,422,429			29.3			14,971,240			27.4
Residential mortgages		6,996,721			11.8			6,188,461			11.3
Home equity lines		6,953,410			11.7			6,585,586			12.1
Total real estate		49,495,665			83.3	%		44,598,759			81.6	%
Commercial		9,120,660			15.3	%		8,916,006			16.3	%
Consumer		833,559			1.4			1,145,660			2.1
Gross loans		59,449,884			100.0	%		54,660,425			100.0	%
Less allowance for loan losses		(769,878	)					(665,442	)
Total loans, net	$	58,680,006					$	53,994,983

Balance Sheet Review

Construction and development and land loans represented approximately 31% of total loans at June 30, 2009 and December 31, 2008. Loans secured by land represented approximately 70% of the construction and development and land category at June 30, 2009. We have concentrations of credit, generally defined as more than 25% of Tier 1 capital and the allowance for loan losses, in the residential construction and land loan categories. We believe that we have appropriate controls in place to monitor risks associated with these concentrations. General

~~Loans~~At September 30, ~~originated~~2009, astotal ~~exceptions~~assets were $102.2 million compared to $82.6 million at December 31, 2008, for an increase of $19.6 million, or 24%. The increase in assets included volume increases in our loan ~~policy~~and investment ~~guidelines~~portfolios ~~may~~as ~~pose~~well ~~additional~~as ~~credit~~our ~~risk~~federal tofunds sold balances, all of which ~~the~~increased ~~Bank~~primarily from growth in local deposits. Interest-earning assets comprised approximately 94% and 95% of total assets at September 30, if2009 ~~not~~and ~~monitored~~December 31, 2008, ~~properly~~respectively. WeGross ~~regularly~~loans ~~monitor~~totaled $59.7 million, an increase of $5.0 million, or 9%, from $54.7 million at December 31, 2008. Investment securities and ~~report~~Federal Home Loan Bank stock amounted to ~~the~~$25.5 ~~board~~million ofat September 30, 2009. At September 30, 2009, we had federal ~~directors~~funds ~~all~~sold ~~loans~~balances ~~approved~~of ~~with~~$10.6 ~~loan~~million ~~policy~~compared ~~exceptions~~to $2.2 million at December 31, 2008.

~~Commercial~~Deposits ~~real~~totaled ~~estate~~$78.4 ~~loans~~million ~~and~~at ~~construction~~September 30, ~~and~~2009, ~~development~~a ~~loans~~$20.7 ~~generally~~million, ~~entail~~or ~~additional risks~~36%, asincrease ~~these~~from ~~loans typically involve larger balances to single borrowers or groups of related borrowers~~$57.7 ~~The~~million ~~repayment~~at ofDecember 31, ~~these loans is typically dependent upon the successful operation of the real estate project~~2008. Federal ~~These~~Home ~~risks~~Loan ~~can~~Bank beadvances ~~significantly~~totaled ~~affected by supply~~$12.5 ~~and~~million ~~demand~~at ~~in the market~~September 30, ~~and~~2009, ~~as such, are subject to~~ a ~~greater extent to adverse conditions in the local economy~~$2.0 Inmillion, ~~light~~or of14% ~~the~~decrease ~~current~~from ~~economic conditions and supply~~$14.5 ~~and~~million ~~demand~~at ~~associated with real estate in our market~~December 31, ~~these~~2008. Shareholders’ ~~categories~~equity ofwas ~~our~~$10.7 ~~loan portfolio~~million ~~pose~~at ~~additional credit risk~~September 30, ~~and we have identified large performing loans~~2009, ~~not~~a ~~considered~~$1.1 ~~impaired~~million, ~~within~~or ~~these~~12% ~~categories,~~increase ~~but~~from ~~with~~$9.6 ~~risk~~million ~~characteristics~~at ~~impacted~~December 31, ~~by the current economic environment~~2008. The Weincrease ~~have~~in ~~allocated~~shareholders’ anequity ~~amount associated with significant~~was ~~individual~~primarily ~~credits~~attributable ~~not~~to ~~considered~~our ~~impaired,~~sale asof apreferred ~~component~~stock ofpursuant to our participation ~~overall~~in ~~allowance~~the ~~for loan losses~~U.S. InTreasury’s ~~dealing~~CPP ~~with~~as ~~these~~well ~~risk~~as ~~factors,~~unrealized wegains ~~generally limit our loans to our local~~on ~~real~~available ~~estate~~for ~~market~~sale ~~or to borrowers with which we have experience~~investments.

~~Impairment and Potential Problem Loans~~ 18

~~We discontinue~~Table ~~accrual~~ of interest on a loan when we conclude that it is doubtful that we will be able to collect interest from the borrower. Generally, a loan will be placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when management believes, after considering the borrower’s financial condition, economic and the borrower’s Contents

19Investments

~~industry~~On ~~conditions~~September 30, 2009 ifand ~~applicable~~December 31, ~~and~~ ~~collection efforts~~2008, ~~that~~ the ~~borrower’s~~fair ~~financial~~values ~~condition~~of isour ~~such~~investment ~~that~~securities ~~collection~~portfolio ofamounted ~~the~~to ~~loan~~$24.7 ismillion ~~doubtful~~and $21.1 Amillion ~~payment~~and represented 26% and 27%, respectively, of interest-earning onassets. Unrealized again, ~~loan~~net ~~that~~of isincome ~~classified~~tax, ~~as nonaccrual~~on ~~will~~available befor ~~recognized~~sale asinvestment securities ~~income~~amounted ~~when~~to ~~received.~~$205,288 ~~When~~and aunrealized ~~loan~~losses, isnet ~~placed~~of ontax ~~nonaccrual~~benefit, were ~~status~~$27,761 ~~all~~at ~~previously~~September 30, ~~accrued~~2009 ~~but~~and ~~unpaid~~December 31, ~~interest~~2008, respectively. Our isportfolio ~~reversed~~consisted ~~and~~of U.S. isgovernment ~~deducted~~sponsored ~~from reported~~agencies, ~~interest~~mortgage-backed ~~income~~agencies, taxable municipal securities and ~~earnings~~corporate (bank) bonds. All ~~Once~~of aour ~~loan~~investment issecurities ~~placed~~are onclassified ~~nonaccrual~~as ~~status,~~available nofor sale. ~~additional~~The ~~interest~~amortized iscosts ~~accrued~~and onthe fair value of our investment securities are shown in the ~~loan~~following ~~balance~~table.

We had no loans 90 days or more past due at June 30, 2009. Impaired loans are generally nonperforming loans or loans which are 90 days or more delinquent as to principal and interest payments. During the second quarter, we identified one impaired loan totaling $1,168,000 and placed this loan on nonaccrual status. While this loan was less than 90 days past due, management received information indicating that the borrower is unable to repay the loan. Interest reversed on this loan totaled $28,000. Based on our evaluation of the deteriorating financial condition of the borrower and its inability to repay the loan, we considered this loan impaired under the criteria defined in FAS 114, “Accounting by Creditors for Impairment of a Loan”, at June 30, 2009. This loan is collateralized by residential real estate, and we have a recent appraisal, which indicates that the fair value of the property less estimated selling costs is more than sufficient to cover our outstanding loan balance. Accordingly at June 30, 2009, there was no impairment charge associated with the loan. Management will continue to assess the collateral value associated with this loan. In the second quarter of 2009, foreclosure proceedings and a judgment against three borrowers were finalized and a total of $248,749 was charged-off. There were no accruing loans which were contractually past due 90 days or more as to principal or interest payments.

	September 30, 2009				December 31, 2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Government sponsored agencies	$	12,570,660	$	12,756,174	$	7,519,147	$	7,630,533
Mortgage-backed agencies	2,554,383		2,606,833		8,342,833		8,477,722
Taxable municipal securities	6,025,429		6,111,642		925,359		900,650
Corporate bonds	3,259,370		3,246,236		4,403,823		4,140,195

Total	$	24,409,842	$	24,720,885	$	21,191,162	$	21,149,100

WeDuring ~~maintain~~the anine-month ~~list~~period ofended ~~potential~~September 30, ~~problem~~2009, ~~loans~~we ~~that~~sold ~~are~~the ~~not~~following investment insecurities: six ~~nonaccrual~~mortgage-backed ~~status~~securities, ~~but~~two ~~that~~corporate ~~exhibit~~bonds ~~signs~~and oftwo ~~credit~~taxable ~~issues~~municipal bonds. Additionally, Wethree ~~add~~agency ~~loans~~bonds towere ~~this~~called. ~~list~~The ~~when~~proceeds wefrom ~~become~~these sales ~~aware~~and ~~of potential~~calls ~~deterioration~~were reinvested in ~~the~~agency ~~borrower’s~~bonds ~~ability~~and totaxable ~~perform~~municipal bonds. ~~These~~Although the ~~loans~~corporate ~~are~~(bank) bonds were considered investment grade at the time of ~~identified~~sale, inwe ~~order~~had the opportunity to ~~closely~~sell ~~monitor~~the bonds at a gain and believed disposal was prudent in light of the ~~status.~~current Atmarket ~~June~~conditions. The 30overall yield, ~~2009~~average lives or risk-based asset ratios of our investment securities improved as a result of these transactions. The two out-of-state taxable municipal revenue bonds were swapped for South Carolina municipal general obligation bonds, wewhich ~~had~~improved our ~~identified~~risk-based asset percentages. All ~~potential~~sales ~~problem~~and ~~loans~~calls resulted in gains totaling $1172,~~126~~281 for the nine months ended September 30,~~000~~ 2009.

~~Allowance~~Our corporate (bank) bonds continue to be designated investment grade by Moody’s and Standard & Poors. Three of our corporate bonds had been in unrealized loss positions for ~~Loan~~more ~~Losses~~than 12 months at September 30, 2009. We believe, based on industry analyst reports and credit ratings, that deterioration in fair values of these bonds as well as other individual investment securities available for sale is attributed to changes in market interest rates and not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary. We have the ability and intent to hold these securities until such time as the value recovers or the securities mature.

