The average cost of interest-bearing liabilities decreased to 2.08% for the nine months ended September 30, 2010 from 2.76% for the nine months ended September 30, 2009. The average balance of interest-bearing deposits increased in the first nine months of September 2010, compared to the first nine months of September 2009 by $7.8 million, or 3.58%, but the average cost of interest-bearing deposits decreased by 95 basis points in the nine months ended September 30, 2010, resulting in a $1.5 million decrease in interest expense on such deposits. The average yield on interest-earning assets for the nine months ended September 30, 2010 was 5.53%, compared to 5.62% for the same period in 2009. For the nine months ended September 30, 2010, the interest rate spread increased to 3.45% from 2.86% in 2009, an increase of 59 basis points.

Non-performing assets totaled $775,000, or 0.17% of total assets, at September 30, 2010, compared to $860,000, or 0.19% of total assets, at December 31, 2009. There were no non-performing assets at September 30, 2009. Non-performing assets at September 30, 2010 consisted of $510,000 of construction loans, a $32,000 commercial real estate mortgage loan, a $108,000 residential real estate mortgage loan, a $25,000 home equity loan and $100,000 of foreclosed real estate. Net charge-offs for the quarter ended September 30, 2010 equaled $412,000 and there were no charge-offs for the quarter ended September 30, 2009. Loan loss provisions were $387,000 and $781,000 for the three and nine months ended September 30, 2010, respectively, compared to $160,000 and $447,000 for the three and nine months ended September 30, 2009, respectively. Management reviews the level of the allowance for loan losses on a quarterly basis and establishes the provision for loan losses based upon the volume and types of lending, delinquency levels, loss experience, the amount of impaired and classified loans, economic conditions and other factors related to the collectability of the loan portfolio. The provision increased during the first nine months of 2010 compared to the first nine months of 2009, due to charge-offs and recognition of a deteriorating economy.