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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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Annual Report Pursuant to Section 13
or 15(d)

of the Securities Exchange Act of 1934



For the fiscal year ended December 31, 2003



Commission File Number 000-31711



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BOE FINANCIAL SERVICES OF VIRGINIA, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Virginia                                                       |  | 54-1980794                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|323 Prince Street, Tappahannock, VA                            |  | 22560                                  
|(Address of principal executive offices)                       |  | (Zip Code)                             



(804) 443-4343

(Registrants telephone number, including area code)



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Securities registered pursuant to Section 12(b) of the Act:

None



Securities
registered pursuant to Section 12(g) of the Act:

Common Stock, $5.00 par value



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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. ̈



The issuers revenues for the fiscal year ended December 31, 2003 were $14,455,012.



The aggregate market value of common stock held by non-affiliates of the issuer as of December 31, 2003 was approximately
$30,414,243.



The number of outstanding shares of the
issuers common stock, par value $5.00, issued and outstanding as of March 10, 2004 was 1,183,347.



DOCUMENTS INCORPORATED BY REFERENCE



The registrants Proxy Statement for its 2004 Annual Meeting of Shareholders which will be filed no later than 120 days following the
registrants fiscal year end.



Transitional Small Business
Disclosure Format    Yes ̈No  x



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PART I



INTRODUCTION



FORWARD LOOKING STATEMENTS



Any statements in this document that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as expect, believe, intend,
estimate, project, may and similar expressions are intended to identify forward-looking statements. These forward-looking statements are predicated on managements beliefs and assumptions based on information
known to BOE Financial Services of Virginia, Inc.s (the Corporations) management as of the date of this document and do not purport to speak as of any other date. Forward-looking statements may include descriptions of plans
and objectives of the Corporations management for future or past operations, products or services, and forecasts of the Corporations revenue, earnings or other measures of economic performance, including statements of profitability,
business segments and subsidiaries, and estimates of credit quality trends. Such statements reflect the view of the Corporations management as of the date of this report with respect to future events and are not guarantees of future
performance, involve assumptions and are subject to substantial risks and uncertainties, such as the changes in the Corporations plans, objectives, expectations and intentions. Should one or more of these risks materialize or should underlying
beliefs or assumptions prove incorrect, the Corporations actual results could differ materially from those discussed. Factors that could cause or contribute to such differences are changes in interest rates, changes in the accounting treatment
of any particular item, the result of regulatory examinations, changes in industries where the Corporation has a concentration of loans, changes in the level of fee income, changes in general economic conditions and related credit and market
conditions, and the impact or regulatory responses to any of the foregoing.



Forward-looking statements speak only as of the date they are made. The Corporation does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the
date the forward-looking statements are made. For any forward-looking statements made in this document, the Corporation claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act
of 1995.



ITEM 1. DESCRIPTION OF BUSINESS.



General



On May 12, 2000, the stockholders of Bank of Essex (the Bank) approved a plan of share exchange pursuant to
which the Bank became a wholly owned subsidiary of the Corporation, which became a newly formed one-bank holding company. (References herein to the Corporation shall include the Bank unless the context otherwise requires.)



Upon consummation of the share exchange and related
reorganization effective July 1, 2000, each outstanding common share of the Bank was exchanged for one share of Corporation common stock, par value $5.00 per share. The exchange of shares was a tax-free reorganization for federal income tax
purposes. The share exchange was accounted for on the same basis as pooling-of-interests and financial statements for prior periods are identical to the financial statements of the Bank. Stockholders equity has been restated to reflect this
transaction in all prior periods.



The Corporation is a bank
holding company, which owns all of the stock of its sole direct subsidiary, the Bank. The headquarters of the Corporation are located in Tappahannock, Virginia.



The Bank was established in 1926 and is headquartered in Tappahannock, Virginia. The Bank operates six full-service offices in Virginia, engages in a
general commercial banking business and provides a wide range of financial services primarily to individuals and small businesses, including individual and commercial demand and time deposit accounts, commercial and consumer loans, travelers checks,
safe deposit box facilities, investment services and fixed rate residential mortgages.



Essex Services, Inc. is a wholly owned subsidiary of the Bank and was formed to sell title insurance to the Banks mortgage loan customers. Essex Services, Inc. also offers insurance products through an ownership
interest in Bankers Insurance, LLC and investment products through an affiliation with VBA Investments, LLC.



The Corporations strategic plan is directed toward the enhancement of its franchise value and operating profitability by increasing its asset size
and expanding its customer base. Accordingly, the Bank expanded into Hanover County in 1992, purchased the Banks fifth branch office in West Point, Virginia from a regional bank in February 1996 and, in June 1999 opened its sixth office, in
Henrico County near Virginia Center Commons, one of the largest shopping malls in the Richmond metropolitan area, on Route 1 in Henrico County. Since its opening in 1992, the Banks Hanover County branch has experienced the strongest deposit
growth of the Banks branches. According to the U.S. Census Bureau, Hanover Countys population grew 36.4% and Henrico Countys population grew 20.4% from 1990 to 2000 compared to a 14.4% growth for the Commonwealth of Virginia over
the same time period.



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Management believes that its most significant profitable growth opportunities will continue to be in the
greater Richmond metropolitan area. Furthermore, management believes that the trend toward consolidation of the banking industry and the closings and acquisitions of financial institutions in the Corporations service area, and in particular
the Richmond metropolitan area, have created and will continue to create opportunities for the Corporation to grow its branching network and customer base in these markets.



The Corporations expansion efforts have contributed to its growth and improved profitability. Total assets have
increased from $70.6 million at the end of 1992 to $231.7 million at December 31, 2003. Net income has grown from $947,000 in 1996 to $2.4 million in 2003. Diluted earnings per share were $2.04 in 2003 versus $1.51 in 2002. The Corporations
return on assets was 1.04% in 2003 and 0.80% in 2002. Return on equity was 10.80% in 2003 and 8.87% in 2002.



The Corporation has experienced strong loan growth since 1999. Loan growth has come principally from rate sensitive commercial loans and mortgage loans,
which has served to mitigate the Corporations interest rate risk. At the same time this growth in commercial loans has increased the Banks credit risk.



Regulation and Supervision



Bank holding companies and banks operate in a highly regulated environment and are regularly examined by federal and state regulators. The following
description briefly discusses certain provisions of federal and state laws and certain regulations and the potential impact of such provisions on the Corporation and the Bank. These federal and state laws and regulations have been enacted for the
protection of depositors in national and state banks and not for the protection of stockholders of bank holding companies or banks.



Bank Holding Companies and Banks. As a result of the share exchange previously discussed, the Bank became a subsidiary of the Corporation, and the
Corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the BHCA), and became subject to regulation by the Board of Governors of the Federal Reserve. The Federal Reserve System (the
Federal Reserve) has jurisdiction under the BHCA to approve any bank or nonbank acquisition, merger or consolidation proposed by a bank holding company. The BHCA generally limits the activities of a bank holding company and its
subsidiaries to that of banking, managing or controlling banks, or any other activity, which is so closely related to banking or to managing or controlling banks as to be a proper incident thereto.



Federal law permits bank holding companies from any state to acquire banks
and bank holding companies located in any other state. The law allows interstate bank mergers, subject to opt-in or opt-out action by individual states. Virginia adopted early opt-in legislation that allows interstate bank
mergers. These laws also permit interstate branch acquisitions and de novo branching in Virginia by out-of-state banks if reciprocal treatment is accorded Virginia banks in the state of the acquirer.



There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositor of such depository institutions and to the Federal Deposit Insurance Corporation
(FDIC) insurance fund in the event the depository institution becomes in danger of default or in default. For example, under a policy of the Federal Reserve with respect to bank holding company operations, a bank holding company is
required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so otherwise. In addition, the cross-guarantee
provisions of federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by either the Savings Association Insurance Fund (SAIF) or the Bank Insurance
Fund (BIF) as a result of the default of a commonly controlled insured depository institution in danger of default. The FDIC may decline to enforce the cross-guarantee provisions if it determines that a waiver is in the best interest of
the SAIF or the BIF or both. The FDICs claim for reimbursement is superior to claims of stockholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and holders of
subordinated debt (other than affiliates) of the commonly controlled insured depository institution.



The Federal Deposit Insurance Act (FDIA) also provides that amounts received from the liquidation or other resolution of any insured
depository institution by any receiver must be distributed (after payment of secured claims) to pay the deposit liabilities of the institution prior to payment of any other general or unsecured senior liability, subordinated liability, general
creditor or stockholders in the event a receiver is appointed to distribute the assets of the Bank.



The Corporation was required to register in Virginia with the State Corporation Commission (the SCC) under the financial institution holding
company laws of Virginia. Accordingly, the Corporation is subject to regulation and supervision by the SCC.



The Banks operations are subject to extensive regulation by the SCC, the Federal Reserve and the FDIC. State and federal laws and regulations
subject the Bank and its operations to regular examinations; contain restrictions on, among other things, the Banks lending, deposit taking, funding and investment policies and activities (including limits on the amounts of loans that may be
made to any single borrower), the ability of the Bank to pay dividends to the Corporation and the ability of the Bank to expand through branching or acquisitions unless certain regulatory capital requirements are met; and contain certain
requirements that the Bank maintain confidentiality of customer and consumer information and that capital be maintained at prescribed levels.



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The Corporation is also subject to the periodic reporting requirements of the Securities Exchange Act of
1934, as amended, including but not limited to, filing annual, quarterly, and other current reports with the Securities and Exchange Commission.



The Gramm-Leach-Bliley Act of 1999 The Gramm-Leach-Bliley Act of 1999 (the Act) was enacted on November 12, 1999. The Act draws new
lines between the types of activities that are permitted for banking organizations as financial in nature and those that are not permitted because they are commercial in nature. The Act imposes Community Reinvestment Act requirements on financial
service organizations that seek to qualify for the expanded powers to engage in broader financial activities and affiliations with financial companies that the Act permits.



The Act creates a new form of financial organization called a financial holding company that may own and control banks,
insurance companies and securities firms. A financial holding company is authorized to engage in any activity that is financial in nature or incidental to an activity that is financial in nature or is a complementary activity. These activities
include insurance, securities transactions and traditional banking related activities. The Act establishes a consultative and cooperative procedure between the Federal Reserve and the Secretary of the Treasury for the designation of new activities
that are financial in nature within the scope of the activities permitted by the Act for a financial holding company. A financial holding company must satisfy special criteria to qualify for the expanded financial powers authorized by the Act. Among
those criteria are requirements that all of the depository institutions owned by the financial holding company be rated as well-capitalized and well-managed and that all of its insured depository institutions have received a satisfactory ratio for
Community Reinvestment Act compliance during their last examination. A bank holding company that does not qualify as a financial holding company under the Act is generally limited in the types of activities in which it may engage to those that the
Federal Reserve has recognized as permissible for bank holding companies prior to the date of enactment of the Act. The Act also authorizes a state bank to have a financial subsidiary that engages as a principal in the same activities that are
permitted for a financial subsidiary of a national bank if the state bank meets eligibility criteria and special conditions for maintaining the financial subsidiary.



The Act repeals the prohibition in the Glass-Steagall Act on bank affiliations with companies that are engaged primarily in
securities underwriting activities. The Act authorizes a financial holding company to engage in a wide range of securities activities, including underwriting, broker/dealer activities and investment company and investment advisory activities.



The Act provides additional opportunities for financial
holding companies to engage in activities that are financial in nature or incidental to an activity that is financial in nature or complementary thereto provided that any such financial holding company is willing to comply with the conditions,
restrictions and limitations placed on financial holding companies contained in the Act and the regulations to be adopted under the Act. Financial in nature activities include: securities underwriting, dealing and market making, sponsoring mutual
funds and investment companies, insurance underwriting and agency, merchant banking, and activities that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines from time to time to be so closely related to banking
or managing or controlling banks as to be proper incidents thereto.



Under the Act, federal banking regulators are required to adopt rules that will limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations
will require disclosure of privacy policies to consumers and, in some circumstances, will allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. Pursuant to these rules, effective July 1, 2001,
financial institutions must provide: initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal information to nonaffiliated third parties and affiliates; annual notices of
their privacy policies to current customers; and a reasonable method for customers to opt out of disclosures to nonaffiliated third parties. These privacy provisions will affect how consumer information is transmitted through diversified
financial companies and conveyed to outside vendors.



The
Corporation is not a financial holding company under the Act and, therefore, the Corporation and the Bank are subject to the restrictions and limitations on their activities imposed on non-financial holding companies.



Credit Policies



The Corporation follows written policies and procedures to manage its credit risk. The loan portfolio is managed under a
specifically defined credit process. This process includes formulation of portfolio management strategy, guidelines for underwriting standards and risk assessment, procedures for ongoing identification and management of credit deterioration, and
regular portfolio reviews to estimate loss exposure and ascertain compliance with the Corporations policies. Lending authority is granted to individual lending officers with the current highest limit being $250,000 for either secured or
unsecured loans. A Loan Committee compromised of five loan officers can approve credits of up to $500,000. Approval of such credits requires a majority vote of the Loan Committee. The Executive Committee of the Board of Directors, meeting monthly,
can approve loans up to the Banks legal lending limit. The Board of Director meets monthly as well and it too may approve loans up to the Banks legal lending limit.



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The Corporations management generally requires that secured loans have a loan-to-value ratio of 85%
or less. Management believes that when a borrower has significant equity in the assets securing the loan, the borrower is less likely to default on the outstanding loan balance.



A major element of credit risk management is diversification. The Corporations objective is to maintain a diverse loan
portfolio to minimize the impact of any single event or set of circumstances. Concentration parameters are based on factors of individual risk, policy constraints, economic conditions, collateral and product type.



Lending activities include a variety of consumer, real estate and commercial
loans with a strong emphasis on serving the needs of customers within the Corporations market territory. Consumer loans are made primarily on a secured basis in the form of installment obligations or personal lines of credit. The focus of real
estate lending is single family residential mortgages, but also includes home improvement loans, construction lending and home equity lines of credit. Commercial lending is provided to businesses seeking credit for working capital, the purchase of
equipment and facilities and commercial development.



Market Area



The Corporations six offices serve a diverse market
from the edge of the City of Richmond in Hanover and Henrico Counties to Tappahannock, Virginia on the Rappahannock River in Essex County. From suburban Hanover and Henrico Counties, the market area is primarily rural along Route 360 through King
William and King and Queen counties into Essex County. The Corporations management believes Route 360 is a developing growth corridor from Richmond to the east. Tappahannock is approximately 40 miles from downtown Richmond and about one hour
from Fredericksburg. Through its Tappahannock branches, the Corporation also serves the central portions of the Middle Peninsula and the upper Northern Neck of Virginia. Through its West Point office, the Corporation serves portions of the Middle
Peninsula of Virginia. However, the Corporations expansion strategy has been directed at higher growth markets in Hanover, Henrico and the City of Richmond. This has created a concentration of lending activity in the retail commerce and light
industry areas.