~~We have~~Investment ~~established~~securities anwith ~~allowance~~market ~~for~~values ~~loan losses through a provision for loan losses charged to expense on our consolidated statements~~ of ~~income. The allowance for loan losses was~~ ~~$769,878~~approximately ~~and~~ $~~665,442~~7.3 asmillion ~~of June 30, 2009~~ and ~~December 31, 2008, respectively, and represented 1~~$10.~~30%~~1 ofmillion ~~outstanding loans~~ at ~~June~~ September 30, 2009 and ~~1.22% as of~~ December 31, ~~2008.~~ The allowance for loan losses represents an amount which we believe will be adequate to absorb probable losses on existing loans that may become uncollectible. Our allowance for loan losses covers estimated credit losses on individually evaluated loans that are determined to be impaired2008, as well as estimated credit losses inherent in the remainder of the loan portfolio. Our judgment as to the adequacy of the allowance for loan losses is based on a number of assumptions about future eventsrespectively, ~~which~~were wepledged ~~believe~~ to besecure ~~reasonable, but~~public ~~which~~deposits ~~may or may not prove to be accurate. We believe we have an effective loan review system~~ and ~~loan~~Federal ~~grading system that is designed to identify, monitor and address asset~~Home ~~quality~~Loan ~~problems~~Bank ~~in an accurate and timely manner~~advances. Our determination of the allowance for loan losses is based on evaluations of the collectibility of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, economic conditions that may affect the borrower’s ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience, and a review of specific problem loans. We also consider subjective issues such as changes in the lending policies and procedures, changes in the local/national economy, changes in volume or type of credits, changes in volume/severity of problem loans, quality of loan review and board of director oversight, concentrations of credit, and peer group comparisons.

~~Due to~~At ~~our short operating history~~September 30, ~~the~~2009 ~~loans in our loan portfolio~~ and ~~our lending relationships are of very recent origin. In general~~December 31, ~~loans do not begin to show signs of~~ ~~credit deterioration or default until they have been outstanding for some period of time~~2008, a ~~process~~we ~~known~~held asnon-marketable ~~seasoning.~~equity ~~As a result~~securities, awhich ~~portfolio~~consisted of ~~older~~Federal ~~loans will usually behave~~Home ~~more~~Loan ~~predictably~~Bank ~~than~~stock aof ~~newer portfolio. Because our loan portfolio is new~~$799,300 ~~the current level of delinquencies~~ and ~~defaults may not be representative of the level that will prevail when the portfolio becomes more seasoned~~$755,900, ~~which may be higher than current levels~~respectively. In Federal ~~recent~~Home ~~months,~~Loan ~~many banks, including our~~ Bank, ~~have~~stock ~~begun~~purchases ~~to see an overall decline in~~are ~~credit~~required ~~quality~~as ~~and~~the ~~have~~level ~~increased~~of ~~their~~Federal ~~allowance~~Home ~~for~~Loan ~~loan~~Bank ~~losses~~advances ~~accordingly~~increase. No Weready ~~continue to~~market ~~carefully~~exists ~~monitor our loan portfolio~~ for ~~deterioration.~~this Ifstock ~~delinquencies~~ and ~~defaults~~it ~~increase,~~has weno ~~may~~quoted bemarket ~~required to increase our provision for loan losses, which would~~value. Redemptions ~~adversely~~of ~~affect~~this ~~our~~stock ~~results~~have ofhistorically ~~operations~~been ~~and~~at ~~financial~~par ~~condition~~value. ~~Periodically~~Accordingly, wethis ~~will~~investment ~~adjust~~is ~~the~~carried ~~amount~~at ofcost, ~~the~~which ~~allowance~~approximates ~~based~~fair onmarket ~~changing circumstances~~value. The WeFederal ~~charge~~Home ~~recognized losses~~Loan toBank ~~the~~may ~~allowance~~pay ~~and~~a ~~add subsequent recoveries back to the allowance for loan~~dividend ~~losses.~~on ~~There~~its ~~can~~stock ~~be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated~~ at ~~any~~their ~~point in time or that provisions for loan losses will not be significant to a particular accounting period~~discretion.

In calculating the allowance for loan losses, we utilize a credit grading system, which we apply to each loan. We calculate our general reserve based on historical and peer loss percentage allocations of each of the categories of unclassified loan types, including commercial, commercial real estate, construction and development, residential mortgages, home equity lines of credit and consumer loans. The loss factors are adjusted for qualitative factors, including those described above. We also analyze individual significant credits not considered impaired and maintain a general unallocated reserve in accordance with December 2006 regulatory guidance in our assessment of the allowance for loan losses. Significant individual credits criticized as special mention or classified as substandard or doubtful require individual analysis. Loans in the substandard category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action such as declining or negative earnings trends and declining or inadequate liquidity or collateral. Loans in the doubtful category exhibit the same

20Since loans typically provide higher interest yields than other interest-earning assets, it is our goal to ensure that the highest percentage of our earning assets is invested in our loan portfolio. Gross loans outstanding at September 30, 2009 and December 31, 2008 were $59.7 million and $54.7 million, respectively and represented 63% and 69% of interest-earning assets for each of the periods. The loan portfolio increased $5.0 million during the first nine months of 2009. This measured growth level is indicative of the slowdown in the economy as well as of our desire to manage our credit risk in the current economic environment.

~~weaknesses~~The percentage ~~found~~of loans in ~~the~~each ~~substandard~~ category, ~~but~~remained ~~the~~relatively ~~weaknesses~~stable ~~are~~from ~~more~~December 31, 2008 ~~pronounced.~~to ~~These~~September 30, ~~loans~~2009, ~~are not yet rated~~ as ~~loss because~~shown ~~certain~~in ~~events~~the ~~may~~table ~~occur~~below. Loans ~~which~~secured ~~could~~by ~~repay~~real ~~the~~estate ~~debt. Loans classified as~~mortgages ~~substandard,~~comprised ~~but~~approximately ~~not~~83% ~~impaired,~~of ~~totaled~~loans ~~$1,126,000~~outstanding at ~~June~~ September 30, 2009. ~~These loans were~~and ~~performing~~82% ~~and~~at ~~were~~December 31, ~~not~~2008. ~~past~~Most ~~due~~of 30our ~~days~~real orestate ~~more~~loans atare ~~June~~secured ~~30, 2009, but these borrowers~~by ~~have~~residential ~~exhibited~~and ~~past~~commercial ~~performance issues~~properties. InWe ~~situations~~do ~~where~~not agenerally ~~loan~~originate traditional islong-term ~~considered~~residential ~~impaired~~mortgages, ~~the~~ ~~loans~~but ~~are~~we ~~excluded~~do ~~from~~issue ~~the~~traditional ~~general reserve calculations and are assigned a specific~~second ~~reserve.~~mortgage ~~The~~residential ~~specific~~real ~~reserve~~estate isloans ~~based~~and onhome ~~our~~equity ~~analysis~~lines of ~~the~~credit. ~~most probable source of~~We ~~repayment~~obtain ~~which~~a issecurity ~~usually~~interest ~~the~~in ~~liquidation~~real ofestate ~~the~~whenever ~~underlying collateral~~possible, ~~but~~in ~~may also include discounted future cash flows.~~

We have retained an independent consultant to review our loan files on a test basis to assess the grading of samples of loans. In addition, various regulatory agencies review our allowance for loan losses through their periodic examinations, and they may require us to record additions to the allowance for loan losses based on their judgment about information made available to them at the time of their examination. Our losses will undoubtedly vary from our estimates, and there is the possibility that charge-offs in future periods will exceed the allowance for loan losses as estimated at any point in time. 19

~~We had~~Table noof loans classified as doubtful at June 30, 2009 and December 31, 2008. Charge-offs for the six month period ended June 30, 2009 were $248,749 compared to none for the same period in 2008. Management pursues recoveries on loans charged-off; however, it is not possible at this time to determine the amount, if any, which may be recovered. Activity in the allowance for loan losses account is shown below. Contents

Beginning allowance for loan losses at December 31, 2008	$	652,320
Additions to allowance for loan losses charged to provision		366,307
Loans charged-off:
Commercial real estate		(113,749	)
Commercial		(135,000	)
Total loans charged-off		(248,749	)
Recoveries on loans previously charged-off		-
Ending allowance for loan losses at June 30, 2009	$	769,878

addition to any other available collateral. This collateral is taken to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans we make to 80%.

~~Other~~Due to the short time our portfolio has existed, the loan mix shown below may not be indicative of the ongoing portfolio mix. Management believes that the loan portfolio is adequately diversified, although loans secured by real estate comprise the majority of our portfolio.

~~Loans transferred~~The tofollowing ~~other~~table ~~real~~summarizes ~~estate totaled $1,060,000 at June 30, 2009. Other real estate is recorded at~~ the ~~lower~~composition of ~~net principal~~ our loan ~~balance~~portfolio ~~outstanding or estimated fair market value less estimated selling costs. Estimated fair market values are based on appraisals obtained~~ at ~~the~~September 30, ~~time~~2009 ofand ~~acquisition~~December 31, ~~of the properties by the Bank~~2008. ~~Other real estate consists of residential as well as commercial properties.~~

Deposits

	September 30, 2009					December 31, 2008
	Amount			Percentage of Total		Amount			Percentage of Total
Real Estate:
Construction and development and land	$	16,714,789		28.0	%	$	16,853,472		30.8	%
Commercial	18,664,230			31.3		14,971,240			27.4
Residential mortgages	7,172,861			12.0		6,188,461			11.3
Home equity lines	7,157,762			12.0		6,585,586			12.1
Total real estate	49,709,642			83.3	%	44,598,759			81.6	%
Commercial	8,747,563			14.7		8,916,006			16.3
Consumer	1,240,332			2.0		1,145,660			2.1
Gross loans	59,697,537			100.0	%	54,660,425			100.0	%
Less allowance for loan losses	(841,525		)			(665,442		)
Total loans, net	$	58,856,012				$	53,994,983

~~Our~~Construction ~~primary~~and ~~source~~development ofand ~~funds~~land ~~for~~loans ~~our~~represented ~~loans~~approximately 28% and ~~investments~~31% isof ~~our~~total loans ~~deposits.~~at ~~Deposits~~September 30, ~~increased $11.2~~2009 ~~million~~and December 31, ~~from~~2008, ~~$57~~respectively.7 Loans ~~million~~secured atby ~~December~~land ~~31,~~represented approximately ~~2008~~74% toof ~~$64.9~~the ~~million~~construction atand ~~June~~development and land category at September 30, 2009. We have concentrations of credit, ~~The~~generally ~~following~~defined ~~table~~as ~~shows~~more ~~the~~than ~~composition~~25% of ~~deposits~~Tier at1 ~~June~~capital ~~30,~~and ~~2009~~the ~~and~~allowance ~~December~~for ~~31,~~loan ~~2008~~losses, in the land loan category. We believe that we have appropriate controls in place to monitor risks associated with these concentrations.

