Our planning process brought benefits in the current rigorous environment, as we have learned to become more adaptive and creative. Lessons we’ve recently learned about ourselves, our customers, and the marketplace we serve include:

• Knowing more about our core business, how we work, and the key ingredients that lead to success and significance.

• Realizing we have a competent, hard working, dedicated staff that is passionate about both their work and their customers, including those who may be struggling.

• Grasping how our customers are responding to the adversity of this recession, which helps us stand by those who are struggling honorably in order to survive and to thrive.

• Recognizing and seizing opportunities which may not have been evident without the recession.

• Focusing on the future by doing better today. We believe many of the steps we have taken will create a more successful future for our bank and its stakeholders.

Throughout this year, we saw the importance of our core earnings (earnings before taxes, loan loss provision, and FDIC insurance), which actually increased $610,000 or 32.4% for the third quarter and $2.2 million or 42.9% for the nine month period ending September 30, 2009, compared to the same period for 2008.

For the quarter ended September 30, 2009, North State Bancorp (the “Company”), the holding company for North State Bank, reported net income of $161,000, which is 72.5% or $425,000 less than the $586,000 reported for the third quarter 2008. Diluted earnings per share were $.02 for third quarter 2009, compared to $.08 for the same quarter in 2008. For the nine months ended as of the same date, net income was $1.5 million, a decrease of $371,000 or 20.0% from net income of $1.9 million reported for the nine months ended September 30, 2008. For the nine month period in 2009, diluted earnings per share were $0.20, compared to $0.25 for the same period in 2008.

These earnings were significantly impacted by an increase in our provision for loan losses of $1.1 million and $1.8 million for the third quarter and year-to-date 2009, respectively, over the same periods for 2008. Furthermore, an increase in FDIC insurance premiums was a major factor, increasing $969,000 or 359% on a year-to-date basis over premiums paid for the same period in 2008. This was a direct result of the FDIC improving its insurance fund to protect all bank deposits. Without this expense, non-interest expenses decreased $1.6 million for the nine month period ending September 30, 2009, compared to the same period in 2008.

Total assets at the end of the third quarter were $710.8 million, while total deposits were $633.6 million, and total loans were $534.1 million, representing changes of 12.2%, 13.4%, and (1%) respectively, over the same period in 2008.

We appreciate your advocacy, support, and business. If we may be of service to you in any way, please let us know.

Very cordially,