Competition



Within the Richmond, Middle Peninsula and upper Northern Neck areas, the
Corporation operates in a highly competitive environment, competing for deposits and loans with commercial corporations, savings and loans and other financial institutions, including non-bank competitors, many of which possess substantially greater
financial resources than those available to the Corporation. Many of these institutions have significantly higher lending limits than the Corporation. In addition, there can be no assurance that other financial institutions, with substantially
greater resources than the Corporation, will not establish operations in the Corporations service area.



In Essex County, the Corporation commands 42.1% of the deposits in the market, according to the most recently available survey of deposits by the FDIC
(June 30, 2003) and is the second largest depository institution headquartered in Essex County. Serving King William County, the branches at Central Garage and West Point have experienced steady growth, reaching 20.3% of the deposits in the King
William County market as of the June 30, 2003 FDIC survey of deposits, while competing with previously established branches. The Corporations office located on Route 360 in eastern Hanover County, east of Mechanicsville, has experienced strong
growth while competing against other community corporations and established offices of statewide corporations in the vicinity.



Employees



At December 31, 2003, the Corporation had 88 full-time equivalent employees. None of its employees is represented by any collective bargaining unit. The
Corporation considers relations with its employees to be good.



ITEM 2.
DESCRIPTION OF PROPERTY.



The principal office of the
Corporation and the Bank is located at 323 Prince Street, Tappahannock, Virginia 22560. The Bank has operated a branch in the Tappahannock Towne Center in Tappahannock since 1981. In November 1988, the Bank opened the King William office at Central
Garage near Manquin in King William County. The fourth facility, the East Hanover office, opened in August 1992, on Route 360 east of Mechanicsville in Hanover County. In February of 1996, the Bank opened its fifth office in West Point, Virginia in
King William County. In June 1999, the Bank opened its sixth office in Henrico County near Virginia Center Commons. This office houses other lines of business such as the commercial loan department, fixed rate mortgages and investment services. In
June of 1990, the Bank purchased several acres of land in Tappahannock, Virginia, which may be the future site of the executive offices of the Corporation. In October of 2002 the Bank purchased a small parcel of land adjoining the King William
Office. In 2003 the Banks accounting operation leased office space for an 18 month period. The Corporation or the Bank owns all other properties.



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ITEM 3. LEGAL PROCEEDINGS.



In the course of its operations, the Corporation is party to various legal proceedings. Based upon information currently
available, and after consultation with its general counsel, management believes that such legal proceedings, in the aggregate, will not have a material adverse effect on the Corporations business, financial position or results of operations.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.



There were no matters submitted to the stockholders for
their vote during the quarter ended December 31, 2003.



PART
II



ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.



Market Information. The Corporations Common Stock was approved for trading on the NASDAQ Small Cap Market on December 18, 1997 under the symbol BSXT.



The following table indicates the high and low bid prices for the Common Stock as reported on the NASDAQ Small Cap Market
for the quarterly periods indicated:



|               |  |      |       |     |   |      
|-------------- |  | ---- | ----- | --- | - | -----
|2003           |  | High |       | Low
|Fourth Quarter |  | $    | 28.45 |     | $ | 25.00
|Third Quarter  |  |      | 26.50 |     |   | 23.50
|Second Quarter |  |      | 25.00 |     |   | 21.60
|First Quarter  |  |      | 24.20 |     |   | 19.18
|               |  |     
|2002           |  | High |       | Low
|Fourth Quarter |  | $    | 21.00 |     | $ | 18.40
|Third Quarter  |  |      | 22.00 |     |   | 19.25
|Second Quarter |  |      | 23.00 |     |   | 20.25
|First Quarter  |  |      | 21.97 |     |   | 18.35



Holders. At December
31, 2003, there were 1,183,147 shares of Common Stock of the Corporation outstanding held by approximately 1,100 holders of record.



Dividends. The Corporation began paying cash dividends in 1944 and semi-annual cash dividends in 1989. The Board of Directors intends to continue its
present policy of paying semi-annual cash dividends on the Common Stock when justified by the financial condition of the Corporation. The timing and amount of future dividends, if any, will depend on general business conditions encountered by the
Corporation, its earnings, its financial condition and cash and capital requirements, governmental regulations and other such factors as the Board of Directors may deem relevant. As a bank holding company, the Corporations ability to pay
dividends depends on the ability of the Bank to pay its dividends. The Banks ability to pay dividends to the Corporation is subject to regulatory restrictions. The following table sets forth the semi-annual and total cash dividends paid per
share for the period for 2003 and 2002.



|     |  |                                           |      |                                           |   |                                     |  |   |     
|---- |  | ----------------------------------------- | ---- | ----------------------------------------- | - | ----------------------------------- |  | - | ----
|Year |  | 1st Semi-AnnualDividend PaidPer share (1) |      | 2nd Semi-AnnualDividend Paidper share (1) |   | Total AnnualDividendsPaid per share
|2003 |  | $                                         | 0.27 |                                           | $ | 0.29                                |  | $ | 0.56
|2002 |  | $                                         | 0.26 |                                           | $ | 0.27                                |  | $ | 0.53

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|(1) | The Corporation generally pays its semi-annual dividends in June and December.
|--- | ------------------------------------------------------------------------------



Repurchases. The Corporation did not repurchase any of its securities during 2003.



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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.



The following discussion is intended to assist the readers in
understanding and evaluating the financial condition and results of operations of BOE Financial Services of Virginia, Inc. (the Corporation). This review should be read in conjunction with the Corporations consolidated financial
statements and accompanying notes included elsewhere in this Report. This analysis provides an overview of the significant changes that occurred during the periods presented.



CRITICAL ACCOUNTING POLICIES



General



The Corporations financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained in such financial
statements, to a significant extent, is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing
expense, recovering an asset or relieving a liability. The Corporation uses historical loss factors as one factor in determining the inherent loss that may be present in the loan portfolio. Actual losses could differ significantly from the
historical factors used by the Corporation. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the Corporations transactions would be the same, the timing of events that would
impact transactions could change.



Allowance for Loan Losses



The allowance for loan losses is an estimate of the losses that may be
sustained in the Corporations loan portfolio. The allowance is based on two basic principles of accounting: (i) SFAS 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimatable and
(ii) SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market
and the loan balance. The use of these values is inherently subjective and actual losses could be greater or less than the estimates.



The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Managements periodic evaluation of
the adequacy of the allowance is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay, the estimated value of any underlying collateral, and current
economic conditions.



OVERVIEW



Year 2003 Compared to Year 2002



The Corporations strategic plan is directed toward the enhancement of
its franchise value and operating profitability by increasing its asset size and expanding its customer base. The Corporation operates six full services offices between its headquarters in Tappahannock, Virginia along the U. S. 360 corridor to the
Richmond, Virginia metropolitan market. Management believes that its most significant profitable growth opportunities will continue to be in the greater Richmond metropolitan area. (See Part I, Item 1. Description of Business, General, for further
explanation on the Corporations strategic plan.)



On December 31, 2003 the Corporation had total assets of $231.7 million, total loans of $160.5 million, total deposits of $203.3 million and total stockholders equity of $22.9 million. The Corporation had net income of $2.4
million in 2003, a $625,000, or 35.1% increase from $1.8 million in net income in 2002. This resulted in a return on average equity of 10.80% in 2003 compared to 8.87% in 2002. Return on average assets in 2003 was 1.04%, compared to 0.80% in 2002.
The Corporations total loans declined 2.0%, or $3.3 million in 2003 compared to 2002. Total loans were $160.5 million at December 31, 2003 compared to $163.8 million at December 31, 2002. At December 31, 2003, the ratio of non-performing
assets to total assets was 0.75% compared to 1.06% at December 31, 2002. Net charge offs to average loans were 0.42% in 2003 compared to 0.74% in 2002. Loans past due 90 days or more and still accruing interest at December 31, 2003 were $285,000 and
$102,000 at December 31, 2002. The Corporations allowance for loan losses to period end loans at December 31, 2003 was 1.33% compared to 1.29% at December 31, 2002.



During the fourth quarter of 2003 the Corporation engaged in a trust preferred offering, raising $4.0 million in trust
preferred subordinated debt which qualifies as capital for regulatory purposes. This trust preferred debt has a 30-year maturity with a 5-year call option and was issued at a rate of three month LIBOR plus 3.00% for an initial rate of 4.17%.



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Year 2002 Compared to Year 2001



On December 31, 2002 the Corporation had total assets of $228.1 million, total loans of $163.8 million, total deposits of
$201.3 million and total stockholders equity of $21.3 million. The Corporation had net income of $1.8 million in 2002, a $225,000, or 11.2% decrease from $2.0 million in net income in 2001. This resulted in a return on average equity of 8.87%
in 2002 compared to 10.97% in 2001. Return on average assets in 2002 was 0.80%, compared to 1.00% in 2001. The Corporations total loans grew 6.4%, or $9.9 million in 2002 over 2001. Total loans were $163.8 million at December 31, 2002 compared
to $154.0 million at December 31, 2001. At December 31, 2002, the ratio of nonperforming assets to total assets was 1.06% compared to 0.35% at December 31, 2001. Net charge offs to average loans were 0.74% in 2002 compared to 0.08% in 2001. The
Corporations allowance for loan losses to period end loans at December 31, 2002 was 1.29% compared to 1.35% at December 31, 2001.



RESULTS OF OPERATIONS



NET INCOME



Year 2003 Compared to
Year 2002



The Corporation had net income of $2.4
million in 2003 compared to $1.8 million in 2002. This represented an increase of 35.1%, or $625,000. Diluted earnings per share in 2003 were $2.03, compared to diluted earnings per share in 2002 of $1.51. These earnings per share are based on
average shares outstanding of 1,187,639 in 2003 and 1,181,558 in 2002.



The Corporations profitability increased in 2003 in comparison to 2002 due primarily to an increase of $953,000, or 11.8%, in net interest income. Net interest income increased from $8.0 million in 2002 to $9.0 million in 2003.
Additionally, the provision for loan losses decreased by $508,000, or 42.1%, in 2003 compared to 2002 as a result of the recognition of $1.1 million in net charged off loans during 2002. The provision for loan losses was $700,000 in 2003 compared to
$1.2 million in 2002. This combination resulted in a net interest income after provision for loan losses increase of $1.5 million, or 21.4%. Noninterest income was $1.4 million in 2003 compared to $1.1 million in 2002. The increase in noninterest
income was $306,000 and represented an increase in 2003 over 2002 of 28.4%.



Offsetting these increases in net income was an $862,000, or 14.9% increase for 2003 compared to 2002 in noninterest expenses. Noninterest expenses were $6.6 million in 2003 and $5.8 million in 2002. Also offsetting
net income increases was an increase of $279,000, or 75.8%, in income tax expenses. Income tax expense totaled $648,000 in 2003 and $368,000 in 2002.



Year 2002 Compared to Year 2001



The Corporation had net income of $1.8 million in 2002 compared to $2.0 million in 2001. This represented a decrease of 11.2%, or $225,000. Diluted
earnings per share in 2002 were $1.51, compared to diluted earnings per share in 2001 of $1.71. These earnings per share are based on average shares outstanding of 1,181,558 in 2002 and 1,174,321 in 2001. With the December 2000 dividend, BOE
implemented a Dividend Reinvestment Plan (the Plan). The Plan has added 9,856 shares to the Corporations equity since its inception and, net of costs, added approximately $159,000 to total stockholders equity.



The Corporations profitability decreased in 2002 in comparison to 2001
due to an increase of $818,000 in the provision for loan losses. The provision for loan losses was $390,000 in 2001 and increased 209.7% to $1.2 million in 2002. This increase in provision was the result of an increase of $1.1 million in net loans
charged off during 2002 compared to 2001. Also contributing to the decrease in net income was a $42,000 decrease in noninterest income and a $372,000 increase in non-interest expenses.



NET INTEREST INCOME





Net interest income is the major component of the Corporations
earnings and is equal to the amount by which interest income exceeds interest expense. The Corporations earning assets are composed primarily of loans and securities, while deposits and short-term borrowings represent the major portion of
interest-bearing liabilities. Changes in the volume and mix of these assets and liabilities, as well as changes in the yields earned and rates paid, determine changes in net interest income.



Year 2003 Compared to Year 2002



The general level of interest rates remained low during 2003 and 2002. The
Federal Reserve cut short-term interest rates eleven different times during 2001 in response to a weakening economy. The federal funds interest rate was cut from a beginning federal funds rate of 6.50% at January 1, 2001 to an ending rate of 1.75%
at December 31, 2001. The Federal Reserve again lowered the federal funds rate 50 basis points in the fourth quarter of 2002 to 1.25% and again in the second quarter of 2003 by 25 basis points



8



---

to 1.00%. As a result, the prime interest rate, which is the basis for pricing many commercial and consumer loans, also
declined. The prime rate at the beginning of 2001 was 9.50% and had fallen to 4.75% at year-end 2001 and to 4.25% at year-end 2002. With the lowering of short-term rates in the second quarter of 2003, the prime rate again fell to 4.00%.



Net interest income, on a fully tax equivalent basis, was $9.5 million in
2003, 11.0% higher than the $8.6 million reported for 2002. The Corporations level of earning assets increased $5.7 million, or 2.4%, on average, in 2003 to $213.7 million compared to $208.8 million in 2002. Loans receivable were $164.0
million, on average, in 2003 compared to $160.9 million in 2002, an increase of $3.1 million, or 1.9%. The yield on loans receivable decreased from 7.10% in 2002 to 6.65% in 2003. On a fully tax equivalent basis the yield on loans receivable
decreased $523,000 in 2003, from $11.4 million in 2002 to $10.9 million in 2003. This represents a decrease of 4.8%. Investment securities and federal funds sold increased, on average, 4.0% in 2003 to $50.0 million, up from $47.8 million, on
average, in 2002. The tax equivalent yield on investment securities, including equity securities and federal funds sold, was 5.39% in 2003 compared to 5.94% in 2002. On a fully taxable equivalent basis, income on investment securities and federal
funds sold income decreased 5.7%, or $161,000, from $2.8 million in 2002 to $2.7 million in 2003. This earning asset rate and volume activity resulted in a yield on earning assets of 6.35% in 2003 based on $13.6 million in fully taxable equivalent
income compared to 6.83% in 2002 based on $14.3 million in fully taxable equivalent income. This is a $684,000 decrease from 2002 to 2003, or 4.8%. The Corporations interest-bearing liabilities increased $1.8 million, or 1.0%, on average, from
$183.7 million in 2002 to $185.5 million in 2003. The cost of interest-bearing liabilities decreased from 3.10% in 2002 to 2.20% in 2003, a decrease of 28.5%.