	June 30, 2009					December 31, 2008
			Percent of					Percent of
	Amount		Total			Amount		Total
Non-interest bearing demand deposits	$	2,299,125		3.34	%	$	3,462,092		6.00	%
Interest bearing checking		5,245,232		7.61			3,040,574		5.27
Money market and savings		19,560,870		28.38			17,430,631		30.22
Time deposits less than $100,000		7,726,777		11.22			4,808,562		8.34
Time deposits $100,000 and over		14,096,836		20.45			10,180,358		17.65
Brokered time deposits, less than $100,000		19,994,000		29.00			18,756,000		32.52
Total	$	68,922,840		100.00	%	$	57,678,217		100.00	%

Loans originated as exceptions to our loan policy guidelines may pose additional credit risk to the Bank, if not monitored properly. We regularly monitor and report to the board of directors all loans approved with loan policy exceptions.

~~Core~~Commercial ~~deposits,~~real ~~which~~estate ~~exclude~~loans ~~time~~and ~~deposits~~construction ofand ~~$100,000~~development loans generally entail additional risks as these loans typically involve larger balances to single borrowers or ~~more~~groups ~~and~~of ~~brokered~~related ~~certificates~~borrowers. The repayment of these loans is typically dependent upon the successful ~~deposit,~~operation ~~provide~~of athe ~~relatively~~real ~~stable~~estate ~~funding~~project. These ~~source~~risks ~~for~~can ~~our~~be ~~loan~~significantly ~~portfolio~~affected by supply and ~~other~~demand in the ~~earning~~market, ~~assets.~~and, ~~Our~~as ~~core~~such, ~~deposits~~are ~~were~~subject ~~$34~~to a greater extent to adverse conditions in the local economy.8 In ~~million~~light of the current economic conditions and ~~$28.7~~supply ~~million~~and atdemand ~~June~~associated ~~30,~~with ~~2009~~real estate ~~and~~in ~~December~~our 31market, ~~2008,~~these ~~respectively.~~categories ~~Our~~of our loan~~-to-deposit~~ ~~ratio~~portfolio ~~was~~pose ~~86%~~additional credit risk, and ~~95%~~we athave ~~June~~identified 30large performing loans, ~~2009~~ ~~and~~not ~~December~~considered 31impaired, within ~~2008~~these categories, ~~respectively.~~but ~~Local~~with ~~deposits~~risk ~~increased~~characteristics ~~$10~~impacted by the current economic environment.0 We ~~million,~~have orallocated an ~~90%~~amount associated with significant individual credits not considered impaired, as a component of ~~the~~our ~~total~~overall ~~deposit~~allowance ~~growth~~for ~~during~~loan ~~the~~losses. In ~~first~~dealing ~~six-months~~with ofthese risk factors, we generally limit our loans to our local real estate market or to borrowers with which we have experience.

21Non-performing Loans, Impairment and Potential Problem Loans

~~2009,~~We discontinue ~~and~~accrual of interest on a loan when we ~~were~~conclude that it is doubtful that we will be able to ~~decrease~~collect interest from the borrower. Generally, a loan ~~our~~will ~~reliance~~be placed on ~~brokered~~nonaccrual ~~deposits~~status inwhen ~~the~~it ~~first~~becomes ~~six~~90 ~~months~~days ofpast ~~2009~~due ~~compared~~as to principal or interest, or when management believes, after considering the borrower’s ~~same~~financial condition, economic ~~period~~and the borrower’s industry conditions, if applicable, and collection efforts, that the borrower’s financial condition is such that collection of ~~2008~~the loan is doubtful. ~~All~~A ofloan ~~our~~on nonaccrual ~~time~~status ~~deposits~~is ~~are~~considered ~~certificates~~a non-performing loan. A payment of ~~deposits~~interest on a loan that is classified as nonaccrual will be recognized as income when received. When a loan is placed on nonaccrual status, all previously accrued but unpaid interest is reversed and is deducted from reported interest income and earnings. Once a loan is placed on nonaccrual status, no additional interest is accrued on the loan balance. We had three loans 90 days or more past due and on nonaccrual status at September 30, 2009.

AsImpaired aloans ~~participant~~are ingenerally ~~the~~nonperforming ~~FDIC’s~~loans ~~TLGP,~~or ~~our~~loans ~~Bank~~which ~~will~~are ~~incur~~90 ~~additional~~days ~~FDIC~~or ~~premium costs~~more indelinquent ~~2009~~as ~~associated~~to ~~with~~principal ~~our~~and ~~participation~~interest payments. At September 30, 2009 we had identified impaired loans of $2,734,955 compared to $1,223,942 at December

~~Borrowings and lines of credit~~ 20

~~At June~~Table ~~30, 2009, the Bank had short-term lines~~ of credit with correspondent banks to purchase a maximum of $4.0 million in unsecured federal funds on a one to fourteen day basis for general corporate purposes. The interest rate on borrowings under these lines is the prevailing market rate for federal funds purchased. These accommodation lines of credit are renewable annually and may be terminated at any time at the correspondent banks’ sole discretion. The Bank utilized these lines of credit during the six months ended June 30, 2009, but did not utilize these lines of credit during the second quarter of 2009. The average amount outstanding during the six months ended June 30, 2009 was $259,000. No amounts were outstanding at any month-end during the six months ended June 30, 2009 and the average interest rate paid on these borrowings was .90%. The average amount outstanding during the year ended December 31, 2008 was $554,000 and the highest month-end amount outstanding during 2008 was $2.2 million. The average interest rate paid on these borrowings during the year was 2.94%. There were no outstanding amounts on these lines of credit at June 30, 2009 and December 31, 2008. Contents

We31, 2008. Of the impaired ~~are~~loans ~~also~~identified aat ~~member~~September 30, 2009, $2,362,104 was on non-accrual status. While two of ~~the~~these ~~Federal~~loans ~~Home~~were ~~Loan~~less ~~Bank.~~than At90 ~~June~~days 30past-due, ~~2009~~management received ~~and~~information ~~December~~indicating ~~31,~~that ~~2008,~~the borrowers are unable to repay the weloan. Interest ~~had~~reversed on these loans totaled $1434,121.5 ~~million~~Based ~~outstanding~~on inour ~~Federal~~evaluation ~~Home~~of ~~Loan~~the ~~Bank~~deteriorating ~~borrowings.~~financial condition Atof ~~June~~the ~~30,~~borrowers ~~2009~~and their inability to repay the loans, we considered ~~had~~these ~~borrowing~~loans ~~capacity~~impaired ~~with~~under the ~~Federal~~criteria ~~Home~~defined ~~Loan~~in ~~Bank~~FAS 114, “Accounting by Creditors for Impairment of ~~approximately~~a $4Loan”, at September 30, 2009.4 ~~million~~These loans ~~based~~are oncollateralized aby ~~percentage~~various ofassets, ~~our~~including ~~total~~vacant ~~assets.~~land, ~~Average~~residential lots, and ~~maximum~~commercial ~~amounts~~real ~~outstanding~~estate. ~~were~~We have obtained or are in the process of obtaining ~~$14.5~~updated ~~million~~appraisals ~~during~~on the ~~six-month~~collateral ~~period~~associated ~~ended~~with ~~June~~these loans. Based on information available to management at September 30, 2009, atwe anhave ~~average~~specifically ~~interest~~allocated ~~rate~~ $240,000 of ~~3.16%.~~the allowance ~~The~~for ~~average~~loan ~~amount~~losses ~~outstanding~~to ~~during~~these ~~the~~impaired ~~year~~loans. Management ~~ended~~will ~~December~~continue ~~31,~~to ~~2008~~assess ~~was~~the collateral $8value associated with these loans.9 ~~million~~There ~~and~~were ~~the~~no ~~maximum~~accruing ~~amount~~loans ~~outstanding~~which ~~during~~were ~~the~~contractually ~~period~~past ~~was~~due ~~$14.5~~90 ~~million~~days or atmore ~~an average~~as ~~interest~~to ~~rate~~principal ofor ~~3.23%.~~interest payments.

~~Capital~~We maintain ~~Resources~~a list of potential problem loans that are not in nonaccrual status and not considered impaired but that exhibit signs of credit issues. We add loans to this list when we become aware of potential deterioration in the borrower’s ability to perform. These loans are identified in order to closely monitor the status. At September 30, 2009, we had identified potential problem loans totaling $637,000.

~~Total shareholders’~~Allowance equity increased $468,102 from $9.6 million at December 31, 2008 to $10.1 million at June 30, 2009 primarily due to our issuance of preferred stock to the U.S. Treasury. Common stock increased $26,994 due to stock options compensation expense accrued during the six months ended June 30, 2009. We incurred an unrealized loss, net of tax benefit, of $396,882 on investment securities available for ~~sale,~~ ~~which~~Loan ~~decreased shareholders’ equity during the six-month period. In addition, our net loss of $148,081 for the six months ended June 30, 2009 decreased shareholders’ equity.~~ Losses

