Years from now, I am sure much will be written about 2008 and 2009. The causes and effects of the worst recession in generations will be discussed, with analysis of businesses that overcame these challenges and grew bigger and better, while some companies decided enough was enough. As we close the year, I believe North State Bank can summarize 2009 with the following:

 We learned. We adapted. We made hard decisions.We grew. And yes, we were profitable.

To have faced these recent adverse conditions boldly and effectively is both rewarding and reassuring. While our results are not where we would like them to be, we know that maintaining nine years of profitability is an achievement of which our staff and shareholders can be proud, and we plan to build on that in 2010.

North State reported net income at year-end 2009 of $1.1 million, which is $1.3 million less than the $2.4 million reported at year-end 2008. Diluted earnings per share were $0.15 for 2009 compared to $0.32 for 2008.

For the year ended December 31, 2009, North State Bancorp reported total assets of $679.4 million compared to total assets of $687.6 million at December 31, 2008, a decrease of $8.2 million. Total deposits and total loans as of December 31, 2009, were $606.9 million and $521.8 million, respectively, compared to total deposits and total loans at December 31, 2008, of $612.7 million and $546.4 million, respectively. The reduction in total assets and total deposits is the result of the Company’s efforts to reduce non-core fundings, specifically brokered deposits, which decreased $55.6 million during the year. Core deposits, which primarily includes demand deposit and money market accounts for our customers, increased by $41.4 million for the same period.

As always, our Bank will never be satisfied with non-relational deposits such as brokered deposits. At the present time our noninterest bearing deposits represent approximately 18% of our average deposits, which is one of the highest percentages in North Carolina. This reflects well upon our Bank’s ability to grow relationships instead of funding loan growth with deposits from various sources.

The decrease in net income for 2009 can be attributed to overall economic and marketplace conditions. This environment caused all banks to pay significantly higher premiums to the Federal Deposit Insurance Corporation (FDIC). In addition, we reported a larger than normal provision for loan losses, which we deemed prudent as we continue to work with our customers who are honorably struggling during this deep recession. The FDIC insurance premiums were $1,765,697 in 2009, compared to $396,000 in 2008. The provision for loan losses totaled $5.7 million for 2009, compared to $2.8 million for 2008, an increase of 103.6%, which has enabled the Bank to prepare for potential loan losses.

Among the many reasons I am confident about the future is the success of our new Bank division, CommunityPLUS. The new division brought our service to community association management companies to a higher level and we saw its deposits grow to $181 million as of this writing compared to $112 million at the end of 2008.

We also remain committed to the communities we serve. In the summer of 2009, North State Bank’s Summer Salute for Hospice of Wake County raised $125,000 in net proceeds to benefit this wonderful organization, bringing our cumulative total to $743,000 since the event’s inception six years ago.

As we continue to face the challenges of 2010, we are able to do so with a strong capital base, more than adequate liquidity, strong core earnings, and an intense focus on the asset quality of our Bank. We look forward to celebrating our 10th year of operation in June and will share more about that with you at a later time.

If we can be of service to you in any way, please let us know.