The decrease in yield on earning assets of 48 basis points coupled with the decreased cost of interest-bearing liabilities of 90 basis points resulted
in a net interest margin for the Corporation of 4.45% in 2003 compared to a net interest margin of 4.10% in 2002. Net interest margin is calculated by dividing the Corporations net interest income on a tax equivalent basis by the average
earning assets. Volume increases in loans and in securities, coupled with lower rate and volume decreases in higher costing interest-bearing liabilities resulted in an increase in the interest spread. The Corporations net interest spread
increased 43 basis points from 3.73% in 2002 to 4.16% in 2003. Spread is calculated by subtracting the cost of interest-bearing liabilities from the yield on earning assets.



The Corporation was able to increase its net interest margin due to a higher volume of earning assets, coupled with a change
in the mix of interest-bearing liabilities, to lower cost sources of funds. Management does not believe this trend of margin improvement by a shift in deposit mix will continue in 2004 as the ability to shift consumers into lower cost sources of
funds will ultimately lead to a decrease in the overall funding levels of the institution. Controlled deposit growth is desired to improve profitability by funding higher yielding loans and securities.



The Corporations net interest margin is affected by changes in the
amount and mix of earning assets and interest-bearing liabilities, referred to as a volume change. It is also affected by changes in yields earned on earning assets and rates paid on interest-bearing deposits and other borrowed funds,
referred to as a rate change. The table which follows the Year 2002 Compared to Year 2001 discussion below sets forth for each category of earning assets and interest-bearing liabilities, the average amounts outstanding, the
interest earned or incurred on such amounts and the average rate earned or incurred for the years ended December 31, 2003, 2002 and 2001. The table also sets forth the average rate earned on total earning assets, the average rate paid on total
interest-bearing liabilities, and the net interest margin on average total earning assets for the same periods.



Year 2002 Compared to Year 2001



Net interest income, on a fully tax equivalent basis, was $8.6 million in 2002, 12.1% higher than the $7.7 million reported for 2001. The
Corporations level of earning assets increased $21.9 million, or 11.7%, on average, in 2002 to $208.8 million compared to $186.9 million in 2001. Loans receivable were $160.9 million, on average, in 2002 compared to $147.8 million in 2001, an
increase of $13.2 million, or 8.9%. The yield on loans receivable decreased from 8.60% in 2001 to 7.10% in 2002. On a fully tax equivalent basis the yield on loans receivable decreased $1.3 million in 2002, from $12.7 million in 2001 to $11.4
million in 2002. This represents a decrease of 10.1%. Investment securities and federal funds sold increased, on average, 22.2% in 2002 to $47.8 million, up from $39.1 million, on average, in 2001. The yield on investment securities, including
equity securities and federal funds sold, was 6.05% in 2002 compared to 6.32% in 2001. On a fully taxable equivalent basis investment securities and federal funds sold income increased 17.0%, or $421,000, from $2.5 million in 2001 to $2.9 million in
2002. This resulted in a yield on earning assets of 6.86% in 2002 based on $14.3 million in fully taxable equivalent income compared to 8.12% in 2001 based on $15.2 million in fully taxable equivalent income. This is a $857,000 decrease from 2001 to
2002, or 5.6%. The Corporations interest-bearing liabilities increased $20.3 million, or 12.4%, on average, from $163.4 million in 2001 to $183.7 million in 2002. The cost of interest-bearing liabilities decreased from 4.58% in 2001 to 3.10%
in 2002, a decrease of 32.3%.



The decrease in yield on earning
assets of 126 basis points coupled with the decreased cost of interest-bearing liabilities of 148 basis points resulted in a net interest margin for the Corporation of 4.13% in 2002 compared to a net interest margin of 4.12% in 2001. Net interest
margin is calculated by dividing the Corporations net interest income on a tax equivalent basis by the average earning assets. Volume and rate increases in loans and in securities, coupled with greater rate and volume increases in
interest-bearing liabilities resulted in a decrease in the interest spread. The Corporations net interest spread increased 22 basis points from 3.54% in 2001 to 3.76% in 2002. Spread is calculated by subtracting the cost of interest-bearing
liabilities from the yield on earning assets.



9



---

The Corporations net interest margin is affected by changes in the amount and mix of earning assets
and interest-bearing liabilities, referred to as a volume change. It is also affected by changes in yields earned on earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a rate
change. The following table sets forth for each category of earning assets and interest-bearing liabilities, the average amounts outstanding, the interest earned or incurred on such amounts and the average rate earned or incurred for the years
ended December 31, 2003, 2002 and 2001. The table also sets forth the average rate earned on total earning assets, the average rate paid on total interest-bearing liabilities, and the net interest margin on average total earning assets for the same
periods.



AVERAGE BALANCES, INTEREST INCOME AND EXPENSES, AND AVERAGE YIELDS
AND RATES



Years Ended December 31,

(Dollars in thousands)



|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|------------------------------------------ |  | ------------------------ | ------- | - | ---------------------- | - | ----------------- | ---- | ---- | -------------- |  | - | ---------------------- | - | ----------------- | - | ------ | -------------- | ---- | - | ---------------------- | - | ----------------- | - |  | - | ------ |  | ---- | -
|                                           |  | Years Ended December 31, |        
|                                           |  | 2003                     |         |   | 2002                   |   |                   | 2001 |     
|                                           |  | AVERAGEBALANCE           |         |   | INTERESTINCOME/EXPENSE |   | AVERAGEYIELD/RATE |      |      | AVERAGEBALANCE |  |   | INTERESTINCOME/EXPENSE |   | AVERAGEYIELD/RATE |   |        | AVERAGEBALANCE |      |   | INTERESTINCOME/EXPENSE |   | AVERAGEYIELD/RATE |  
|Earning Assets:                            |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Loans receivable (1)(2)                    |  | $                        | 163,976 |   |                        | $ | 10,899            |      | 6.65 | %              |  | $ | 160,941                |   |                   | $ | 11,422 |                | 7.10 | % |                        | $ | 147,760           |   |  | $ | 12,700 |  | 8.60 | %
|Securities, taxable                        |  |                          | 17,925  |   |                        |   | 858               |      | 4.79 | %              |  |   | 17,389                 |   |                   |   | 1,016  |                | 5.84 | % |                        |   | 15,789            |   |  |   | 1,028  |  | 6.51 | %
|Securities, non-taxable                    |  |                          | 28,333  |   |                        |   | 1,752             |      | 6.18 | %              |  |   | 24,734                 |   |                   |   | 1,688  |                | 6.82 | % |                        |   | 18,794            |   |  |   | 1,255  |  | 6.68 | %
|Equity securities                          |  |                          | 1,001   |   |                        |   | 44                |      | 4.40 | %              |  |   | 1,283                  |   |                   |   | 68     |                | 5.30 | % |                        |   | 1,479             |   |  |   | 87     |  | 5.88 | %
|Federal funds sold                         |  |                          | 2,507   |   |                        |   | 27                |      | 1.08 | %              |  |   | 4,433                  |   |                   |   | 70     |                | 1.58 | % |                        |   | 3,076             |   |  |   | 105    |  | 3.41 | %
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Total earning assets                       |  | $                        | 213,742 |   |                        | $ | 13,580            |      | 6.35 | %              |  | $ | 208,780                |   |                   | $ | 14,264 |                | 6.83 | % |                        | $ | 186,898           |   |  | $ | 15,175 |  | 8.12 | %
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Non-Earning Assets:                        |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Cash and due from banks                    |  |                          | 8,409   |   |                        |   |                   |      |      |                |  |   | 6,169                  |   |                   |   |        |                |      |   |                        |   | 4,462             |   |  |   |        |  |      |  
|Allowance for loan losses                  |  |                          | (2,193  | ) |                        |   |                   |      |      |                |  |   | (2,167                 | ) |                   |   |        |                |      |   |                        |   | (1,920            | ) |  |   |        |  |      |  
|Other assets                               |  |                          | 10,557  |   |                        |   |                   |      |      |                |  |   | 11,112                 |   |                   |   |        |                |      |   |                        |   | 10,938            |   |  |   |        |  |      |  
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Total non-earning assets                   |  |                          | 16,773  |   |                        |   |                   |      |      |                |  |   | 15,114                 |   |                   |   |        |                |      |   |                        |   | 13,480            |   |  |   |        |  |      |  
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Total assets                               |  | $                        | 230,515 |   |                        |   |                   |      |      |                |  | $ | 223,894                |   |                   |   |        |                |      |   |                        | $ | 200,378           |   |  |   |        |  |      |  
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Deposits:                                  |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Interest-bearing demand (NOW) deposits     |  | $                        | 24,263  |   |                        | $ | 103               |      | 0.42 | %              |  | $ | 22,357                 |   |                   | $ | 236    |                | 1.06 | % |                        | $ | 19,666            |   |  | $ | 339    |  | 1.72 | %
|Money market deposits                      |  |                          | 17,244  |   |                        |   | 173               |      | 1.00 | %              |  |   | 14,313                 |   |                   |   | 288    |                | 2.01 | % |                        |   | 10,103            |   |  |   | 294    |  | 2.91 | %
|Savings deposits                           |  |                          | 20,072  |   |                        |   | 180               |      | 0.90 | %              |  |   | 17,237                 |   |                   |   | 292    |                | 1.69 | % |                        |   | 15,079            |   |  |   | 390    |  | 2.59 | %
|Time deposits                              |  |                          | 120,118 |   |                        |   | 3,511             |      | 2.92 | %              |  |   | 122,145                |   |                   |   | 4,670  |                | 3.82 | % |                        |   | 107,750           |   |  |   | 5,902  |  | 5.48 | %
|Federal funds purchased                    |  |                          | 270     |   |                        |   | 5                 |      | 1.85 | %              |  |   | 281                    |   |                   |   | 6      |                | 2.14 | % |                        |   | 328               |   |  |   | 16     |  | 4.88 | %
|FHLB advances & other borrowings           |  |                          | 3,561   |   |                        |   | 101               |      | 2.84 | %              |  |   | 7,364                  |   |                   |   | 203    |                | 2.76 | % |                        |   | 10,507            |   |  |   | 541    |  | 5.15 | %
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Total interest-bearing liabilities         |  | $                        | 185,528 |   |                        | $ | 4,073             |      | 2.20 | %              |  | $ | 183,697                |   |                   | $ | 5,695  |                | 3.10 | % |                        | $ | 163,433           |   |  | $ | 7,482  |  | 4.58 | %
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Non-Interest Bearing Liabilities:          |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Demand deposits                            |  |                          | 20,894  |   |                        |   |                   |      |      |                |  |   | 18,308                 |   |                   |   |        |                |      |   |                        |   | 16,903            |   |  |   |        |  |      |  
|Other liabilities                          |  |                          | 1,805   |   |                        |   |                   |      |      |                |  |   | 1,793                  |   |                   |   |        |                |      |   |                        |   | 1,744             |   |  |   |        |  |      |  
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Total non-interest bearing liabilities     |  |                          | 22,699  |   |                        |   |                   |      |      |                |  |   | 20,101                 |   |                   |   |        |                |      |   |                        |   | 18,647            |   |  |   |        |  |      |  
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Total liabilities                          |  |                          | 208,227 |   |                        |   |                   |      |      |                |  |   | 203,798                |   |                   |   |        |                |      |   |                        |   | 182,080           |   |  |   |        |  |      |  
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Stockholders equity                       |  |                          | 22,288  |   |                        |   |                   |      |      |                |  |   | 20,096                 |   |                   |   |        |                |      |   |                        |   | 18,298            |   |  |   |        |  |      |  
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                        | 230,515 |   |                        |   |                   |      |      |                |  | $ | 223,894                |   |                   |   |        |                |      |   |                        | $ | 200,378           |   |  |   |        |  |      |  
|                                           |  |                          |         |   |                        |   |                   |      |      |                |  |   |                        |   |                   |   |        |                |      |   |                        |   |                   |   |  |   |        |  |      |  
|Interest spread                            |  |                          |         |   |                        |   |                   |      | 4.16 | %              |  |   |                        |   |                   |   |        |                | 3.73 | % |                        |   |                   |   |  |   |        |  | 3.54 | %
|Net interest margin                        |  |                          |         |   |                        | $ | 9,507             |      | 4.45 | %              |  |   |                        |   |                   | $ | 8,569  |                | 4.10 | % |                        |   |                   |   |  | $ | 7,693  |  | 4.12 | %



Net interest income is
affected by both (1) changes in the interest rate spread (the difference between the weighted average yield on interest earning assets and the weighted average cost of interest-bearing liabilities) and (2) changes in volume (average balances of
interest earning assets and interest-bearing liabilities).



For
each category of interest-earning assets and interest-bearing liabilities, information is provided regarding changes attributable to (1) changes in volume of balances outstanding (changes in volume multiplied by prior period interest rate) (2)
changes in the interest earned or paid on the balances (changes in rate multiplied by prior period volume) and (3) a combination of changes in volume and rate allocated pro rata.