~~The~~We ~~Federal~~have ~~Reserve~~established ~~and~~an ~~bank~~allowance ~~regulatory~~for ~~agencies~~loan ~~require~~losses ~~bank~~through ~~holding~~a ~~companies~~provision ~~and~~for ~~financial~~loan ~~institutions~~losses charged to ~~maintain~~expense ~~capital~~on atour ~~adequate~~consolidated ~~levels~~statements ~~based~~of onincome. aThe allowance ~~percentage~~for ofloan ~~assets~~losses ~~and off-balance~~was ~~sheet~~$841,525 ~~exposures~~and $665,442 ~~adjusted~~as ~~for~~of ~~risk~~September 30, 2009 ~~weights~~and ~~ranging~~December 31, ~~from~~2008, 0%respectively, toand ~~100%~~represented 1.41% ~~The~~of ~~Federal~~outstanding ~~Reserve~~loans ~~guidelines~~at ~~contain~~September 30, an2009 ~~exemption~~and ~~from~~1.22% ~~the~~as ~~capital~~of ~~requirements~~December 31, 2008. The allowance for ~~“small~~ ~~bank~~loan ~~holding~~losses ~~companies”,~~represents an amount which inwe ~~2006~~believe ~~were~~will be ~~amended~~adequate to ~~cover~~absorb ~~most~~probable ~~bank holding~~losses ~~companies~~on ~~with~~existing ~~less~~loans ~~than~~that ~~$500~~may ~~million~~become uncollectible. inOur ~~total~~allowance ~~assets~~for ~~that~~loan dolosses ~~not~~covers ~~have~~estimated acredit ~~material~~losses on ~~amount~~individually ofevaluated ~~debt~~loans orthat ~~equity~~are ~~securities~~determined ~~outstanding~~to ~~registered~~be ~~with~~impaired, ~~the~~as ~~SEC.~~well ~~Although~~as estimated wecredit ~~file periodic~~losses ~~reports~~inherent ~~with~~in the ~~SEC,~~remainder weof ~~believe~~the ~~that~~loan ~~because~~portfolio. ~~our~~Our judgment ~~stock~~as isto ~~not~~the ~~registered~~adequacy ~~under Section 12~~ of the ~~Securities~~allowance ~~Exchange~~for ~~Act~~loan ~~and~~losses is ~~not~~based ~~listed~~ on ~~any exchange or otherwise~~a ~~actively~~number ~~traded,~~of ~~the~~assumptions ~~Federal~~about ~~Reserve~~future ~~Board~~events, ~~will~~which ~~interpret~~we ~~its~~believe ~~new guidelines~~ to ~~mean~~be ~~that~~reasonable, webut ~~qualify~~which asmay aor ~~small~~may ~~bank~~not ~~holding~~prove ~~company~~to be accurate. ~~Nevertheless,~~We ~~our~~believe ~~Bank~~we ~~remains~~have ~~subject~~an toeffective ~~these~~loan ~~capital~~review ~~requirements.~~system ~~Failure~~and toloan ~~meet~~grading ~~minimum~~system ~~capital~~that ~~requirements~~is ~~can~~designed ~~initiate~~to identify, ~~certain~~monitor ~~mandatory~~ and ~~possibly~~address ~~additional~~asset ~~discretionary~~quality ~~actions~~problems byin ~~regulators~~an ~~that,~~accurate ~~if undertaken,~~and ~~could~~timely ~~have~~manner. Our adetermination ~~direct~~of ~~material~~the ~~effect~~allowance for loan losses is based on evaluations of the ~~Bank’s~~collectibility ~~financial~~of ~~statements.~~loans, including ~~Under~~consideration ~~capital~~of ~~adequacy~~factors ~~guidelines~~such ~~and~~as the ~~regulatory~~balance ~~framework~~of ~~for~~impaired ~~prompt~~loans, ~~corrective~~the quality, ~~action~~mix, ~~the~~and ~~Bank~~size ~~must~~of ~~meet~~our ~~specific~~overall ~~capital~~loan ~~guidelines~~portfolio, ~~that~~economic ~~involve~~conditions ~~quantitative~~that ~~measures~~may ofaffect the ~~Bank~~borrowers’s ~~assets,~~ability ~~liabilities~~to ~~and~~repay, ~~certain~~the ~~off-balance~~amount ~~sheet~~and ~~items~~quality asof ~~calculated~~collateral ~~under~~securing ~~regulatory~~the ~~accounting~~loans, ~~practices.~~our ~~The~~historical ~~Bank’s~~loan ~~capital~~loss ~~amounts~~experience, and ~~classifications~~a review of ~~are~~specific problem loans. We also ~~subject~~consider tosubjective ~~qualitative~~issues ~~judgments~~such byas changes in the ~~regulators~~lending ~~about~~policies ~~components~~and procedures, ~~risk~~changes in the local/national economy, ~~weightings~~changes in volume or type of credits, ~~and~~changes ~~other~~in ~~factors.~~volume/severity ~~Regardless~~of problem loans, ~~our~~quality ~~Bank~~of isloan ~~“well~~review ~~capitalized”~~and ~~under these~~board ~~minimum~~of ~~capital~~director ~~requirements~~oversight, asconcentrations of ~~set~~credit, ~~per~~and ~~bank~~peer ~~regulatory~~group ~~agencies~~comparisons.

~~Under~~Due to ~~the~~our ~~capital~~short ~~adequacy~~operating ~~guidelines~~history, ~~regulatory~~the ~~capital~~loans isin ~~classified~~our ~~into~~loan ~~two~~portfolio ~~tiers.~~and ~~These~~our lending ~~guidelines~~relationships ~~require~~are anof ~~institution~~very torecent ~~maintain~~origin. aIn ~~certain~~general, ~~level~~loans do not begin to show signs of ~~Tier~~credit 1deterioration ~~and~~or ~~Tier~~default 2until ~~capital~~they have been outstanding for tosome ~~risk-weighted~~period ~~assets.~~of ~~Tier~~time, 1a ~~capital~~process ~~consists~~known ofas ~~common~~seasoning. ~~shareholders’~~As ~~equity~~a result, a portfolio of ~~excluding~~older ~~the~~loans ~~unrealized~~will ~~gain~~usually orbehave ~~loss~~more onpredictably ~~securities~~than ~~available~~a ~~for~~newer ~~sale~~portfolio. Because our loan portfolio is new, ~~minus~~the ~~certain~~current level of delinquencies and ~~intangible~~defaults ~~assets.~~may Innot ~~determining~~be representative of the ~~amount~~level ofthat ~~risk-weighted~~will ~~assets,~~prevail ~~all~~when ~~assets,~~the ~~including~~portfolio ~~certain~~becomes ~~off-balance~~more ~~sheet assets~~seasoned, ~~are~~which ~~multiplied~~may bybe ahigher ~~risk-weight~~than ~~factor~~current oflevels. In ~~0% to~~recent ~~100%~~months, ~~based~~many onbanks, ~~the~~including ~~risks~~our Bank, ~~believed~~have begun to besee ~~inherent~~an overall decline in ~~the~~credit ~~type~~quality ofand ~~asset~~have increased their allowance for loan losses accordingly. ~~Tier~~We 2continue ~~capital~~to carefully monitor ~~consists~~our ofloan ~~Tier~~portfolio 1for ~~capital~~deterioration. If delinquencies ~~plus~~and ~~the~~defaults ~~general~~increase, ~~reserve~~we may be required to increase our provision for loan losses, ~~subject~~which towould ~~certain~~adversely affect our results of ~~limitations~~operations and financial condition. Periodically, we will adjust the amount of the allowance based on changing circumstances. We ~~are~~charge ~~also~~recognized ~~required~~losses to the ~~maintain~~allowance ~~capital~~and atadd asubsequent ~~minimum~~recoveries ~~level~~back ~~based~~to onthe ~~total~~allowance for loan ~~average~~losses. ~~assets,~~There ~~which~~can isbe ~~known~~no asassurance that charge-offs of loans in future periods will not exceed the ~~Tier~~allowance 1for ~~leverage~~loan ~~ratio.~~losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period.

AtIn calculating the ~~bank~~allowance ~~level~~for loan losses, we ~~are~~utilize ~~subject~~a credit grading system, which we apply to ~~various~~each ~~regulatory~~loan. We calculate ~~capital~~our ~~requirements~~general ~~administered~~reserve bybased on historical and peer loss percentage allocations of each of the ~~federal~~categories ~~banking~~of ~~agencies.~~unclassified Toloan betypes, ~~considered~~including ~~“adequately~~commercial, commercial ~~capitalized”~~real ~~under~~estate, construction and development, residential mortgages, ~~these~~home ~~capital~~equity ~~guidelines~~lines of credit and consumer loans. The loss factors are adjusted for qualitative factors, weincluding ~~must~~those described above. We also analyze individual significant credits not considered impaired and maintain a ~~minimum~~general ~~total~~unallocated ~~risk-based~~reserve ~~capital~~in accordance with December 2006 regulatory guidance in our assessment of 8%the allowance for loan losses. Significant individual credits criticized as special mention or classified as substandard or doubtful require individual analysis. Loans in the substandard category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action such as declining or negative earnings trends and declining or inadequate liquidity or collateral. Loans in the doubtful category exhibit the same weaknesses found in the substandard category, ~~with~~but the atweaknesses ~~least~~are 4%more ~~being~~pronounced. These loans ~~Tier~~are 1not ~~capital~~yet rated as loss because certain events may occur which could repay the debt. InLoans ~~addition~~classified as substandard, webut ~~must~~not ~~maintain~~impaired, totaled $637,000 at September 30, 2009. These loans were performing and were not past due 30 days or more at September 30, 2009, but these borrowers have exhibited past performance issues. In situations where a ~~minimum~~loan ~~Tier~~is 1considered ~~leverage~~impaired, the loans are excluded from the general ~~ratio~~reserve ofcalculations atand ~~least~~are 4%assigned a specific reserve. The Tospecific bereserve is based on our analysis of the most

2221

~~considered “well-capitalized,”~~Table ~~we must maintain total risk-based capital~~ of ~~at least 10%, Tier 1 capital of at least 6%, and a leverage ratio of at least 5%.~~ Contents

~~The~~probable source of ~~following~~repayment ~~tables~~which ~~set~~is ~~forth~~usually the ~~Bank’s~~liquidation ~~capital~~of ~~ratios~~the atunderlying ~~June 30~~collateral, ~~2009~~but may ~~and~~also ~~December 31,~~include ~~2008.~~discounted future cash flows.

June 30, 2009						Well capitalized					Adequately capitalized
	Actual					requirement					requirement
($ in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital	$	11,008		15.6	%	$	7,169		10.0	%	$	5,374		8.0	%
Tier 1 risk-based capital		10,373		14.5			4,300		6.0			2,867		4.0
Tier 1 leverage capital		10,373		11.2			4,615		5.0			3,692		4.0

December 31, 2008						Well capitalized					Adequately capitalized
	Actual					requirement					requirement
($ in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital	$	10,245		15.9	%	$	6,433		10.0	%	$	5,147		8.0	%
Tier 1 risk-based capital		9,580		14.9			3,860		6.0			2,573		4.0
Tier 1 leverage capital		9,580		11.9			4,023		5.0			3,218		4.0

We had no loans classified as doubtful at September 30, 2009 and December 31, 2008. Charge-offs for the nine-month period ended September 30, 2009 were $252,102 compared to none for the same period in 2008. There were no charge-offs during the third quarter of 2009. Management pursues recoveries on loans charged-off; however, it is not possible at this time to determine the amount, if any, which may be recovered. Activity in the allowance for loan losses account is shown below.

As stated previously, in the first quarter of 2009, we elected to participate in the U.S. Treasury’s CPP under EESA. Because we were required to raise substantially more capital in our initial offering than we could immediately utilize and are still a relatively new enterprise, our capital ratios are significantly above the well-capitalized designation as shown in the table above. While we do not need capital, we believe that given the current economic and capital markets conditions and the impact on credit risk as well as any future capital needs, it was prudent for us to participate. The maximum amount of capital, for which we were preliminarily approved, was $1,891,000 and we elected to participate in the CPP by selling to the Treasury preferred stock for the sum of $1 million. We retained $100,000 in the holding company to cover dividend payments to the Treasury for approximately two years. We injected $900,000 into the Bank and this additional bank capital is reflected in the capital ratios at June 30, 2009 shown above.