RATE AND VOLUME ANALYSIS

(Dollars in thousands)



|                                                     |  |                                                                                       |        |   |                                                                                      |   |      |       |  |   |        |   |  |        |        |   |       |   |       |   |  |   |        |  
|---------------------------------------------------- |  | ------------------------------------------------------------------------------------- | ------ | - | ------------------------------------------------------------------------------------ | - | ---- | ----- |  | - | ------ | - |  | ------ | ------ | - | ----- | - | ----- | - |  | - | ------ | -
|                                                     |  | Year Ended December 31, 2003 Compared to December 31, 2002 Increase (Decrease) Due to |        |   | Year Ended December 31, 2002Compared to December 31, 2001 Increase (Decrease) Due to |  
|                                                     |  | Rate                                                                                  |        |   | Volume                                                                               |   |      | Total |  |   | Rate   |   |  | Volume |        |   | Total |  
|Interest Earned On:                                  |  |                                                                                       |        |   |                                                                                      |   |      |       |  |   |        |   |  |        |        |   |       |   |       |   |  |   |        |  
|Loans receivable                                     |  | $                                                                                     | (744   | ) |                                                                                      | $ | 221  |       |  | $ | (523   | ) |  | $      | (2,618 | ) |       | $ | 1,340 |   |  | $ | (1,278 | )
|Securities, taxable                                  |  |                                                                                       | (190   | ) |                                                                                      |   | 32   |       |  |   | (158   | ) |  |        | (966   | ) |       |   | 954   |   |  |   | (12    | )
|Securities, non-taxable                              |  |                                                                                       | (117   | ) |                                                                                      |   | 181  |       |  |   | 64     |   |  |        | 28     |   |       |   | 405   |   |  |   | 433    |  
|Equity securities                                    |  |                                                                                       | (10    | ) |                                                                                      |   | (14  | )     |  |   | (24    | ) |  |        | 45     |   |       |   | (64   | ) |  |   | (19    | )
|Federal funds sold                                   |  |                                                                                       | (18    | ) |                                                                                      |   | (25  | )     |  |   | (43    | ) |  |        | (195   | ) |       |   | 160   |   |  |   | (35    | )
|                                                     |  |                                                                                       |        |   |                                                                                      |   |      |       |  |   |        |   |  |        |        |   |       |   |       |   |  |   |        |  
|Total interest income                                |  | $                                                                                     | (1,079 | ) |                                                                                      | $ | 395  |       |  | $ | (684   | ) |  | $      | (3,706 | ) |       | $ | 2,795 |   |  | $ | (911   | )
|                                                     |  |                                                                                       |        |   |                                                                                      |   |      |       |  |   |        |   |  |        |        |   |       |   |       |   |  |   |        |  
|Interest Paid On:                                    |  |                                                                                       |        |   |                                                                                      |   |      |       |  |   |        |   |  |        |        |   |       |   |       |   |  |   |        |  
|Interest bearing demand (NOW) deposits               |  | $                                                                                     | (155   | ) |                                                                                      | $ | 22   |       |  | $ | (133   | ) |  | $      | (159   | ) |       | $ | 56    |   |  | $ | (103   | )
|Money market deposits                                |  | $                                                                                     | (194   | ) |                                                                                      |   | 79   |       |  |   | (115   | ) |  |        | (23    | ) |       |   | 17    |   |  |   | (6     | )
|Savings deposits                                     |  |                                                                                       | (172   | ) |                                                                                      |   | 60   |       |  |   | (112   | ) |  |        | (167   | ) |       |   | 69    |   |  |   | (98    | )
|Time deposits                                        |  |                                                                                       | (1,083 | ) |                                                                                      |   | (76  | )     |  |   | (1,159 | ) |  |        | (2,209 | ) |       |   | 977   |   |  |   | (1,232 | )
|Federal funds purchased                              |  |                                                                                       | (1     | ) |                                                                                      |   | (0   | )     |  |   | (1     | ) |  |        | (8     | ) |       |   | (2    | ) |  |   | (10    | )
|Federal Home Loan Bank advances and other borrowings |  |                                                                                       | 6      |   |                                                                                      |   | (108 | )     |  |   | (102   | ) |  |        | (206   | ) |       |   | (132  | ) |  |   | (338   | )
|                                                     |  |                                                                                       |        |   |                                                                                      |   |      |       |  |   |        |   |  |        |        |   |       |   |       |   |  |   |        |  
|Total interest expense                               |  | $                                                                                     | (1,599 | ) |                                                                                      | $ | (23  | )     |  | $ | (1,622 | ) |  | $      | (2,772 | ) |       | $ | 985   |   |  | $ | (1,787 | )
|                                                     |  |                                                                                       |        |   |                                                                                      |   |      |       |  |   |        |   |  |        |        |   |       |   |       |   |  |   |        |  
|Net interest income                                  |  | $                                                                                     | 520    |   |                                                                                      | $ | 418  |       |  | $ | 938    |   |  | $      | (934   | ) |       | $ | 1,810 |   |  | $ | 876    |  
|                                                     |  |                                                                                       |        |   |                                                                                      |   |      |       |  |   |        |   |  |        |        |   |       |   |       |   |  |   |        |  



INTEREST RATE SENSITIVITY



An important component of both earnings
performance and liquidity is management of interest rate sensitivity. Interest rate sensitivity reflects the potential effect on net interest income of a movement in market interest rates. The Corporation is subject to interest rate sensitivity to
the degree that its interest earning assets mature or reprice at a different time interval from that of its interest-bearing liabilities.



INTEREST SENSITIVITY ANALYSIS

December 31, 2003 (Dollars in thousands)



|                                                                                |  |                           |        |   |             |   |         |             |  |   |         |   |  |   |        
|------------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ----------- | - | ------- | ----------- |  | - | ------- | - |  | - | -------
|                                                                                |  | Maturing or Repricing In:
|                                                                                |  | < 3 Months                |        |   | 4-12 Months |   |         | Over 1 Year |  |   | Total  
|Interest-sensitive assets:                                                      |  |                           |        |   |             |   |         |             |  |   |         |   |  |   |        
|Cash                                                                            |  | $                         | 8,949  |   |             | $ |        |             |  | $ |        |   |  | $ | 8,949  
|Loans (1)                                                                       |  |                           | 47,840 |   |             |   | 29,265  |             |  |   | 83,405  |   |  |   | 160,510
|Short-term investments                                                          |  |                           | 285    |   |             |   |        |             |  |   |        |   |  |   | 285    
|Securities                                                                      |  |                           | 196    |   |             |   | 1,502   |             |  |   | 48,461  |   |  |   | 50,159 
|                                                                                |  |                           |        |   |             |   |         |             |  |   |         |   |  |   |        
|Total interest-sensitive assets                                                 |  | $                         | 57,270 |   |             | $ | 30,767  |             |  | $ | 131,866 |   |  | $ | 219,903
|                                                                                |  |                           |        |   |             |   |         |             |  |   |         |   |  |   |        
|Interest-sensitive liabilities:                                                 |  |                           |        |   |             |   |         |             |  |   |         |   |  |   |        
|Non-interest bearing deposits                                                   |  | $                         |       |   |             | $ |        |             |  | $ | 24,522  |   |  | $ | 24,522 
|Certificates of deposit                                                         |  |                           | 21,142 |   |             |   | 43,054  |             |  |   | 48,463  |   |  |   | 112,659
|Interest-bearing checking, money market deposits, NOW and savings accounts (2)  |  |                           | 3,305  |   |             |   | 9,915   |             |  |   | 52,881  |   |  |   | 66,101 
|Trust Preferred Securities                                                      |  |                           |       |   |             |   |        |             |  |   | 4,000   |   |  |   | 4,000  
|                                                                                |  |                           |        |   |             |   |         |             |  |   |         |   |  |   |        
|Total interest sensitive liabilities                                            |  | $                         | 24,447 |   |             | $ | 52,969  |             |  | $ | 129,866 |   |  | $ | 207,282
|                                                                                |  |                           |        |   |             |   |         |             |  |   |         |   |  |   |        
|Period gap                                                                      |  |                           | 32,823 |   |             |   | (22,202 | )           |  |   | 2,000   |   |  |   | 12,621 
|Cumulative gap                                                                  |  |                           | 32,823 |   |             |   | 10,621  |             |  |   | 12,621  |   |  |   |        
|Ratio of cumulative interest sensitive assets to interest sensitive liabilities |  |                           | 234.3  | % |             |   | 113.7   | %           |  |   | 106.1   | % |  |   |        
|Ratio of cumulative gap to interest sensitive assets                            |  |                           | 14.9   | % |             |   | 4.8     | %           |  |   | 5.7     | % |  |   |        



10



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PROVISION FOR LOAN LOSSES



The provision for loan losses is charged to income to bring the total allowance for loan losses to a level deemed
appropriate by management of the Corporation based on such factors as historical experience, the volume and type of lending conducted by the Corporation, the amount of non-performing assets, regulatory policies, generally accepted accounting
principles, general economic conditions, and other factors related to the collectibility of loans in the Corporations portfolio.



The provision for loan losses was $700,000 in 2003, a decrease of $508,000, or 42.1%, compared to the $1.2 million in provision for 2002. The provision
for loan losses reflects a decrease of $489,000 in net charged-off loans in 2003. Net charged-off loans were $687,000 in 2003 after charging off $829,000 and recovering a total of $142,000. This compares to $1.2 million in net charge-offs in 2002
after charging off $1.2 million in loans and recognizing $68,000 in recoveries. The higher level of provision for loan losses in 2002 was booked in recognition of a slower economy, the deterioration in certain loans and higher charge-offs than had
been historically recognized. Additionally, in 2003 asset quality ratios improved over 2002, resulting in lower provision than in 2002.



Management believes the allowance for loan losses is adequate to absorb losses inherent in the loan portfolio. In view of the Corporations plans to
continue its loan growth, management will continue to closely monitor the performance of its portfolio and make additional provisions as necessary.



NON-INTEREST INCOME



Non-interest income in 2003 was $1.4 million, an increase of $306,000, or 28.4%, from non-interest income of $1.1 million in 2002. The largest dollar
volume component of the non-interest income increase was $127,000, or 17.2% in service charge income, which was $738,000 in 2002 and increased to $865,000 in 2003. This increase in service charges can be attributed to an automated program for
overdraft fees, which significantly reduced the percentage of fees waived by the bank. Net security gains (losses) increased $32,000 from a loss of $1,000 in 2002 to a gain of $31,000 in 2003. Primarily due to an increase in volume activity in loans
held for resale, net gains on sale of loans increased $60,000, from $3,000 in 2002 to $63,000 in 2003. Other income of $425,000 in 2003 increased $85,000 over 2002 other income of $339,000, an increase of 25.6%. This was the result of improved
investment earnings in Essex Services Inc., a wholly owned subsidiary of the Bank, as a result of changes in the economic environment and a growing customer base for this segment of the Company.



NON-INTEREST EXPENSE



Non-interest expense was $6.6 million in 2003, a 14.9% or $862,000 increase over non-interest expense of $5.8 million in
2002. Salaries comprised the largest dollar volume component of this increase, $361,000, and increased from $2.3 million in 2002 to $2.7 million during 2003. This increase in salaries was primarily attributable to an increase of five full-time
equivalent employees during 2003. As a result, employee benefits and costs increased $173,000, or 28.0%, from $616,000 in 2002 to $788,000 in 2003. Other operating expenses increased $249,000, or 19.6%, and were $1.3 million in 2002 compared to $1.5
million in 2003. This change is the result of increases in various expense items, including FDIC, bankcard, other professional fees, repossession and collection charges, other losses and travel. Occupancy expenses were $321,000 in 2003, an increase
of $7,000, or 2.3% from occupancy expenses of $314,000 in 2002. Increases in real estate taxes paid to various localities in Virginia represent a majority of this increase.



Furniture and equipment related expenses decreased 1.1%, or $5,000 and were $446,000 in 2002 compared to $441,000 in 2003.
Data processing expenses increased 11.8%, or $39,000 in 2003 and were $366,000 in 2003 and $327,000 in 2002.



ANALYSIS OF FINANCIAL CONDITION



Loan Portfolio



The loan portfolio is
the largest category of the Corporations earning assets and is comprised of commercial loans, agricultural loans, real estate loans, home equity loans, construction loans, consumer loans, and participation loans with other financial
institutions. The primary markets in which the Corporation makes loans include the counties of Essex, King and Queen, King William, Hanover, Henrico and the City of Richmond. The mix of the loan portfolio is weighted toward loans secured by real
estate and commercial loans. In managements opinion, there are no significant concentrations of credit with particular borrowers engaged in similar activities.



11



---

Net loans consist of total loans minus the allowance for loan losses, unearned discounts and deferred
loan fees. The Corporations net loans were $158.4 million at December 31, 2003, representing a decrease of 2.1%, or $3.3 million less than net loans of $161.7 million at December 31, 2002. The average balance of loans as a percentage of
average earning assets was 76.7% in 2003, down slightly from 77.1% in 2002. These decreases in the net loan balances at year-end, and on average, were the result of a slower economy, competition on loan pricing and of managements recognition
of negative effects of low priced loan growth on the Banks net interest margin.



In the normal course of business, the Corporation makes various commitments and incurs certain contingent liabilities, which are disclosed but not reflected in the consolidated financial statements contained in this
Report, including standby letters of credit and commitments to extend credit. At December 31, 2003, commitments for standby letters of credit totaled $3.9 million and commitments to extend credit totaled $33.1 million. Commitments for standby
letters of credit totaled $3.8 million at December 31, 2002 and commitments to extend credit totaled $36.9 million.



LOAN PORTFOLIO



|                           |  |                                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------- |  | ---------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                           |  | December 31,(Dollars in thousands) |        
|                           |  | 2003                               |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|Loans:                     |  |                                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial                 |  | $                                  | 26,099  |   |      | $ | 33,428  |      |  | $ | 32,714  |   |  | $    | 29,783  |   |  | $ | 25,200  |  
|Real Estate                |  |                                    | 106,212 |   |      |   | 121,570 |      |  |   | 110,336 |   |  |      | 94,662  |   |  |   | 86,254  |  
|Real Estate - construction |  |                                    | 21,505  |   |      |   | 1,465   |      |  |   | 3,505   |   |  |      | 6,242   |   |  |   | 4,665   |  
|Installment & other        |  |                                    | 6,693   |   |      |   | 7,375   |      |  |   | 7,406   |   |  |      | 10,624  |   |  |   | 9,696   |  
|                           |  |                                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loans                |  | $                                  | 160,509 |   |      | $ | 163,838 |      |  | $ | 153,961 |   |  | $    | 141,311 |   |  | $ | 125,815 |  
|                           |  |                                    |         |   |     
|Allowance for loan losses  |  |                                    | (2,128  | ) |      |   | (2,116  | )    |  |   | (2,084  | ) |  |      | (1,819  | ) |  |   | (1,601  | )
|                           |  |                                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net loans                  |  | $                                  | 158,381 |   |      | $ | 161,722 |      |  | $ | 151,877 |   |  | $    | 139,492 |   |  | $ | 124,214 |  
|                           |  |                                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  



Remaining Maturities of Selected
Loan Categories



|                  |  |                 |        |                         |   |       
|----------------- |  | --------------- | ------ | ----------------------- | - | ------
|                  |  | Commercial      |        | Real EstateConstruction
|                  |  | ( in thousands)
|Within one year   |  | $               | 13,221 |                         | $ | 16,394
|                  |  |                 |        |                         |   |       
|Variable Rate     |  |                 |        |                         |   |       
|One to five years |  | $               | 3,097  |                         | $ | 4,139 
|After five years  |  |                 | 342    |                         |   |      
|                  |  |                 |        |                         |   |       
|Total             |  | $               | 3,439  |                         | $ | 4,139 
|                  |  |                 |        |                         |   |       
|Fixed Rate        |  |                 |        |                         |   |       
|One to five years |  | $               | 9,354  |                         | $ | 812   
|After five years  |  |                 | 85     |                         |   | 160   
|                  |  |                 |        |                         |   |       
|Total             |  | $               | 9,439  |                         | $ | 972   
|                  |  |                 |        |                         |   |       
|Total Maturities  |  | $               | 26,099 |                         | $ | 21,505
|                  |  |                 |        |                         |   |       



ASSET QUALITY



Generally, interest on loans is accrued and credited to income based upon
the principal balance outstanding. It is typically the Corporations policy to discontinue the accrual of interest income and classify a loan on non-accrual when principal or interest is past due 90 days or more and the loan is not well-secured
and in the process of collection, or when, in the opinion of management, principal or interest is not likely to be paid in accordance with the terms of the obligation.



12



---

The Corporation will generally charge-off loans after 120 days of delinquency unless they are adequately
collateralized, in the process of collection and, based on a probable specific event, management believes that the loan will be repaid or brought current within a reasonable period of time. Loans will not be returned to accrual status until future
payments of principal and interest appear certain. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments received are applied to the outstanding principal balance.



Real estate acquired by the Corporation as a result of
foreclosure or in-substance foreclosure is classified as other real estate owned (OREO). Such real estate is recorded at the lower of cost or fair market value less estimated selling costs, and the estimated loss, if any, is charged to
the allowance for loan losses at that time. Further allowances for losses are recorded as charges to other expenses at the time management believes additional deterioration in value has occurred. The Corporation had no OREO at December 31, 2003 or
2002.



The Corporations credit policies generally require
a loan-to-value ratio of 85% for secured loans. At December 31, 2003, loans past due 90 days or more and still accruing interest totaled $285,000, of which $134,000 was secured by real estate and the remainder were secured and unsecured installment
and commercial loans. As of December 31, 2002, loans past due 90 days or more and still accruing totaled $102,000, of which $45,000 was secured by real estate with the remainder consisting of secured and unsecured commercial and installment loans.
Non-accrual loans at December 31, 2003 were $1.7 million and at December 31, 2002 non-accrual loans were $2.4 million.



NON-PERFORMING ASSETS

(Dollars in thousands)



|                                                  |  |              |       |   |      |   |       |      |  |   |      |   |  |      |      |   |  |   |       |  
|------------------------------------------------- |  | ------------ | ----- | - | ---- | - | ----- | ---- |  | - | ---- | - |  | ---- | ---- | - |  | - | ----- | -
|                                                  |  | December 31, |      
|                                                  |  | 2003         |       |   | 2002 |   |       | 2001 |  |   | 2000 |   |  | 1999 |     
|Nonaccrual loans                                  |  | $            | 1,737 |   |      | $ | 2,411 |      |  | $ | 760  |   |  | $    | 956  |   |  | $ | 1,319 |  
|Restructured loans                                |  |              |      |   |      |   |      |      |  |   |     |   |  |      |     |   |  |   |      |  
|                                                  |  |              |       |   |      |   |       |      |  |   |      |   |  |      |      |   |  |   |       |  
|Total nonperforming loans                         |  | $            | 1,737 |   |      | $ | 2,411 |      |  | $ | 760  |   |  | $    | 956  |   |  | $ | 1,319 |  
|Foreclosed assets                                 |  |              |      |   |      |   |      |      |  |   |     |   |  |      |     |   |  |   | 72    |  
|                                                  |  |              |       |   |      |   |       |      |  |   |      |   |  |      |      |   |  |   |       |  
|Total nonperforming assets                        |  | $            | 1,737 |   |      | $ | 2,411 |      |  | $ | 760  |   |  | $    | 956  |   |  | $ | 1,391 |  
|                                                  |  |              |       |   |      |   |       |      |  |   |      |   |  |      |      |   |  |   |       |  
|Loans past due 90 or more days accruing interest  |  | $            | 285   |   |      | $ | 102   |      |  | $ | 988  |   |  | $    | 303  |   |  | $ | 632   |  
|Nonperforming loans to total loans, at period end |  |              | 1.08  | % |      |   | 1.47  | %    |  |   | 0.49 | % |  |      | 0.68 | % |  |   | 1.05  | %
|Nonperforming assets to period end assets         |  |              | 0.75  | % |      |   | 1.06  | %    |  |   | 0.35 | % |  |      | 0.49 | % |  |   | 0.83  | %



ALLOWANCE FOR LOAN LOSSES



In originating loans, the Corporation recognizes that
credit losses will be experienced and the risk of loss will vary with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized
loan, the quality of the collateral for such a loan. The Corporation maintains an allowance for loan losses based upon historical experience, the volume and type of lending conducted by the Corporation, the amount of non-performing assets,
regulatory policies, generally accepted accounting principles, general economic conditions, and other factors related to the collectibility of loans in the Corporations portfolio. In addition to general allowances, specific allowances are
provided for individual loans when ultimate collection is considered questionable by management after reviewing the current status of loans, which are contractually past due and after considering the net realizable value of any collateral for the
loan.



Management actively monitors the Corporations
asset quality in a continuing effort to charge-off loans against the allowance for loan losses when appropriate and to provide specific loss allowances when necessary. Although management believes it uses the best information available to make
determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the initial determinations. As of December 31, 2003, the allowance for loan losses
amounted to $2.1 million, or 1.33% of total loans. The Corporations allowance for loan losses was $2.1 million at December 31, 2002, or 1.29% of total loans. The increase in the allowance for loan losses as a percentage of total loans is the
result of a lower volume of loans coupled with a decrease of $489,000 in net charged-off loans in 2003.



13



---

The allowance for loan losses as a percentage of non-performing assets was 122.6% at December 31, 2003.
The ratio of allowance for loan losses as a percentage of non-performing assets at December 31, 2002 was 87.7%.



ALLOWANCE FOR LOAN LOSSES

(Dollars in thousands)



|                                                   |  |                          |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|-------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ----- | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                   |  | Years ended December 31, |       
|                                                   |  | 2003                     |        |   | 2002 |   |       | 2001 |  |   | 2000   |   |  | 1999 |       
|Balance, beginning of period                       |  | $                        | 2,116  |   |      | $ | 2,084 |      |  | $ | 1,819  |   |  | $    | 1,601  |   |  | $ | 1,344  |  
|Less chargeoffs:                                   |  |                          |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Commercial                                         |  |                          | 613    |   |      |   | 943   |      |  |   | 21     |   |  |      | 85     |   |  |   | 52     |  
|Installment                                        |  |                          | 203    |   |      |   | 262   |      |  |   | 150    |   |  |      | 172    |   |  |   | 80     |  
|Real estate                                        |  |                          | 13     |   |      |   | 39    |      |  |   |       |   |  |      | 10     |   |  |   |       |  
|                                                   |  |                          |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total chargeoffs                                   |  |                          | 829    |   |      |   | 1,244 |      |  |   | 171    |   |  |      | 267    |   |  |   | 132    |  
|                                                   |  |                          |        |   |     
|Plus recoveries:                                   |  |                          |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Commercial                                         |  |                          | 98     |   |      |   | 17    |      |  |   | 3      |   |  |      | 2      |   |  |   | 2      |  
|Installment                                        |  |                          | 44     |   |      |   | 51    |      |  |   | 43     |   |  |      | 28     |   |  |   | 39     |  
|Real estate                                        |  |                          |       |   |      |   |      |      |  |   |       |   |  |      |       |   |  |   | 3      |  
|                                                   |  |                          |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total recoveries                                   |  |                          | 142    |   |      |   | 68    |      |  |   | 46     |   |  |      | 30     |   |  |   | 44     |  
|                                                   |  |                          |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net chargeoffs                                     |  |                          | 687    |   |      |   | 1,176 |      |  |   | 125    |   |  |      | 237    |   |  |   | 88     |  
|                                                   |  |                          |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Provision for loan losses                          |  |                          | 700    |   |      |   | 1,208 |      |  |   | 390    |   |  |      | 455    |   |  |   | 345    |  
|                                                   |  |                          |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Balance, end of period                             |  | $                        | 2,129  |   |      | $ | 2,116 |      |  | $ | 2,084  |   |  | $    | 1,819  |   |  | $ | 1,601  |  
|                                                   |  |                          |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Allowance for loan losses to period end loans      |  |                          | 1.33   | % |      |   | 1.29  | %    |  |   | 1.35   | % |  |      | 1.29   | % |  |   | 1.27   | %
|                                                   |  |                          |        |   |     
|Allowance for loan losses to non performing assets |  |                          | 122.57 | % |      |   | 87.76 | %    |  |   | 274.21 | % |  |      | 190.27 | % |  |   | 115.10 | %
|                                                   |  |                          |        |   |     
|Net chargeoffs to average loans                    |  |                          | 0.42   | % |      |   | 0.74  | %    |  |   | 0.08   | % |  |      | 0.17   | % |  |   | 0.11   | %



ALLOCATION OF ALLOWANCE FOR LOAN
LOSSES

(Dollars in thousands)



|            |  |              |       |             |       |   |      |   |             |  |       |      |  |             |       |  |       |   |             |   |       |      |       |             |  |   |       |  |       |  
|----------- |  | ------------ | ----- | ----------- | ----- | - | ---- | - | ----------- |  | ----- | ---- |  | ----------- | ----- |  | ----- | - | ----------- | - | ----- | ---- | ----- | ----------- |  | - | ----- |  | ----- | -
|            |  | December 31, |      
|            |  | 2003         |       | Percent (1) |       |   | 2002 |   | Percent (1) |  |       | 2001 |  | Percent (1) |       |  | 2000  |   | Percent (1) |   |       | 1999 |       | Percent (1) | 
|Commercial  |  | $            | 346   |             | 16.3  | % |      | $ | 432         |  | 20.4  | %    |  | $           | 1,863 |  | 21.2  | % |             | $ | 1,301 |      | 21.1  | %           |  | $ | 683   |  | 20.0  | %
|Installment |  |              | 89    |             | 4.2   | % |      |   | 95          |  | 4.5   | %    |  |             | 18    |  | 4.8   | % |             |   | 340   |      | 7.5   | %           |  |   | 340   |  | 7.7   | %
|Real Estate |  |              | 1,694 |             | 79.6  | % |      |   | 1,589       |  | 75.1  | %    |  |             | 203   |  | 74.0  | % |             |   | 178   |      | 71.4  | %           |  |   | 578   |  | 72.3  | %
|            |  |              |       |             |       |   |      |   |             |  |       |      |  |             |       |  |       |   |             |   |       |      |       |             |  |   |       |  |       |  
|            |  | $            | 2,129 |             | 100.0 | % |      | $ | 2,116       |  | 100.0 | %    |  | $           | 2,084 |  | 100.0 | % |             | $ | 1,819 |      | 100.0 | %           |  | $ | 1,601 |  | 100.0 | %
|            |  |              |       |             |       |   |      |   |             |  |       |      |  |             |       |  |       |   |             |   |       |      |       |             |  |   |       |  |       |  

---

|(1) | Percent of loans in each category to total loans.
|--- | -------------------------------------------------



INVESTMENT ACTIVITIES



Securities available-for-sale are used as part of the Corporations interest rate risk management strategy and may be sold in response to interest
rate, changes in prepayment risk, liquidity needs, the need to increase regulatory capital and other factors. The fair value of the Corporations securities available-for-sale totaled $52.2 million at December 31, 2003, compared to $45.5
million at December 31, 2002.



The Corporation is required to
account for the effect of market changes in the value of securities available-for-sale (AFS) under Statement of Financial Accounting Standard #115 (SFAS 115). The market value of the December 31, 2003 securities available-for-sale portfolio was $2.0
million greater than the associated book value of these securities. On December 31, 2002 the market value of securities available-for-sale exceeded their book value by $2.4 million.



14



---

As of December 31, 2003 the book value of the investment portfolio increased $7.1 million, or 16.5%, from
$43.1 million at December 31, 2002 to $50.2 million at December 31, 2003. This increase in the Corporations investment portfolio was in response to increased deposit account balances and a reduction of $3.4 million in net loan balances
incurred during the course of 2003.



SECURITIES PORTFOLIO

(Dollars in thousands)



|                                                       |  |                |        |            |   |                |  |            |        |                |   |            |  |   |        |  |   |       
|------------------------------------------------------ |  | -------------- | ------ | ---------- | - | -------------- |  | ---------- | ------ | -------------- | - | ---------- |  | - | ------ |  | - | ------
|                                                       |  | December 31,  
|                                                       |  | 2003           |        | 2002       |   | 2001          
|                                                       |  | Amortized Cost |        | Fair Value |   | Amortized Cost |  | Fair Value |        | Amortized Cost |   | Fair Value
|Available-for-Sale:                                    |  |                |        |            |   |                |  |            |        |                |   |            |  |   |        |  |   |       
|U.S. Treasury Issue and other U.S. Government agencies |  | $              | 14,049 |            | $ | 14,099         |  | $          | 8,874  |                | $ | 9,144      |  | $ | 7,084  |  | $ | 7,159 
|State, county and municipal                            |  |                | 31,373 |            |   | 32,868         |  |            | 28,647 |                |   | 30,275     |  |   | 24,687 |  |   | 25,029
|Other                                                  |  |                | 4,803  |            |   | 5,233          |  |            | 5,576  |                |   | 6,069      |  |   | 5,719  |  |   | 6,080 
|                                                       |  |                |        |            |   |                |  |            |        |                |   |            |  |   |        |  |   |       
|Total Available-for-Sale                               |  | $              | 50,225 |            | $ | 52,200         |  | $          | 43,097 |                | $ | 45,488     |  | $ | 37,490 |  | $ | 38,268
|                                                       |  |                |        |            |   |                |  |            |        |                |   |            |  |   |        |  |   |       