Beginning allowance for loan losses at December 31, 2008	$	665,442
Additions to allowance for loan losses charged to provision	428,185
Loans charged-off:
Commercial real estate	(113,749		)
Commercial	(136,542		)
Consumer	(1,811		)
Total loans charged-off	(252,102		)
Recoveries on loans previously charged-off	—
Ending allowance for loan losses at September 30, 2009	$	841,525

WeOther ~~believe~~real that our capital is sufficient to fund the activities of the Bank and that the rate of asset growth will not negatively impact the capital base. We have no plans for significant capital expenditures for the remainder of 2009. estate

~~Effect~~Loans transferred to other real estate totaled $2,110,341 at September 30, 2009 compared to none at December 31, 2008. Other real estate is recorded at the lower of ~~Inflation~~net principal loan balance outstanding or estimated fair market value less estimated selling costs. Estimated fair market values are based on appraisals obtained at the time of acquisition of the properties by the bank. Other real estate consisted of residential properties as well as vacant commercial-zoned land. We obtained appraisals on each property at acquisition by the Bank. Holding period costs are charged to expense as incurred. Examples of holding period costs include real property taxes, maintenance and ~~Changing~~insurance. We ~~Prices~~sold one residential property during the third quarter of 2009.

The effect of relative purchasing power over time due to inflation has not been taken into account in our consolidated financial statements. Rather, our financial statements have been prepared on an historical cost basis in accordance with accounting principles generally accepted in the United States of America. Deposits

~~Unlike~~Our ~~most~~primary ~~industrial~~source ~~companies, our assets and liabilities are primarily monetary in nature. Therefore, the effect~~ of ~~changes~~funds infor ~~interest~~our ~~rates~~loans ~~will~~and ~~have~~investments ais ~~more significant impact on~~ our ~~performance~~deposits. Deposits ~~than~~increased ~~will~~$20.7 ~~the~~million, ~~effect~~from ~~of changing prices and inflation in general~~$57. In7 ~~addition,~~million ~~interest~~at ~~rates~~December 31, ~~may~~2008 ~~generally~~to ~~increase~~$78.4 asmillion ~~the~~at ~~rate of inflation increases~~September 30, ~~although not necessarily in the same magnitude~~2009. The Wefollowing ~~attempt~~table toshows ~~manage~~ the ~~relationships~~ ~~between~~composition ~~interest-sensitive~~of ~~assets~~deposits ~~and~~at ~~liabilities~~September 30, in2009 ~~order~~and ~~to protect against wide rate fluctuations~~December 31, ~~including those resulting from inflation~~2008.

Off-Balance Sheet Risk

	September 30, 2009				December 31, 2008
	Amount		Percent of Total		Amount		Percent of Total
Non-interest bearing demand deposits	$	3,610,689	4.60	%	$	3,462,092	6.00	%
Interest bearing checking	6,090,446		7.77		3,040,574		5.27
Money market and savings	18,993,245		24.22		17,430,631		30.22
Time deposits less than $100,000	10,347,154		13.19		4,808,562		8.34
Time deposits $100,000 and over	17,350,360		22.12		10,180,358		17.65
Brokered time deposits, less than $100,000	22,034,000		28.10		18,756,000		32.52
Total	$	78,425,894	100.00	%	$	57,678,217	100.00	%

~~Through~~Core ~~the Bank~~deposits, wewhich ~~have~~exclude ~~made~~time ~~contractual~~deposits ~~commitments~~of to$100,000 ~~extend~~or ~~credit~~more inand ~~the~~brokered certificates ~~ordinary course~~ of ~~its~~ ~~business~~deposit, ~~activities.~~provide ~~These~~a ~~commitments~~relatively ~~are~~stable ~~legally~~funding ~~binding~~source ~~agreements~~for ~~to lend money to~~ our loan ~~clients~~portfolio atand ~~predetermined~~other ~~interest~~earning ~~rates~~assets. ~~for~~Our acore ~~specified~~deposits ~~period~~were ~~of time~~$39.0 ~~We evaluate~~million ~~each~~and ~~client’s creditworthiness on a case-by-case basis~~$28.7 ~~The~~million ~~amount~~at ~~of collateral obtained~~September 30, if2009 ~~deemed~~and ~~necessary by us upon extension of credit~~December 31, ~~is based on our credit~~2008, ~~evaluation~~respectively. ofOur ~~the~~loan-to-deposit ~~borrower.~~ratio ~~Collateral~~was ~~varies~~76% ~~but~~and ~~may~~95% ~~include~~at ~~accounts receivable~~September 30, ~~inventory,~~2009 ~~property, plant~~ and ~~equipment~~December 31, ~~commercial~~2008, ~~and residential real estate~~respectively. We ~~manage~~Local ~~the~~deposits ~~credit~~increased ~~risk~~$17.5 onmillion, ~~these~~or ~~commitments~~85% byof ~~subjecting~~the ~~them~~total ~~to normal underwriting and~~deposit ~~risk~~growth ~~management~~during ~~processes.~~the Atfirst ~~June~~nine ~~30,~~months of 2009, ~~the~~and ~~Bank~~we ~~had~~were ~~unfunded~~able ~~commitments~~ to ~~extend~~decrease our ~~credit~~reliance ofon ~~$5.2~~brokered ~~million~~deposits ~~through~~in ~~various~~the ~~types~~first ofnine ~~lending~~months ~~arrangements~~of 2009. Brokered

Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. A significant portion of the unfunded commitments relate to consumer equity lines of credit and commercial lines of credit. Based on historical experience, we anticipate that a portion of these lines of credit will not be funded. 22

23Table of Contents

~~Except as~~deposits ~~disclosed~~represented in28% and ~~this~~33% ~~document~~at September 30, we2009 ~~are~~and ~~not~~December 31, ~~involved in off-balance sheet contractual relationships~~2008, ~~unconsolidated related entities that have off-balance sheet arrangements or~~respectively. ~~transactions~~All ~~that~~of ~~could~~our ~~result~~time indeposits ~~liquidity~~are ~~needs~~certificates orof ~~other commitments that significantly impact earnings~~deposits.

~~Liquidity~~As a participant in the FDIC’s TLGP, our Bank incurred additional FDIC premium costs in 2009 associated with our participation.

~~Liquidity~~Borrowings ~~represents the ability of a company to convert assets into cash or cash equivalents without significant loss,~~ and ~~the~~lines ~~ability to raise additional funds by increasing liabilities. Liquidity management involves monitoring our sources and uses~~ of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control. credit

At ~~June~~ September 30, 2009, ~~our~~the ~~liquid~~Bank ~~assets,~~had ~~consisting~~short-term lines of ~~cash~~credit ~~and~~with ~~due~~correspondent ~~from~~ banks ~~and federal funds~~to ~~sold~~purchase ~~amounted~~a tomaximum of $6.90 million, orin ~~approximately~~unsecured 7%federal offunds ~~total~~on ~~assets~~a one to fourteen day basis for general corporate purposes. ~~Our~~The ~~investment~~interest rate on ~~securities~~borrowings ~~available~~under these lines is the prevailing market rate for ~~sale~~federal ~~amounted~~funds purchased. toThese ~~$23~~accommodation lines of credit are renewable annually and may be terminated at any time at the correspondent banks’ sole discretion.0 The ~~million~~Bank orutilized ~~approximately~~these ~~24%~~lines of ~~total~~credit in ~~assets~~the first quarter of 2009 only. ~~Unpledged~~The ~~investment~~average ~~securities~~amount ofoutstanding during the nine months ended September 30, 2009 was $16159,000.4 ~~million~~No amounts were outstanding at ~~June~~any month-end during the nine months ended September 30, 2009 ~~traditionally~~and the ~~provide~~average ainterest ~~secondary~~rate ~~source~~paid ofon ~~liquidity~~these ~~since~~borrowings ~~they~~was ~~can~~.91%. The beaverage ~~converted~~amount ~~into~~outstanding ~~cash~~during inthe year aended ~~timely manner.~~December 31, At2008 ~~June~~was 30$554,000 ~~2009,~~and the highest month-end amount outstanding during 2008 was $62.62 million ofand ~~our~~the ~~investment~~average ~~securities~~interest ~~were~~rate ~~pledged~~paid toon these ~~secure~~borrowings during the year was 2.94%. ~~public~~There ~~entity~~were ~~deposits~~no ~~and~~outstanding asamounts ~~collateral~~on ~~for~~these ~~Federal~~lines ~~Home~~of ~~Loan~~credit ~~Bank~~at ~~borrowings.~~September 30, 2009 and December 31, 2008.

~~Our ability~~We ~~to maintain and expand our deposit base and borrowing capabilities serves as our~~are ~~primary~~also ~~source~~a ofmember ~~liquidity. We plan to meet our future cash needs primarily through the liquidation~~ of ~~temporary investments and~~ the ~~generation~~Federal ofHome ~~deposits~~Loan Bank. At ~~In addition~~September 30, we2009 ~~will receive cash upon the maturities of loans~~ and ~~maturities~~December 31, ~~calls~~2008, ~~sales and prepayments on investment securities. At June 30, 2009~~ we had ~~federal funds purchased lines of credit~~$12.5 ~~with~~million ~~two~~and ~~correspondent banks totaling~~ $414.05 million. ~~Availability~~outstanding, onrespectively ~~these~~in ~~lines~~Federal ofHome ~~credit was~~Loan $4Bank borrowings.0 At ~~million at June~~ September 30, 2009~~. In July 2009~~, we ~~were~~had ~~granted~~borrowing acapacity ~~federal~~with ~~funds purchased line of credit of $2.0 million from a third correspondent bank. We are also a member of~~ the Federal Home Loan Bank, ~~from~~of ~~which~~approximately ~~applications for borrowings can be made~~$8. ~~The~~0 ~~Federal~~million ~~Home~~based ~~Loan~~on ~~Bank~~a ~~requires~~percentage ~~that~~of ~~investment~~our ~~securities~~total ~~or qualifying mortgage loans be pledged to secure advances from them~~assets. Average Weamounts ~~are~~outstanding ~~also~~were ~~required to purchase Federal Home Loan~~$14.3 ~~Bank~~million ~~stock~~and inthe amaximum ~~percentage~~amount ofoutstanding ~~each advance. There~~ was ~~approximately~~ $414.45 million ~~in borrowing~~during ~~capacity available from~~ the nine-month ~~Federal~~period ~~Home~~ended ~~Loan~~September 30, ~~Bank~~2009 ~~based~~at onan ~~total~~average ~~assets~~interest atrate ~~June~~of ~~30, 2009~~3.16%. ~~Federal~~The ~~Home~~average ~~Loan~~amount ~~Bank~~outstanding ~~borrowing~~during ~~capacity~~the ~~increases~~year asended ~~our~~December 31, 2008 ~~quarterly~~was ~~total assets~~$8.9 ~~increase~~million and asthe ~~long~~maximum asamount weoutstanding ~~have~~during ~~sufficient~~the ~~collateral~~period ~~to pledge toward these~~was ~~advances~~$14.5 Wemillion ~~believe~~at ~~that~~an ~~our~~average ~~existing~~interest ~~stable~~rate ~~base~~ of ~~core deposits along with continued growth in our deposit base will enable us to successfully meet our long term liquidity needs~~3. 23%.