SECURITIES PORTFOLIO - MATURITY AND
YIELDS

December 31, 2003 (Dollars in thousands)



|                                                       |  |              |       |   |              |   |        |               |  |   |               |   |  |       |      |   |  |   |        |  
|------------------------------------------------------ |  | ------------ | ----- | - | ------------ | - | ------ | ------------- |  | - | ------------- | - |  | ----- | ---- | - |  | - | ------ | -
|                                                       |  | Under 1 Year |       |   | 1 to 5 Years |   |        | 5 to 10 Years |  |   | Over 10 Years |   |  | Total |     
|Maturity Distribution:                                 |  |              |       |   |              |   |        |               |  |   |               |   |  |       |      |   |  |   |        |  
|U.S. Treasury Issue and other U.S. Government agencies |  | $            | 299   |   |              | $ | 13,081 |               |  | $ | 719           |   |  | $     |     |   |  | $ | 14,099 |  
|State, county and municipal-tax exempt                 |  |              | 715   |   |              |   | 16,978 |               |  |   | 12,191        |   |  |       | 694  |   |  |   | 30,578 |  
|State, county and municipal-taxable                    |  |              | 196   |   |              |   | 1,820  |               |  |   | 274           |   |  |       |     |   |  |   | 2,290  |  
|Other                                                  |  |              | 524   |   |              |   | 4,545  |               |  |   |              |   |  |       | 164  |   |  |   | 5,233  |  
|                                                       |  |              |       |   |              |   |        |               |  |   |               |   |  |       |      |   |  |   |        |  
|Total Investment Securities                            |  | $            | 1,734 |   |              | $ | 36,424 |               |  | $ | 13,184        |   |  | $     | 858  |   |  | $ | 52,200 |  
|                                                       |  |              |       |   |              |   |        |               |  |   |               |   |  |       |      |   |  |   |        |  
|Weighted Average Yield:                                |  |              |       |   |              |   |        |               |  |   |               |   |  |       |      |   |  |   |        |  
|U.S. Treasury Issue and other U.S. Government agencies |  |              | 3.17  | % |              |   | 3.60   | %             |  |   | 3.43          | % |  |       | 0.00 | % |  |   | 3.59   | %
|State, county and municipal-tax exempt                 |  |              | 6.17  | % |              |   | 6.07   | %             |  |   | 5.61          | % |  |       | 7.03 | % |  |   | 5.91   | %
|State, county and municipal-taxable                    |  |              | 5.00  | % |              |   | 5.38   | %             |  |   | 6.29          | % |  |       | 0.00 | % |  |   | 5.46   | %
|Other                                                  |  |              | 7.15  | % |              |   | 7.25   | %             |  |   | 0.00          | % |  |       | 1.76 | % |  |   | 7.24   | %
|                                                       |  |              |       |   |              |   |        |               |  |   |               |   |  |       |      |   |  |   |        |  
|Weighted Average Yield by Category                     |  |              | 5.80  | % |              |   | 5.26   | %             |  |   | 5.49          | % |  |       | 6.02 | % |  |   | 5.36   | %
|                                                       |  |              |       |   |              |   |        |               |  |   |               |   |  |       |      |   |  |   |        |  



DEPOSITS



The Corporation primarily uses deposits to fund its loans and investment
portfolio. In 2003, the Corporations deposits grew $2.0 million, or 1.0%. Total deposits at December 31, 2003 were $203.3 million compared to $201.3 million at December 31, 2002. In 2003, the trend that the largest component of the
Corporations growth would come from certificates of deposits was reversed. This was a conscious effort on managements part to concentrate on the impact of deposit pricing on net interest margin and to work to improve that margin in 2003.
While the effects of deposit pricing on net interest margin will be considered in 2004, the ability to improve this component of earnings will, at best, be limited. Certificates of deposit decreased $12.7 million in 2003, or 10.1%, from $125.5
million at December 31, 2002 to $112.8 million at December 31, 2003. The largest component of growth in 2003 came from non-interest bearing deposits, due to the pricing strategy on certificates of deposits, which grew 36.3%, or $6.5 million.
Non-interest bearing deposits grew from $18.0 million at December 31, 2002 to $24.5 million at December 31, 2003. On average, noninterest bearing deposits were $18.3 million for 2002 compared to $20.9 million for 2003. This represents an increase of
14.2%. Other less costly components of total deposits also grew in 2003. Money market deposit accounts grew $3.0 million from $17.2 million at December 31, 2002 to $20.2 million at December 31, 2003.



15



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The Corporation offers a variety of deposit accounts to individuals and small-to-medium sized businesses.
Deposit accounts include checking, savings, money market deposit accounts and certificates of deposit. Certificates of deposit of $100,000 or more totaled $24.5 million at December 31, 2002 and $21.7 million at December 31, 2003 a decrease of $2.8
million, or 11.5%.



AVERAGE DEPOSITS AND AVERAGE RATES PAID

(Dollars in thousands)



|                                |  |                         |         |              |      |   |                 |      |              |  |      |                 |  |              |         |  |      |  
|------------------------------- |  | ----------------------- | ------- | ------------ | ---- | - | --------------- | ---- | ------------ |  | ---- | --------------- |  | ------------ | ------- |  | ---- | -
|                                |  | Year Ended December 31, |        
|                                |  | 2003                    |         |              | 2002 |   |                 | 2001 |             
|                                |  | Average Balance         |         | Average Rate |      |   | Average Balance |      | Average Rate |  |      | Average Balance |  | Average Rate |        
|Interest bearing deposits:      |  |                         |         |              |      |   |                 |      |              |  |      |                 |  |              |         |  |      |  
|NOW accounts                    |  | $                       | 24,263  |              | 0.42 | % |                 | $    | 22,357       |  | 1.06 | %               |  | $            | 19,666  |  | 1.72 | %
|Money market deposits           |  |                         | 17,244  |              | 1.00 | % |                 |      | 14,313       |  | 2.01 | %               |  |              | 10,103  |  | 2.91 | %
|Regular savings                 |  |                         | 20,072  |              | 0.90 | % |                 |      | 17,237       |  | 1.69 | %               |  |              | 15,079  |  | 2.59 | %
|Certificates of deposit         |  |                         | 120,118 |              | 2.92 | % |                 |      | 122,145      |  | 3.82 | %               |  |              | 107,750 |  | 5.48 | %
|                                |  |                         |         |              |      |   |                 |      |              |  |      |                 |  |              |         |  |      |  
|Total interest bearing deposits |  | $                       | 181,697 |              | 2.18 | % |                 | $    | 176,052      |  | 3.12 | %               |  | $            | 152,598 |  | 4.54 | %
|                                |  |                         |         |              |      |   |                 |      |              |  |      |                 |  |              |         |  |      |  
|Noninterest bearing deposits    |  |                         | 20,894  |              |      |   |                 |      | 18,308       |  |      |                 |  |              | 16,903  |  |      |  
|                                |  |                         |         |              |      |   |                 |      |              |  |      |                 |  |              |         |  |      |  
|Total deposits                  |  | $                       | 202,591 |              |      |   |                 | $    | 194,360      |  |      |                 |  | $            | 169,501 |  |      |  
|                                |  |                         |         |              |      |   |                 |      |              |  |      |                 |  |              |         |  |      |  



MATURITIES OF CERTIFICATES OF
DEPOSIT OF $100,000 OR MORE AT DECEMBER 31, 2003

(Dollars in thousands)



|                                |  |         |        |         |        |  
|------------------------------- |  | ------- | ------ | ------- | ------ | -
|                                |  | Dollars |        | Percent |       
|Three months or less            |  | $       | 5,976  |         | 27.56  | %
|Over three months to six months |  |         | 2,584  |         | 11.92  | %
|Over six months to one year     |  |         | 3,722  |         | 17.17  | %
|Over one year                   |  |         | 9,399  |         | 43.35  | %
|                                |  |         |        |         |        |  
|                                |  | $       | 21,681 |         | 100.00 | %
|                                |  |         |        |         |        |  



SHORT-TERM BORROWINGS



The Corporation occasionally finds it necessary to
purchase funds on a short-term basis due to fluctuations in loan and deposit levels. The Corporation has several arrangements under which it may purchase funds. Federal Funds guidance facilities are maintained with correspondent banks totaling $18.6
million for the year ending December 31, 2003. No amounts were drawn on these facilities at December 31, 2003. As another means of borrowing funds, the Corporation may borrow from the Federal Home Loan Bank of Atlanta. On November 2, 2001 the
Corporation entered into an $8.0 million Principal Reducing Credit with $4.0 million due and paid on November 4, 2002 and $4.0 million due and paid on November 3, 2003. The cost of this borrowing was 2.75%. Total expense on Federal Home Loan Bank of
Atlanta borrowings in 2003 was $92,000 and in 2002 was $203,000. Total expense on Federal Funds purchased and other borrowings was $4,000 in 2003 and $6,000 in 2002.



TRUST PREFERRED SECURITIES



Trust preferred securities were issued by the Corporation through a wholly-owned subsidiary, BOE Statutory Trust (the Trust). These securities
are mandatorily redeemable preferred security obligations of the Trust. The sole asset of the Trust is junior subordinated deferrable interest notes of the Corporation (the Notes). At December 31, 2003, the Corporation had one
wholly-owned Trust which had issued trust preferred securities to SunTrust Bank. These securities mature in December 2033, but may be redeemed prior to maturity (beginning December 2008) at the option of the Corporation. The Trust has invested the
proceeds of the trust preferred securities in the Notes. The Notes have an interest rate equal to the trust preferred securities distribution rate. The Corporation has the right to defer payment of interest on the Notes at any time or from time to
time for a period not to exceed five years provided that no extension period may extend beyond the stated maturity of the Notes. During any such extension period, the Corporations ability to pay dividend on its common stock will be restricted.
The trust preferred securities are subject to mandatory redemption upon payment of the related Notes at their stated maturity date or their earlier redemption at a redemption price equal to their liquation amount plus accrued distribution to the
date fixed for redemption.



16



---

The Corporation is required by the Federal Reserve Board to maintain certain levels of capital for bank
regulatory purposes. The Federal Reserve Board has determined that certain cumulative preferred securities having the characteristics of trust preferred securities qualify as minority interest, which is included in Tier 1 capital for banks and bank
holding companies. Therefore, trust preferred securities provide the Corporation with another means of obtaining capital for bank regulatory purposes. At December 31, 2003, the Corporation had $4 million of trust preferred securities backed by its
Notes with a December, 2033 maturity. These securities bear a variable interest rate of three months LIBOR plus 3.00%. The effective interest rate at 2003 year end was 4.17%, subject to revision quarterly in March, June, September and December.



CAPITAL REQUIREMENTS



The determination of capital adequacy depends upon a number of factors, such
as asset quality, liquidity, earnings, growth trends and economic conditions. The Corporation seeks to maintain a strong capital base to support its growth and expansion plans, provide stability to current operations and promote public confidence in
the Corporation.



The Corporations capital position
exceeds all regulatory minimums. The federal banking regulators have defined three tests for assessing the capital strength and adequacy of banks, based on two definitions of capital. Tier 1 Capital is defined as a combination of common
and qualifying preferred stockholders equity less goodwill. Tier 2 Capital is defined as qualifying subordinated debt and a portion of the allowance for loan losses. Total Capital is defined as Tier 1 Capital plus Tier
2 Capital. Three risk-based capital ratios are computed using the above capital definitions, total assets and risk-weighted assets and are measured against regulatory minimums to ascertain adequacy. All assets and off-balance sheet risk items are
grouped into categories according to degree of risk and assigned a risk-weighting and the resulting total is risk-weighted assets. Total Risk-based Capital is Total Capital divided by risk-weighted assets. The Leverage ratio is Tier 1
Capital divided by total average assets.



During the fourth
quarter of 2003 the Corporation engaged in a trust preferred offering, raising $4.0 million in trust preferred subordinated debt which qualifies as capital for regulatory purposes. This trust preferred debt has a 30-year maturity with a 5-year call
option and was issued at a rate of three month LIBOR plus 3.00% for an initial rate of 4.17%.



The following table shows the Corporations capital ratios:



CAPITAL RATIOS



|                          |  |              |   |  |       |   |  |       |  
|------------------------- |  | ------------ | - |  | ----- | - |  | ----- | -
|                          |  | December 31, |  
|                          |  | 2003         |   |  | 2002  |   |  | 2001  |  
|Tier 1 Risk-based Capital |  | 13.70        | % |  | 10.42 | % |  | 9.95  | %
|Total Risk-based Capital  |  | 14.88        | % |  | 11.59 | % |  | 11.14 | %
|Leverage Ratio            |  | 10.80        | % |  | 8.13  | % |  | 8.41  | %



LIQUIDITY



Liquidity represents the Corporations ability to meet present
and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, and
certain investment securities. As a result of the Corporations management of liquid assets and the ability to generate liquidity through liability funding, management believes that the Corporation maintains overall liquidity sufficient to
satisfy its depositors requirements and meet its customers credit needs.



As of December 31, 2003, cash, federal funds sold and available-for-sale securities represented 30.22% of deposits and other liabilities compared to 25.82% at December 31, 2002. Managing loan maturities also provides
asset liquidity. At December 31, 2003 approximately $75.4 in loans would mature or reprice with a one-year period.



17



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The following table summarizes the Corporations liquid assets for the periods indicated:



SUMMARY OF LIQUID ASSETS

(Dollars in thousands)



|                                                         |  |              |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                         |  | December 31, |        
|                                                         |  | 2003         |         |   | 2002 |   |         | 2001 | 
|Cash and due from banks                                  |  | $            | 8,949   |   |      | $ | 5,603   |      |  | $ | 6,093   |  
|Federal funds sold                                       |  |              | 285     |   |      |   | 2,305   |      |  |   | 7,617   |  
|Investment securities (1)                                |  |              |        |   |      |   |        |      |  |   |        |  
|Available for sale securities, at fair value             |  |              | 52,200  |   |      |   | 45,488  |      |  |   | 38,268  |  
|                                                         |  |              |         |   |      |   |         |      |  |   |         |  
|Total liquid assets                                      |  | $            | 61,434  |   |      | $ | 53,396  |      |  | $ | 51,978  |  
|                                                         |  |              |         |   |      |   |         |      |  |   |         |  
|Deposits and other liabilities                           |  | $            | 204,795 |   |      | $ | 206,765 |      |  | $ | 198,124 |  
|Ratio of liquid assets to deposits and other liabilities |  |              | 30.00   | % |      |   | 25.82   | %    |  |   | 26.24   | %



FINANCIAL RATIOS



Financial ratios give investors a way to compare Corporations within
industries to analyze financial performance. Return on average assets is net income as a percentage of average total assets. It is a key profitability ratio that indicates how effectively a bank has used its total resources. Return on average assets
was 1.04% in 2003 and 0.80% in 2002. Return on average equity is net income as a percentage of average shareholders equity. It provides a measure of how productively a Corporations equity has been employed. The Corporations return
on average equity was 10.80% in 2003 and 8.87% in 2002. Dividend payout ratio is the percentage of net income paid to shareholders as cash dividends during a given period. It is computed by dividing dividends per share by net income per share. The
Corporation has a dividend payout ratio of 27.45% in 2003 and 34.96% in 2002. The Corporation utilizes leverage within guidelines prescribed by federal banking regulators as described in the section Capital Requirements in the preceding
section. Leverage is average stockholders equity divided by total quarterly average assets. This ratio was 10.80% in 2003 and 8.13% in 2002.



FINANCIAL RATIOS



|                                      |  |                          |   |  |       |   |  |       |  
|------------------------------------- |  | ------------------------ | - |  | ----- | - |  | ----- | -
|                                      |  | Years ended December 31, |  
|                                      |  | 2003                     |   |  | 2002  |   |  | 2001  |  
|Return on average assets              |  | 1.04                     | % |  | 0.80  | % |  | 1.00  | %
|Return on average equity              |  | 10.80                    | % |  | 8.87  | % |  | 10.97 | %
|Dividend payout ratio                 |  | 27.45                    | % |  | 34.96 | % |  | 29.18 | %
|Average equity to average asset ratio |  | 9.66                     | % |  | 8.98  | % |  | 9.13  | %



IMPACT OF INFLATION, CHANGING
PRICES AND MONETARY POLICIES



The consolidated financial
statements and related financial data concerning the Corporation presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary effect of inflation on the operations of the Corporation is reflected in increased
operating costs. Unlike industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant effect on the performance of a financial
institution than do the effects of changes in the general rate of inflation and changes in prices. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Interest rates are highly
sensitive to many factors beyond the Corporations control, including the influence of domestic and foreign economic conditions and the monetary and fiscal policies of the U.S. government and federal agencies, particularly the Federal Reserve.
The Federal Reserve implements national monetary policies such as seeking to curb inflation and combat recession by its open market operations in U.S. government securities, control of the discount



18



---

rate applicable to borrowing by banks, and establishment of reserve requirements against bank deposits. The actions of
the Federal Reserve in these areas influence the growth of bank loans, investments and deposits, and affect the interest rates charged on loans and paid on deposits. The nature, timing and impact of any future changes in federal monetary and fiscal
policies on the Corporation and its results of operations are not predictable.



RECENT ACCOUNTING STANDARDS



In December 2002,
the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure, which amends SFAS
No. 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. The provisions of the Statement were effective December 31, 2002.
Management currently intends to continue to account for stock-based compensation under the intrinsic value method set forth in Accounting Principles Board (APB) Opinion 25 and related interpretations. For this reason, the transition
guidance of SFAS No. 148 does not have an impact on the Corporations consolidated financial position or consolidated results of operations. The Statement does amend existing guidance with respect to required disclosures, regardless of the
method of accounting used. The revised disclosure requirements are presented herein.



In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
(FIN 45). The Interpretation elaborates on the disclosures to be made by a guarantor in its financial statements under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The recognition requirements of the Interpretation were effective beginning January 1, 2003. The initial adoption of the Interpretation did not
materially affect the Corporation, and management does not anticipate that the recognition requirements of this Interpretation will have a materially adverse impact on either the Corporations consolidated financial position or consolidated
results of operations in the future.



In January 2003, the FASB
issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). This Interpretation provides guidance with respect to the identification of variable interest entities and when the assets,
liabilities, noncontrolling interests, and results of operations of a variable interest entity need to be included in a companys consolidated financial statements. The Interpretation requires consolidation by business enterprises of variable
interest entities in cases where (a) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interests that
will absorb some or all of the expected losses of the entity, or (b) in cases where the equity investors lack one or more of the essential characteristics of a controlling financial interest, which include the ability to make decisions about the
entitys activities through voting rights, the obligations to absorb the expected losses of the entity if they occur, or the right to receive the expected residual returns of the entity if they occur. Management has evaluated the
Corporations investments in variable interest entities and potential variable interest entities or transactions, particularly in limited liability partnerships involved in low-income housing development and trust preferred securities
structures. The implementation of FIN 46 did not have a significant impact on either the Corporations consolidated financial position or consolidated results of operations. Interpretive guidance relating to FIN 46 is continuing to evolve and
the Corporations management will continue to assess various aspects of consolidations and variable interest entity accounting as additional guidance becomes available.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities.The Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Statement is effective for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30,
2003 and is not expected to have an impact on the Corporations consolidated financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity.This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of these instruments were previously classified as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of nonpublic entities. Adoption of the Statement did not result in an impact on the Corporations
consolidated financial statements.



19



---

In November 2003, the FASBs Emerging Issues Task Force (EITF) reached a consensus on a new
disclosure requirement related to unrealized losses on investment securities. The new disclosure requires a table of securities which have unrealized losses as of the reporting date. The table must distinguish between those securities which have
been in a continuous unrealized loss position for twelve months or more and those securities which have been in a continuous unrealized loss position for less than twelve months. The table is to include the aggregate unrealized losses of securities
whose fair values are below book values as of the reporting date, and the aggregate fair value of securities whose fair values are below book values as of the reporting date. In addition to the quantitative disclosure, FASB requires a narrative
discussion that provides sufficient information to allow financial statement users to understand the quantitative disclosures and the information that was considered in determining whether impairment was not other-than-temporary. The new disclosure
requirements apply to fiscal years ending after December 15, 2003. The Corporation has included the required disclosures in its consolidated financial statements.



In December 2003, the FASB issued a revised version of SFAS No. 132, Employers Disclosures about Pensions and
Other Postretirement Benefits an amendment of FASB Statements No. 87, 88 and 106.This Statement revises employers disclosures about pension plans and other postretirement benefits. It does not change the measurement or recognition
of those plans required by FASB Statements No. 87, No. 88, and No. 106. This Statement retains the disclosure requirements contained in the original FASB Statement No. 132, which it replaces. However, it requires additional disclosures to those in
the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit costs of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension
plans and for other postretirement benefit plans. The disclosures for earlier annual periods presented for comparative purposes are required to be restated for (a) the percentages of each major category of plan assets held, (b) the accumulated
benefit obligation, and (c) the assumptions used in the accounting for the plans. This Statement is effective for financial statements with fiscal years ending after December 15, 2003. The interim-period disclosures required by this Statement are
effective for interim periods beginning after December 15, 2003. The Corporation has included the required disclosures in its consolidated financial statements.



20



---

ITEM 7. FINANCIAL STATEMENTS.



The following table sets forth certain historical financial information for the Corporation. This information is based on
the consolidated financial statements of the Corporation including applicable notes which can be found on pages F-1 through F-35.



Selected Financial Data

(Dollars
in thousands, except per share data)



|                                                  |  |                                            |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|------------------------------------------------- |  | ------------------------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                  |  | As of and for the Years ended December 31, |        
|                                                  |  | 2003                                       |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|STATEMENT OF INCOME INFORMATION                   |  |                                            |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Interest income                                   |  | $                                          | 13,071  |   |      | $ | 13,741  |      |  | $ | 14,749  |   |  | $    | 14,302  |   |  | $ | 11,559  |  
|Interest expense                                  |  |                                            | 4,073   |   |      |   | 5,695   |      |  |   | 7,482   |   |  |      | 7,106   |   |  |   | 5,333   |  
|Net interest income                               |  |                                            | 8,998   |   |      |   | 8,046   |      |  |   | 7,267   |   |  |      | 7,196   |   |  |   | 6,226   |  
|Provision for loan losses                         |  |                                            | 700     |   |      |   | 1,208   |      |  |   | 390     |   |  |      | 455     |   |  |   | 345     |  
|Noninterest income                                |  |                                            | 1,384   |   |      |   | 1,078   |      |  |   | 1,120   |   |  |      | 959     |   |  |   | 783     |  
|Noninterest expense                               |  |                                            | 6,627   |   |      |   | 5,766   |      |  |   | 5,393   |   |  |      | 5,280   |   |  |   | 4,843   |  
|Income taxes                                      |  |                                            | 648     |   |      |   | 368     |      |  |   | 597     |   |  |      | 577     |   |  |   | 417     |  
|                                                  |  |                                            |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income                                        |  | $                                          | 2,407   |   |      | $ | 1,782   |      |  | $ | 2,007   |   |  | $    | 1,843   |   |  | $ | 1,404   |  
|                                                  |  |                                            |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|PER SHARE DATA                                    |  |                                            |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income, basic                                 |  | $                                          | 2.04    |   |      | $ | 1.52    |      |  | $ | 1.71    |   |  | $    | 1.58    |   |  | $ | 1.20    |  
|Net income, diluted                               |  |                                            | 2.03    |   |      |   | 1.51    |      |  |   | 1.71    |   |  |      | 1.58    |   |  |   | 1.20    |  
|Cash dividend                                     |  |                                            | 0.56    |   |      |   | 0.53    |      |  |   | 0.50    |   |  |      | 0.47    |   |  |   | 0.45    |  
|Book value at period end                          |  |                                            | 19.37   |   |      |   | 18.12   |      |  |   | 16.22   |   |  |      | 14.71   |   |  |   | 13.17   |  
|Tangible book value at period end                 |  |                                            | 18.61   |   |      |   | 17.25   |      |  |   | 15.24   |   |  |      | 13.62   |   |  |   | 11.97   |  
|                                                  |  |                                            |         |   |     
|BALANCE SHEET DATA                                |  |                                            |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total assets                                      |  | $                                          | 231,716 |   |      | $ | 228,111 |      |  | $ | 217,172 |   |  | $    | 193,933 |   |  | $ | 167,296 |  
|Loans, net                                        |  |                                            | 158,381 |   |      |   | 161,722 |      |  |   | 151,877 |   |  |      | 139,492 |   |  |   | 124,464 |  
|Securities                                        |  |                                            | 53,147  |   |      |   | 46,568  |      |  |   | 39,613  |   |  |      | 36,315  |   |  |   | 25,220  |  
|Deposits                                          |  |                                            | 203,282 |   |      |   | 201,261 |      |  |   | 188,497 |   |  |      | 164,348 |   |  |   | 142,891 |  
|Stockholders equity                              |  |                                            | 22,922  |   |      |   | 21,346  |      |  |   | 19,047  |   |  |      | 17,215  |   |  |   | 15,383  |  
|                                                  |  |                                            |         |   |     
|PERFORMANCE RATIOS                                |  |                                            |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Return on average assets                          |  |                                            | 1.04    | % |      |   | 0.80    | %    |  |   | 1.00    | % |  |      | 1.01    | % |  |   | 0.90    | %
|Return on average equity                          |  |                                            | 10.80   | % |      |   | 8.87    | %    |  |   | 10.97   | % |  |      | 11.38   | % |  |   | 9.12    | %
|Net interest margin                               |  |                                            | 4.45    | % |      |   | 4.13    | %    |  |   | 4.12    | % |  |      | 4.50    | % |  |   | 4.63    | %
|Dividend payout                                   |  |                                            | 27.45   | % |      |   | 34.96   | %    |  |   | 29.18   | % |  |      | 29.78   | % |  |   | 37.44   | %
|                                                  |  |                                            |         |   |     
|ASSET QUALITY RATIOS                              |  |                                            |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance for loan losses to period end loans     |  |                                            | 1.33    | % |      |   | 1.29    | %    |  |   | 1.35    | % |  |      | 1.29    | % |  |   | 1.27    | %
|Allowance for loan losses to nonperforming assets |  |                                            | 122.57  | % |      |   | 87.76   | %    |  |   | 274.21  | % |  |      | 190.27  | % |  |   | 115.10  | %
|Nonperforming assets to total assets              |  |                                            | 0.75    | % |      |   | 1.06    | %    |  |   | 0.35    | % |  |      | 0.49    | % |  |   | 0.83    | %
|Net chargeoffs to average loans                   |  |                                            | 0.42    | % |      |   | 0.74    | %    |  |   | 0.08    | % |  |      | 0.17    | % |  |   | 0.11    | %
|                                                  |  |                                            |         |   |     
|CAPITAL AND LIQUIDITY RATIOS                      |  |                                            |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Leverage                                          |  |                                            | 10.80   | % |      |   | 8.13    | %    |  |   | 8.41    | % |  |      | 8.27    | % |  |   | 8.76    | %
|Tier 1 Risk-Based Capital                         |  |                                            | 13.70   | % |      |   | 10.42   | %    |  |   | 9.95    | % |  |      | 10.51   | % |  |   | 11.03   | %
|Total Risk-Based Capital                          |  |                                            | 14.88   | % |      |   | 11.59   | %    |  |   | 11.14   | % |  |      | 11.73   | % |  |   | 12.26   | %



21



---

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.



None.



ITEM 8A. CONTROLS AND PROCEDURES.



Based on their most recent review, which was completed as of the last day of the period covered by this report, the Corporations principal executive
officer and principal financial officer have concluded that the Corporations disclosure controls and procedures are effective to ensure that information required to be disclosed by the Corporation in the reports that it files or submits under
the Securities Exchange Act of 1934, as amended is accumulated and communicated to the Corporations management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding
required disclosure and are effective to ensure that such information is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. There were no significant changes in the Corporations
internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation.



PART III



ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.



Certain information with respect to the Corporations directors and compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference to the Corporations Proxy Statement for its 2004 annual meeting of shareholders (the Proxy Statement), which will be filed no later than 120 days following the Corporations fiscal year end.



Set forth below is certain information with respect to the
Corporations principal executive officers:



K. Wayne
Aylor, 61, is Vice President and Senior Credit Officer. Mr. Aylor joined the Corporation in February 2002. Prior to joining the Corporation Mr. Aylor served as Vice President and Senior Credit Officer with The Community Bankers Bank in Richmond,
Virginia since February 1989.



Bonnie S. Courtney, 50, is Vice
President of Operations. Mrs. Courtney has held various positions with the Corporation since 1981.



George M. Longest, Jr., 43, became President and Chief Executive Officer of the Corporation on January 1, 1999. Prior to assuming his present position,
Mr. Longest had been Senior Vice President and Senior Loan Officer since February 1989. Mr. Longest has served as a director of the Corporation since 1999.



Suzanne S. Rennolds, 54, is Vice President, Human Resources, Branch Administration and has been employed by the Corporation since December 1980.



Bruce E. Thomas, 40, is Senior Vice President, Chief Financial
Officer and Corporate Secretary and has been employed by the Corporation since October 1990.



Terrell D. Vaughan, 57, is Senior Vice President, Commercial Lending and has been employed by the Corporation since April 1, 1998. Prior to that time, Mr. Vaughan had been a commercial lender and business development
officer at Hanover Bank for at least five years.



ITEM 10. EXECUTIVE
COMPENSATION.



The response to this Item is incorporated
by reference to the Corporations Proxy Statement, which will be filed no later than 120 days following the Corporations fiscal year end.



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.



Equity Compensation Plans



The following table summarizes information, as of December 31, 2003, relating to the Corporations 2000 Employee and Director Stock Option Plans,
pursuant to which grants of options to acquire shares of common stock may be granted from time to time.



22



---

Equity Compensation Plan Information



Year Ended December 31, 2003



|                                                       |  |                                                                 |  |                                                      |       |                                                                   |       
|------------------------------------------------------ |  | --------------------------------------------------------------- |  | ---------------------------------------------------- | ----- | ----------------------------------------------------------------- | ------
|                                                       |  | Number of sharesto be Issued UponExercise ofOutstanding Options |  | Weighted-AverageExercise Price ofOutstanding Options |       | Number of SharesRemaining Availablefor Future IssuanceUnder Plans
|Equity compensation plans approved by shareholders     |  | 33,190                                                          |  | $                                                    | 19.08 |                                                                   | 73,511
|Equity compensation plans not approved by shareholders |  |                                                                |  |                                                      |      |                                                                   |      
|Total                                                  |  | 33,190                                                          |  | $                                                    | 19.08 |                                                                   | 73,511



The remaining
information required by Item 11 is incorporated by reference to the registrants Proxy Statement, which will be filed no later than 120 days following the Corporations fiscal year end.