~~Market~~Capital ~~Risk~~Resources

~~Market~~Total ~~risk~~shareholders’ isequity ~~the~~increased ~~risk~~$1.1 ofmillion ~~loss~~ from ~~adverse~~$9.6 ~~changes~~million inat ~~market~~December 31, 2008 ~~prices~~to ~~and~~$10.7 ~~rates~~million at September 30, ~~which~~2009 primarily due to our issuance ~~principally~~of ~~arises~~preferred ~~from~~stock ~~interest~~of ~~rate~~$1 ~~risk~~million ~~inherent~~to inthe ~~our~~U. ~~lending,~~S. ~~investing~~Treasury. Common stock increased $40,491 ~~deposit~~due to stock ~~gathering,~~options ~~and~~compensation ~~borrowing~~expense ~~activities~~accrued during the nine months ended September 30, 2009. ~~Other~~We ~~types~~recorded an unrealized gain, net of ~~market~~income ~~risks~~tax, ~~such~~of as$233,049 ~~foreign~~on investment ~~currency~~securities available for sale, which increased shareholders’ equity ~~exchange~~during ~~rate~~the ~~risk~~nine-month ~~and~~period. Our ~~commodity~~net loss ~~price~~of ~~risk~~$139,672 dofor ~~not~~the ~~generally~~nine ~~arise~~months inended ~~the~~September 30, ~~normal~~2009 ~~course~~and dividends declared of ~~our~~$27,553 ~~business.~~on preferred stock decreased shareholders’ equity.

WeThe ~~actively~~Federal ~~monitor~~Reserve and ~~manage~~bank ~~our~~regulatory ~~interest~~agencies ~~rate~~require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk ~~exposure~~weights ranging ~~principally~~from by0% ~~measuring~~to ~~our~~100%. The Federal ~~interest~~Reserve ~~sensitivity~~guidelines contain an exemption from the capital requirements for “~~gap,~~small bank holding companies”, which isin ~~the~~2006 ~~positive~~were oramended ~~negative~~to ~~dollar~~cover ~~difference~~most bank holding ~~between~~companies with less than $500 million in total assets that do not have a material amount of debt or equity securities outstanding registered with the SEC. Although we file periodic reports with the SEC, we believe that because our stock is not registered under Section 12 of the Securities Exchange Act and ~~liabilities~~is not listed on any exchange or otherwise actively traded, the Federal Reserve Board will interpret its new guidelines to mean that ~~are~~we qualify as a small bank holding company. Nevertheless, our Bank remains subject to these ~~interest~~capital ~~rate~~requirements. Failure ~~repricing~~to meet ~~within~~minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a ~~given~~direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the ~~period~~regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of ~~time~~the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Regardless, our Bank is “well capitalized” under these minimum capital requirements as set per bank regulatory agencies.

~~Interest~~Under ~~rate~~the ~~sensitivity~~capital ~~can~~adequacy beguidelines, ~~managed~~regulatory bycapital ~~repricing~~is ~~assets~~classified orinto ~~liabilities,~~two ~~selling securities~~tiers. ~~available~~These ~~for~~guidelines ~~sale,~~require ~~replacing~~ an ~~asset~~institution orto ~~liability~~maintain ata ~~maturity,~~certain orlevel ~~adjusting~~of ~~the~~Tier ~~interest~~1 ~~rate~~and ~~during~~Tier ~~the~~2 ~~life~~capital ofto anrisk-weighted ~~asset or liability~~assets. ~~Managing~~Tier ~~the~~1 ~~amount~~capital consists of ~~assets and~~common ~~liabilities~~shareholders’ ~~repricing~~equity, inexcluding ~~this same time interval helps to hedge~~ the ~~risk~~unrealized ~~and~~gain ~~minimize~~or ~~the impact~~loss on ~~net~~securities available ~~interest~~for ~~income~~sale, ofminus ~~rising~~certain orintangible ~~falling interest rates~~assets. WeIn ~~generally~~determining ~~would benefit~~the ~~from increasing market rates~~ amount of ~~interest~~risk-weighted ~~when~~assets, weall ~~have~~assets, anincluding ~~asset~~certain off-~~sensitive~~balance ~~gap~~sheet ~~position~~assets, ~~and~~are ~~generally~~multiplied ~~would~~by ~~benefit~~a ~~from~~risk-weight ~~decreasing~~factor ~~market rates~~ of ~~interest~~0% ~~when~~to we100% ~~are liability-sensitive.~~based ~~The~~on ~~analysis presents only a static view of~~ the ~~timing of maturities~~risks ~~and~~believed ~~repricing~~to ~~opportunities,~~be ~~without~~inherent ~~taking into consideration that changes~~ in ~~interest rates~~the dotype ~~not~~of ~~affect all assets and liabilities equally~~asset. ~~For~~Tier ~~example,~~2 ~~rates~~capital ~~paid~~consists ~~on a substantial portion~~ of ~~core~~Tier ~~deposits~~1 capital ~~may~~plus ~~change~~the ~~contractually~~general ~~within~~reserve afor ~~relatively~~loan ~~short time frame~~losses, ~~but~~subject ~~those~~to ~~rates are viewed by us as significantly less interest-sensitive than~~certain ~~market-based rates such as those paid on noncore deposits~~limitations. ~~Net~~We ~~interest~~are ~~income~~also ~~may~~required ~~be affected~~to bymaintain ~~other~~capital ~~significant~~at ~~factors in~~ a ~~given~~minimum ~~interest~~level ~~rate environment, including~~based ~~changes~~on intotal ~~the~~average ~~volume~~assets, ~~and~~which ~~mix~~is ofknown ~~interest-earning~~as ~~assets~~the ~~and~~Tier ~~interest-bearing~~1 ~~liabilities.~~leverage ratio.

At the ~~June~~bank 30level, ~~2009~~we ~~and~~are ~~December~~subject ~~31,~~to ~~2008~~various regulatory capital requirements administered by the federal banking agencies. To be considered “adequately capitalized” under these capital guidelines, we ~~were~~must ~~liability-sensitive~~maintain ~~over~~ a ~~one-year~~minimum total ~~timeframe.~~risk-based capital of

~~Recently Issued Accounting Standards~~23

~~The following~~Table ~~is a summary~~ of ~~recent authoritative pronouncements that could impact the accounting, reporting and/or disclosure of financial information by the Company.~~ Contents

248%, with at least 4% being Tier 1 capital. In addition, we must maintain a minimum Tier 1 leverage ratio of at least 4%. To be considered “well-capitalized,” we must maintain total risk-based capital of at least 10%, Tier 1 capital of at least 6%, and a leverage ratio of at least 5%.

~~In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “~~The ~~FASB Accounting~~ ~~Standards~~following ~~Codification~~tables TMset ~~and~~forth the ~~Hierarchy~~Bank’s ofcapital ~~Generally~~ratios ~~Accepted~~at Accounting Principles – a replacement of FASB Statement No. 162,” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification TM (“Codification”) as the source of authoritative generally accepted accounting principles (“GAAP”) for nongovernmental entities. The Codification does not change GAAP. Instead, it takes the thousands of individual pronouncements that currently comprise GAAP and reorganizes them into approximately 90 accounting Topics, and displays all Topics using a consistent structure. Contents in each Topic are further organized first by Subtopic, then Section and finally Paragraph. The Paragraph level is the only level that contains substantive content. Citing particular content in the Codification involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. FASB suggests that all citations begin with “FASB ASC,” where ASC stands for Accounting Standards Codification. SFAS 168, (FASB ASC 105-10-05, 10, 15, 65, 70) is effective for interim and annual periods ending after September 15 30, 2009 and will not have an impact on the Company’s financial position but will change the referencing system for accounting standards. The following pronouncements provide citations to the applicable Codification by TopicDecember 31, ~~Subtopic and Section in addition to the original standard type and number~~2008.

FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20,” (FASB ASC 325-40-65) (“FSP EITF 99-20-1”) was issued in January 2009. Prior to the FSP, other-than-temporary impairment was determined by using either Emerging Issues Task Force (“EITF”) Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets,” (“EITF 99-20”) or SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” (“SFAS 115”) depending on the type of security. EITF 99-20 required the use of market participant assumptions regarding future cash flows regarding the probability of collecting all cash flows previously projected. SFAS 115 determined impairment to be other than temporary if it was probable that the holder would be unable to collect all amounts due according to the contractual terms. To achieve a more consistent determination of other-than-temporary impairment, the FSP amends EITF 99-20 to determine any other-than-temporary impairment based on the guidance in SFAS 115, allowing management to use more judgment in determining any other-than-temporary impairment. The FSP was effective for reporting periods ending after December 15, 2008. Management has reviewed the Company’s security portfolio and evaluated the portfolio for any other-than-temporary impairments.

					Well capitalized				Adequately capitalized
September 30, 2009	Actual				requirement				requirement
($ in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total risk-based capital	$	11,236	15.6	%	$	7,230	10.0	%	$	5,784	8.0	%
Tier 1 risk-based capital	10,395		14.4		4,338		6.0		2,892		4.0
Tier 1 leverage capital	10,395		10.6		4,883		5.0		3,906		4.0

					Well capitalized				Adequately capitalized
December 31, 2008	Actual				requirement				requirement
($ in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total risk-based capital	$	10,245	15.9	%	$	6,433	10.0	%	$	5,147	8.0	%
Tier 1 risk-based capital	9,580		14.9		3,860		6.0		2,573		4.0
Tier 1 leverage capital	9,580		11.9		4,023		5.0		3,218		4.0

~~On April~~As 9stated previously, in the first quarter of 2009 we elected to participate in the U.S. Treasury’s CPP under EESA. Because we were required to raise substantially more capital in our initial offering than we could immediately utilize and are still a relatively new enterprise, our capital ratios are significantly above the ~~FASB~~well-capitalized ~~issued~~designation ~~three~~as ~~staff~~shown ~~positions~~in ~~related~~the table above. While we do not need capital, we believe that given the current economic and capital markets conditions and the impact on credit risk as well as any future capital needs, it was prudent for us to ~~fair~~participate. The ~~value~~maximum amount of capital, for which ~~are~~we were preliminarily approved, was $1,891,000 and we ~~discussed~~elected ~~below~~to participate in the CPP by selling to the Treasury preferred stock for the sum of $1 million. We retained $100,000 in the holding company to cover dividend payments to the Treasury for approximately two years. We injected $900,000 into the Bank and this additional bank capital is reflected in the capital ratios at September 30, 2009 shown above.

~~FSP~~We ~~SFAS~~believe ~~115-2~~that ~~and~~our ~~SFAS~~capital ~~124-2~~is ~~(FASB~~sufficient ~~ASC~~to ~~320-10-65),~~fund ~~“Recognition~~the ~~and~~activities ~~Presentation~~ of ~~Other-Than-Temporary~~ ~~Impairments,”~~the ~~(“FSP~~Bank ~~SFAS 115-2~~ and ~~SFAS 124-2”)~~ categorizes losses on debt securities available-for-sale or held-to-maturity determined by management to be other-than-temporarily impaired into losses due to credit issues and losses related to all other factors. Other-than-temporary impairment (OTTI) exists when it is more likely than not that the ~~security~~rate ~~will~~of ~~mature~~asset orgrowth bewill ~~sold~~not ~~before~~negatively ~~its~~impact ~~amortized~~the ~~cost basis~~capital ~~can be recovered~~base. We Anhave ~~OTTI~~no ~~related~~plans tofor ~~credit~~significant ~~losses should be recognized through~~capital ~~earnings.~~expenditures An OTTI related to other factors should be recognized in other comprehensive income. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. Annual disclosures required in SFAS 115 and FSP SFAS 115-1 and SFAS 124-1 are also required for ~~interim periods (including~~ the ~~aging~~ remainder of ~~securities with unrealized losses)~~2009.

~~FSP SFAS~~Effect ~~157-4 (FASB ASC 820-10-65), “Determining Fair Value When the Volume and Level~~ of ~~Activity~~ ~~for~~Inflation ~~the Asset or Liability Have Significantly Decreased~~ and ~~Identifying Transactions~~Changing That are Not Orderly” recognizes that quoted prices may not be determinative of fair value when the volume and level of trading activity has significantly decreased. The evaluation of certain factors may necessitate that fair value be determined using a different valuation technique. Fair value should be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, not a forced liquidation or distressed sale. If a transaction is considered to not be orderly, little, if any, weight should be placed on the transaction price. If there is not sufficient information to conclude as to whether or not the transaction is orderly, the transaction price should be considered when estimating fair value. An entity’s intention to hold an asset or liability is not relevant in determining fair value. Quoted prices provided by pricing services may still be used when estimating fair value in accordance with SFAS 157; however, the entity should evaluate whether the quoted prices are based on current information and orderly transactions. Inputs and valuation techniques are required to be disclosed in addition to any changes in valuation techniques. Prices

~~FSP~~The ~~SFAS~~effect ~~107-1~~of ~~and~~relative ~~APB~~purchasing ~~28-1~~power ~~(FASB~~over ~~ASC~~time ~~825-10-65),~~due ~~“Interim~~to ~~Disclosures~~inflation ~~about~~has ~~Fair~~not ~~Value~~been oftaken ~~Financial~~into ~~Instruments”~~account ~~requires~~in ~~disclosures~~our ~~about~~consolidated ~~the fair value of~~ financial ~~instruments~~ ~~for~~statements. ~~interim~~Rather, ~~reporting periods of publicly traded companies as well as in~~our ~~annual~~ financial statements ~~and~~have ~~also~~been ~~requires~~prepared ~~those disclosures in summarized financial information at interim reporting periods A publicly traded company includes any company whose securities trade in a public market~~ on ~~either~~an ahistorical ~~stock~~cost ~~exchange~~basis or in ~~the~~ ~~over-the-counter~~accordance ~~market, or any company that is a conduit bond obligor. Additionally, when a company makes a filing~~ with aaccounting ~~regulatory~~principles ~~agency~~generally accepted in ~~preparation~~the ~~for~~United ~~sale~~ States of ~~its securities in a public market it is considered a publicly traded company for this purpose~~America.

25Unlike most industrial companies, our assets and liabilities are primarily monetary in nature. Therefore, the effect of changes in interest rates will have a more significant impact on our performance than will the effect of changing prices and inflation in general. In addition, interest rates may generally increase as the rate of inflation increases, although not necessarily in the same magnitude. We attempt to manage the relationships between interest-sensitive assets and liabilities in order to protect against wide rate fluctuations, including those resulting from inflation.

The three staff positions are effective for periods ending after June 15, 2009, with early adoption of all three permitted for periods ending after March 15, 2009. The Company adopted the staff positions for its second quarter 10Off-Q.Balance ~~The~~Sheet ~~staff positions had no material impact on the financial statements. Additional disclosures have been provided where applicable.~~ Risk

~~The~~Through ~~SEC~~the ~~issued~~Bank, ~~Staff~~we ~~Accounting~~have ~~Bulletin~~made ~~(“SAB”)~~contractual ~~No.~~commitments ~~111~~to ~~(FASB~~extend ~~ASC~~credit ~~320-10-S99-1)~~in onthe ordinary ~~April~~course 9,of ~~2009~~its tobusiness ~~amend Topic 5~~activities.~~M.,~~ ~~“Other~~These ~~Than~~commitments ~~Temporary~~are ~~Impairment~~legally ~~of Certain~~binding ~~Investments~~agreements into ~~Debt~~lend ~~and~~money ~~Equity~~to ~~Securities”~~our ~~and~~clients toat ~~supplement~~predetermined ~~FSP~~interest ~~SFAS~~rates ~~115-2~~for ~~and SFAS~~a ~~124-2.~~specified ~~SAB~~period ~~111~~of ~~maintains~~time. ~~the~~We ~~staff~~evaluate each client’s ~~previous~~creditworthiness ~~views~~on ~~related~~a case-by-case tobasis. ~~equity~~The ~~securities; however~~amount ~~debt~~of ~~securities~~collateral ~~are~~obtained, ~~excluded~~if ~~from~~deemed ~~its~~necessary ~~scope.~~by us ~~The~~upon ~~SAB~~extension ~~provides~~of ~~that “other-than-temporary”~~credit, ~~impairment~~ is ~~not~~based ~~necessarily~~on ~~the~~our ~~same~~credit ~~as “permanent”~~evaluation ~~impairment~~of ~~and~~the ~~unless~~borrower. Collateral ~~evidence~~varies ~~exists~~but tomay ~~support~~include aaccounts ~~value~~receivable, ~~equal~~inventory, toproperty, orplant ~~greater~~and ~~than~~equipment, ~~the~~commercial ~~carrying~~and ~~value~~residential ofreal estate. We manage the ~~equity~~credit risk ~~security~~on ~~investment,~~these acommitments ~~write-down~~by tosubjecting ~~fair value~~them ~~should~~to benormal ~~recorded~~underwriting and ~~accounted~~risk management ~~for~~processes. At asSeptember 30, 2009, athe ~~realized~~Bank ~~loss.~~had ~~The~~unfunded ~~SAB~~commitments ~~was~~to ~~effective~~extend ~~upon issuance~~credit ~~and~~of ~~had~~$5.4 nomillion through ~~impact~~various ontypes ~~the~~of ~~Company’s~~lending ~~financial position~~arrangements.

~~SFAS~~Commitments ~~165~~generally ~~(FASB~~have ~~ASC~~fixed ~~855-10-05,~~expiration ~~15,~~dates ~~25,~~or ~~45,~~other ~~50,~~termination ~~55),~~clauses ~~“Subsequent Events,” (“SFAS 165”) was issued in May 2009~~ and ~~provides guidance on when a subsequent event should~~may berequire ~~recognized in~~ the ~~financial~~payment ~~statements. Subsequent events that provide additional evidence about conditions that existed at the date~~ of ~~the~~a ~~balance sheet should be recognized at the balance sheet date~~fee. ~~Subsequent~~A ~~events~~significant ~~that~~portion ~~provide~~of ~~evidence about conditions that arose after~~ the ~~balance~~unfunded ~~sheet date but before financial statements are~~commitments ~~issued,~~relate ~~or are available~~ to beconsumer ~~issued,~~equity ~~are~~lines ~~not~~of ~~required~~credit toand becommercial ~~recognized.~~lines ~~The~~of date through which subsequent events have been evaluated must be disclosed as well as whether it is the date the financial statements were issued or the date the financial statements were available to be issuedcredit. ~~For nonrecognized subsequent events which should be disclosed to~~Based ~~keep~~on ~~the~~historical ~~financial~~experience, ~~statements~~we ~~from~~anticipate ~~being~~that ~~misleading,~~a ~~the~~portion ~~nature~~ of ~~the~~these ~~event~~lines ~~and~~of ancredit ~~estimate~~will ofnot ~~its financial effect, or a statement that such an estimate cannot~~ be ~~made, should be disclosed~~funded. ~~The standard is effective for interim or annual periods ending after June 15, 2009. See Note 1 to the consolidated financial statements for management’s evaluation of subsequent events.~~

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. 24

26Table of Contents

~~Item~~Except 3.as ~~Quantitative~~disclosed ~~and~~in ~~Qualitative~~this ~~Disclosures~~document, ~~About~~we ~~Market~~are ~~Risk~~not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments that significantly impact earnings.

~~Not applicable.~~ Liquidity

~~Item~~Liquidity 4represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities. ~~Controls~~Liquidity management involves monitoring our sources and ~~Procedures~~uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.

~~As of~~At ~~the~~September 30, ~~end~~2009, ofour ~~the~~liquid ~~period~~assets, consisting ~~covered~~of bycash ~~this~~and ~~report,~~due wefrom ~~carried~~banks ~~out~~and anfederal ~~evaluation,~~funds ~~under~~sold ~~the supervision~~amounted ~~and~~to ~~with~~$12.3 million, ~~the~~or ~~participation~~approximately 12% of ~~our~~total ~~management,~~assets. ~~including~~Our ~~our~~investment ~~Chief Executive~~securities ~~Officer~~available ~~and~~for ~~Chief~~sale ~~Financial~~amounted ~~Officer,~~to of$24.7 ~~the~~million ~~effectiveness~~or ofapproximately ~~our~~24% ~~disclosure~~of ~~controls and~~total ~~procedures~~assets. asUnpledged ~~defined~~investment insecurities ~~Exchange~~of ~~Act Rule 13a-15(e)~~$17.4 ~~Based~~million ~~upon~~at ~~that evaluation~~September 30, ~~our~~ ~~Chief~~2009 ~~Executive~~traditionally ~~Officer~~provide ~~and~~a ~~Chief~~secondary ~~Financial~~source ~~Officer~~of ~~have~~liquidity ~~concluded~~since ~~that~~they ~~our~~can ~~current~~be ~~disclosure~~converted ~~controls~~into ~~and~~cash ~~procedures~~in ~~are~~a ~~effective~~timely asmanner. ofAt ~~June~~ September 30, 2009., ~~There have been no~~$7.3 ~~significant~~million ~~changes~~of in our ~~internal~~investment ~~controls~~securities ~~over~~were ~~financial~~pledged ~~reporting~~to ~~during~~secure ~~the~~public ~~fiscal~~entity ~~quarter~~deposits ~~ended~~and ~~June~~as ~~30,~~collateral ~~2009~~for ~~that~~Federal ~~have~~Home ~~materially~~Loan ~~affected,~~Bank ~~or are reasonably likely to materially affect, our internal controls over financial reporting~~borrowings.

~~The~~Our ~~design~~ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of ~~any~~liquidity. ~~system~~We plan to meet our future cash needs primarily through the liquidation of ~~controls~~temporary investments and ~~procedures~~the isgeneration ~~based~~of indeposits. ~~part~~In ~~upon~~addition, ~~certain~~we ~~assumptions~~will receive cash ~~about~~upon the ~~likelihood~~maturities of ~~future~~loans ~~events~~and maturities, calls, sales and prepayments on investment securities. ~~There~~At September 30, 2009 we had no outstanding balances on our federal funds purchased lines of credit. Availability on federal funds purchased lines of credit from three correspondent banks was $6.0 million at September 30, 2009. We are also a member of the Federal Home Loan Bank, from which applications for borrowings can be nomade. The ~~assurance~~Federal Home Loan Bank requires that ~~any~~investment ~~design~~securities ~~will~~or qualifying mortgage loans be pledged to ~~succeed~~secure advances from them. We are also required to purchase Federal Home Loan Bank stock in ~~achieving~~a ~~its~~percentage ~~stated~~of ~~goals~~each advance. There ~~under~~was ~~all~~approximately ~~potential~~$8.0 million ~~future~~in ~~conditions~~borrowing capacity available from the Federal Home Loan Bank based on total assets at September 30, ~~regardless~~2009. Federal ofHome Loan Bank borrowing capacity increases as our quarterly ~~how~~total ~~remote~~assets increase and as long as we have sufficient collateral to pledge toward these advances. We believe that our existing stable base of core deposits along with continued growth in our deposit base will enable us to successfully meet our long term liquidity needs.

27Market Risk

~~PART~~Market IIrisk –is ~~OTHER~~the ~~INFORMATION~~risk of loss from adverse changes in market prices and rates, which principally arises from interest rate risk inherent in our lending, investing, deposit gathering, and borrowing activities. Other types of market risks, such as foreign currency exchange rate risk and commodity price risk, do not generally arise in the normal course of our business.

~~Item~~We 1.actively ~~Legal~~monitor ~~Proceedings~~and manage our interest rate risk exposure principally by measuring our interest sensitivity “gap,” which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time.

~~There~~Interest ~~are~~rate nosensitivity ~~material~~can ~~pending~~be ~~legal~~managed by repricing ~~proceedings~~assets or liabilities, selling securities available for sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset or liability. Managing the amount of assets and liabilities repricing in this same time interval helps to ~~which~~hedge the risk and minimize the impact on net interest income of rising or falling interest rates. We generally would benefit from increasing market rates of interest when we have an asset-sensitive gap position and generally would benefit from decreasing market rates of interest when we are liability-sensitive. The analysis presents only a ~~party~~static orview of the ~~which~~timing ~~any~~of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of ~~our~~core deposits ~~property~~may ischange ~~the~~contractually ~~subject~~within a relatively short time frame, but those rates are viewed by us as significantly less interest-sensitive than market-based rates such as those paid on noncore deposits. Net interest income may be affected by other significant factors in a given interest rate environment, including changes in the volume and mix of interest-earning assets and interest-bearing liabilities.

~~Item~~At 2.September 30, ~~Unregistered~~2009 ~~Sales~~and ofDecember 31, ~~Equity~~2008, we ~~Securities~~were ~~and~~liability-sensitive ~~Use~~over ofa ~~Proceeds~~one-year timeframe.

~~Not~~Recently Issued ~~applicable.~~Accounting Standards

~~Item~~The 3.following ~~Default~~is ~~Upon~~a ~~Senior~~summary ~~Securities~~of recent authoritative pronouncements that could impact the accounting, reporting and/or disclosure of financial information by the Company.

~~Not applicable.~~ 25

~~Item 4. Submission~~ Table of ~~Matters to a Vote of Security Holders.~~Contents

~~Our~~In ~~board~~June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of ~~directors~~Financial ~~submitted~~Accounting ~~three~~Standards ~~matters~~(“SFAS”) toNo. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles — a ~~vote~~replacement of FASB Statement No. 162,” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification TM (“Codification”) as the source of ~~our~~authoritative ~~security~~generally ~~holders~~accepted ~~during~~accounting principles (“GAAP”) for nongovernmental entities. The Codification does not change GAAP. Instead, it takes the ~~three~~thousands ~~months~~of individual ~~ended~~pronouncements ~~June~~that 30currently comprise GAAP and reorganizes them into approximately 90 accounting Topics, and displays all Topics using a ~~2009~~consistent atstructure. Contents ~~our~~in ~~annual~~each Topic ~~meeting~~are offurther ~~shareholders~~organized ~~held~~first onby ~~April~~Subtopic, then Section and finally Paragraph. The Paragraph level is the only level that contains substantive content. Citing particular content in the Codification involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. FASB suggests that all citations begin with “FASB ASC,” where ASC stands for Accounting Standards Codification. Changes to the ASC subsequent to June 30, 2009. ~~These~~are ~~proposals~~referred ~~were~~to as Accounting Standards ~~follows:~~Updates (“ASU”).

~~1) Election~~In ofconjunction ~~Directors:~~with ~~Our~~the ~~board~~issuance of ~~directors~~SFAS is168, ~~divided~~the ~~into~~FASB also ~~three~~issued ~~classes~~its ~~with~~first Accounting Standards Update No. 2009-1, “Topic 105 —Generally ~~each~~Accepted ~~class~~Accounting toPrinciples” be(“ASU as2009-1”) ~~nearly~~which ~~equal~~includes SFAS 168 in ~~number~~its entirety as ~~possible.~~a ~~The~~transition ~~three~~to ~~classes~~the ofASC. ASU ~~directors~~2009-1 ~~have~~is ~~staggered~~effective ~~terms,~~for sointerim ~~that~~and ~~the~~annual ~~terms~~periods ofending ~~approximately~~after ~~one-third of~~September 15, ~~the~~2009 ~~board~~and ~~members~~will ~~expire~~not athave ~~each~~an ~~annual~~impact ~~shareholders~~on ~~meeting.~~the ~~The~~Company’s ~~current~~financial ~~Class I~~position ~~directors~~or ~~are~~results of ~~Jeffrey~~operations L.but ~~Dezen,~~will ~~Roger~~change H.the ~~Gower~~referencing ~~and~~system ~~Frank~~for Baccounting standards. Certain ~~Halter,~~of ~~Jr.~~the ~~The~~following ~~current~~pronouncements ~~Class~~were IIissued ~~directors~~prior ~~are~~to R.the ~~Bruce~~issuance ~~Harman,~~of ~~Arthur~~the L.ASC ~~Howson,~~and ~~Jr.,~~adoption ~~Paula~~of S.the ~~King and J~~ASUs. ~~Matthew~~For ~~Shouse.~~such ~~The~~pronouncements, ~~current~~citations ~~Class~~to ~~III~~the ~~directors~~applicable ~~are~~Codification ~~Jonathan T.~~by ~~McClure~~Topic, ~~David~~Subtopic A.and ~~Merline,~~Section are ~~Jr.,~~provided ~~William~~where H.applicable ~~Pelham~~in ~~and~~addition ~~Russel~~to the T.original ~~Williams.~~standard type and number.

~~The~~FSP ~~previous~~EITF ~~terms~~99-20-1, of“Amendments to the Impairment ~~Class~~Guidance Iof EITF Issue No. 99-20,” (FASB ASC 325-40-65) (“FSP ~~directors~~EITF ~~expired~~99-20-1”) atwas ~~the~~issued in January 2009. Prior ~~annual~~to ~~shareholders~~the ~~meeting.~~FSP, ~~Each~~other-than-temporary ofimpairment ~~the~~was ~~three~~determined ~~current~~by using ~~Class~~either Emerging Issues Task Force (“EITF”) Issue No. 99-20, “Recognition Iof ~~directors~~Interest ~~was~~Income ~~nominated~~and ~~for~~Impairment ~~election~~on Purchased Beneficial Interests and Beneficial ~~stood~~Interests ~~for~~that ~~re-election~~Continue to be Held by a ~~three~~Transferor in Securitized Financial Assets,” (“EITF 99-~~year~~20”) ~~term~~or SFAS No. 115, “Accounting for Certain ~~expiring~~Investments atin ~~the~~Debt ~~2012~~and ~~annual~~Equity ~~shareholder~~Securities,” ~~meeting~~(“SFAS 115”) depending on the type of security. EITF ~~Each~~99-20 required the use of market participant assumptions regarding future cash flows regarding the probability ~~three~~of ~~Class~~collecting Iall ~~directors~~cash flows previously projected. SFAS 115 determined impairment to be other than temporary if it was probable that the holder would be unable to collect ~~re-elected~~all ~~with~~amounts ~~voting~~due ~~results~~according asto ~~follows:~~the Mrcontractual terms. ~~Dezen~~To ~~had~~achieve ~~1,011,798~~a ~~votes~~more consistent indetermination ~~favor~~ of ~~his~~other-than-temporary impairment, the FSP amends reEITF 99-~~election~~20 ~~and~~to ~~21,920~~determine ~~votes~~any ~~withheld.~~other-than-temporary ~~Mr.~~impairment ~~Gower~~based ~~had~~on 1the guidance in SFAS 115,~~012,298~~ ~~votes~~allowing inmanagement ~~favor~~to ofuse ~~his~~more judgment in determining reany other-~~election~~than-temporary ~~and~~impairment. The FSP ~~21,420~~was ~~votes~~effective ~~withheld.~~for ~~Mr.~~reporting ~~Halter~~periods ~~had~~ending 1after December 15,~~019,817~~ 2008. Management <

Filing Compare · BankGreenville Financial CORP