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.



The information required by Item 12 is incorporated by reference to the
registrants Proxy Statement, which will be filed no later than 120 days following the Corporations fiscal year end.



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K



(a) Exhibit Listing



|              |  |                                                                                                                                                                                                                                                                  
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                      
|              | 
|2             |  | Agreement and Plan of Reorganization (the Reorganization Agreement) dated as of March 20, 2000 between the Corporation and Bank. Exhibit A of the Proxy Statement included in Form
S-4 Registration Statement filed March 24, 2000, incorporated by reference).
|              | 
|3(a)          |  | Articles of Incorporation of the Corporation (Appendix 1 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement filed March 24, 2000, incorporated by
reference).                                                                       
|              | 
|3(b)          |  | Bylaws (Appendix 2 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement filed March 24, 2000, incorporated by reference).                                                                                                             
|              | 
|10(a)         |  | The Corporations Stock Incentive Plan (Appendix 3 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement filed March 24, 2000, incorporated by
reference).                                                                             
|              | 
|10(b)         |  | First Amendment to the Corporations Stock Incentive Plan (Exhibit 99(b) to Form S-8 Registration Statement filed November 8, 2000, incorporated by reference).                                                                                                  
|              | 
|10(c)         |  | The Corporations Stock Option Plan for Outside Directors (Appendix 4 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement filed March 24, 2000, incorporated
by Reference).                                                          



23



---

|      |   |  |                                                                                                                                                                                                                                                                                                                                               
|----- | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  
|10(d) |   |  | First Amendment to the Corporations Stock Option Plan for Outside Directors (Exhibit 99(d) to Form S-8 Registration Statement filed November 8, 2000, incorporated by
reference).                                                                                                                                                            
|      |  
|13    |   |  | The Corporations 2002 Annual Report to Shareholders (filed herewith).                                                                                                                                                                                                                                                                        
|      |  
|21    |   |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                               
|      |  
|23    |   |  | Consent of Yount, Hyde & Barbour, P.C.                                                                                                                                                                                                                                                                                                        
|      |  
|31.1  |   |  | Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                                                                                                                                                                                                                          
|      |  
|31.2  |   |  | Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                                                                                                                                                                                                                          
|      |  
|32    |   |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002                                                                                                                                                                        
|      |  
|99.1  |   |  | BOE Financial Services Dividend Reinvestment Plan (Incorporated by reference to the Registrants Registration Statement on Form S-3D filed November 8, 2000.)                                                                                                                                                                                 
|      |  
|(b    | ) |  | Report on Form 8-K. The Corporation filed a Form 8-K on October 27, 2003 to inform its shareholders and other interested persons that on the same date the Corporation issued a press release
reporting its financial results for the quarter ended September 30, 2003. A copy of the press release was furnished as an exhibit to the filing.



ITEM 14. PRINCIPAL ACCOUNTANT FEES
AND SERVICES.



The information required by Item 14 is
incorporated by reference to the Corporations Proxy Statement, which will be filed no later than 120 days following the Corporations fiscal year end.



24



---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the town of Tappahannock, State of Virginia, on March 27, 2004.



BOE FINANCIAL SERVICES OF VIRGINIA, INC.



|    |  |                                                  
|--- |  | -------------------------------------------------
|By: |  | /s/ Bruce E. Thomas                              
|    |  | Bruce E. Thomas                                  
|    |  | Senior Vice President and Chief Financial Officer



Date: March 25, 2004



Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and in the capacities indicated.



|                                                       |  |                                                                                                                    
|------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------
|SIGNATURE                                              |  | TITLE                                                                                                              
|                                                       | 
|/s/ George M. Longest, Jr.George M. Longest, Jr.       |  | President, Chief Executive Officer and Director (Principal Executive Officer)                                      
|                                                       | 
|/s/ Bruce E. ThomasBruce E. Thomas                     |  | Senior Vice President, Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer)
|                                                       | 
|/s/ Alexander F. Dillard, Jr.Alexander F. Dillard, Jr. |  | Chairman of the Board                                                                                              
|                                                       | 
|/s/ R. Harding BallR. Harding Ball                     |  | Director                                                                                                           
|                                                       | 
|/s/ R. Tyler Bland, IIIR. Tyler Bland, III             |  | Director                                                                                                           
|                                                       | 
|/s/ L. McCauley ChenaultL. McCauley Chenault           |  | Director                                                                                                           
|                                                       | 
|/s/ Frances H. EllisFrances H. Ellis                   |  | Director                                                                                                           
|                                                       | 
|/s/ George B. ElliottGeorge B. Elliott                 |  | Director                                                                                                           
|                                                       | 
|/s/ Page Emerson Hughes, Jr.Page Emerson Hughes        |  | Director                                                                                                           



25



---

|                                             |  |         
|-------------------------------------------- |  | --------
|                                             | 
|/s/ Philip T. MinorPhilip T. Minor           |  | Director
|                                             | 
|/s/ William Guy TownsendWilliam Guy Townsend |  | Director



26



---

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

AND SUBSIDIARIES



Tappahannock, Virginia



CONSOLIDATED FINANCIAL REPORT



DECEMBER 31,
2003



---

CONTENTS



|                                                |  |                 
|----------------------------------------------- |  | ----------------
|                                                |  | Page            
|INDEPENDENT AUDITORS REPORT                    |  | F-1             
|                                                | 
|CONSOLIDATED FINANCIAL STATEMENTS               |  |                 
|                                                | 
|Consolidated balance sheets                     |  | F-2             
|Consolidated statements of income               |  | F-3 and F-4     
|Consolidated statements of stockholders equity |  | F-5 and F-6     
|Consolidated statements of cash flows           |  | F-7 and F-8     
|Notes to consolidated financial statements      |  | F-9 through F-35



---

INDEPENDENT AUDITORS REPORT



To the Board of Directors and Stockholders

BOE Financial Services of Virginia, Inc.

Tappahannock, Virginia



We have audited the accompanying consolidated balance sheets of BOE Financial Services of Virginia, Inc. and subsidiaries as of December 31, 2003 and
2002, and the related consolidated statements of income, stockholders equity and cash flows for the three years ended December 31, 2003. These financial statements are the responsibility of the Corporations management. Our responsibility
is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of BOE Financial Services of Virginia, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the three years ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.



/s/ Yount, Hyde & Barbour, P.C.

Winchester, Virginia

January 16, 2004



F-1



---

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

AND SUBSIDIARIES



Consolidated Balance Sheets

December 31, 2003 and 2002



|                                                                                                                |  |      |             |      |   |            
|--------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | -----------
|                                                                                                                |  | 2003 |             | 2002
|Assets                                                                                                          |  |      |             |      |   |            
|Cash and due from banks                                                                                         |  | $    | 8,948,582   |      | $ | 5,602,887  
|Federal funds sold                                                                                              |  |      | 285,000     |      |   | 2,305,000  
|Securities available for sale, at fair value                                                                    |  |      | 52,200,104  |      |   | 45,487,850 
|Equity securities, restricted, at cost                                                                          |  |      | 946,900     |      |   | 1,080,100  
|Loans held for sale                                                                                             |  |      |            |      |   | 1,130,923  
|Loans, net of allowance for loan losses of $2,128,254 in 2003 and $2,115,611 in 2002                            |  |      | 158,381,402 |      |   | 161,722,367
|Bank premises and equipment, net                                                                                |  |      | 6,525,926   |      |   | 6,634,568  
|Accrued interest receivable                                                                                     |  |      | 1,186,110   |      |   | 1,259,508  
|Intangible assets, net                                                                                          |  |      | 901,733     |      |   | 1,027,556  
|Other assets                                                                                                    |  |      | 2,340,570   |      |   | 1,860,343  
|                                                                                                                |  |      |             |      |   |            
|Total assets                                                                                                    |  | $    | 231,716,327 |      | $ | 228,111,102
|                                                                                                                |  |      |             |      |   |            
|Liabilities and Stockholders Equity                                                                            |  |      |             |      |   |            
|Liabilities                                                                                                     |  |      |             |      |   |            
|Deposits:                                                                                                       |  |      |             |      |   |            
|Noninterest-bearing                                                                                             |  | $    | 24,521,735  |      | $ | 17,784,096 
|Interest-bearing                                                                                                |  |      | 178,759,833 |      |   | 183,476,803
|                                                                                                                |  |      |             |      |   |            
|Total deposits                                                                                                  |  | $    | 203,281,568 |      | $ | 201,260,899
|Federal Home Loan Bank advances                                                                                 |  |      |            |      |   | 4,000,000  
|Trust preferred capital notes                                                                                   |  |      | 4,000,000   |      |   |           
|Accrued interest payable                                                                                        |  |      | 329,933     |      |   | 492,520    
|Other liabilities                                                                                               |  |      | 1,183,078   |      |   | 1,012,023  
|                                                                                                                |  |      |             |      |   |            
|Total liabilities                                                                                               |  | $    | 208,794,579 |      | $ | 206,765,442
|                                                                                                                |  |      |             |      |   |            
|Commitments and Contingent Liabilities                                                                          |  | $    |            |      | $ |           
|                                                                                                                |  |      |             |      |   |            
|Stockholders Equity                                                                                            |  |      |             |      |   |            
|Preferred stock, $5 par value, authorized 100,000 shares; no shares issued and outstanding                      |  | $    |            |      | $ |           
|Common stock, $5 par value, authorized 10,000,000 shares; issued and outstanding 1,183,147 and 1,177,849 shares |  |      | 5,915,735   |      |   | 5,889,245  
|Additional paid-in capital                                                                                      |  |      | 5,008,853   |      |   | 4,931,233  
|Retained earnings                                                                                               |  |      | 10,693,464  |      |   | 8,947,358  
|Accumulated other comprehensive income, net                                                                     |  |      | 1,303,696   |      |   | 1,577,824  
|                                                                                                                |  |      |             |      |   |            
|Total stockholders equity                                                                                      |  | $    | 22,921,748  |      | $ | 21,345,660 
|                                                                                                                |  |      |             |      |   |            
|Total liabilities and stockholders equity                                                                      |  | $    | 231,716,327 |      | $ | 228,111,102
|                                                                                                                |  |      |             |      |   |            



See
Notes to Consolidated Financial Statements.



F-2



---

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

AND SUBSIDIARIES



Consolidated Statements of Income

Three Years Ended December 31, 2003



|                                                    |  |      |            |      |   |            |      |  |   |           
|--------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | ---- |  | - | ----------
|                                                    |  | 2003 |            | 2002 |   |            | 2001
|Interest and Dividend Income                        |  |      |            |      |   |            |      |  |   |           
|Interest and fees on loans                          |  | $    | 10,899,057 |      | $ | 11,418,686 |      |  | $ | 12,700,473
|Interest and dividends on securities:               |  |      |            |      |   |            |      |  |   |           
|U.S. Treasury                                       |  |      | 5,692      |      |   |           |      |  |   |          
|U.S. Government agencies                            |  |      | 301,771    |      |   | 418,816    |      |  |   | 504,404   
|State and political subdivisions, nontaxable        |  |      | 1,156,581  |      |   | 1,114,078  |      |  |   | 828,576   
|State and political subdivisions, taxable           |  |      | 183,442    |      |   | 196,493    |      |  |   | 133,518   
|Other securities                                    |  |      | 498,301    |      |   | 522,581    |      |  |   | 477,401   
|Interest on federal funds sold                      |  |      | 26,553     |      |   | 70,475     |      |  |   | 104,792   
|                                                    |  |      |            |      |   |            |      |  |   |           
|Total interest and dividend income                  |  | $    | 13,071,397 |      | $ | 13,741,129 |      |  | $ | 14,749,164
|                                                    |  |      |            |      |   |            |      |  |   |           
|Interest Expense                                    |  |      |            |      |   |            |      |  |   |           
|Interest on deposits                                |  | $    | 3,967,250  |      | $ | 5,486,489  |      |  | $ | 6,925,134 
|Interest on borrowings                              |  |      | 105,708    |      |   | 208,770    |      |  |   | 556,613   
|                                                    |  |      |            |      |   |            |      |  |   |           
|Total interest expense                              |  | $    | 4,072,958  |      | $ | 5,695,259  |      |  | $ | 7,481,747 
|                                                    |  |      |            |      |   |            |      |  |   |           
|Net interest income                                 |  | $    | 8,998,439  |      | $ | 8,045,870  |      |  | $ | 7,267,417 
|                                                    |  |      |           
|Provision for Loan Losses                           |  |      | 700,000    |      |   | 1,208,000  |      |  |   | 390,000   
|                                                    |  |      |            |      |   |            |      |  |   |           
|Net interest income after provision for loan losses |  | $    | 8,298,439  |      | $ | 6,837,870  |      |  | $ | 6,877,417 
|                                                    |  |      |            |      |   |            |      |  |   |           
|Noninterest Income                                  |  |      |            |      |   |            |      |  |   |           
|Service charge income                               |  | $    | 864,499    |      | $ | 737,565    |      |  | $ | 726,534   
|Net security gains (losses)                         |  |      | 30,603     |      |   | (1,371     | )    |  |   | 2,448     
|Net gains on sales of loans                         |  |      | 63,400     |      |   | 3,291      |      |  |   | 7,343     
|Other income                                        |  |      | 425,113    |      |   | 338,533    |      |  |   | 383,867   
|                                                    |  |      |            |      |   |            |      |  |   |           
|Total noninterest income                            |  | $    | 1,383,615  |      | $ | 1,078,018  |      |  | $ | 1,120,192 
|                                                    |  |      |            |      |   |            |      |  |   |           



See
Notes to Consolidated Financial Statements.



F-3



---

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

AND SUBSIDIARIES



Consolidated Statements of Income

(Continued)

Three Years Ended December 31, 2003



|                                         |  |      |           |      |   |           |  |   |          
|---------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                         |  | 2003 |           | 2002 |   | 2001     
|Noninterest Expenses                     |  |      |           |      |   |           |  |   |          
|Salaries                                 |  | $    | 2,696,853 |      | $ | 2,335,715 |  | $ | 2,161,602
|Employee benefits and costs              |  |      | 788,271   |      |   | 615,689   |  |   | 535,192  
|Occupancy expenses                       |  |      | 321,163   |      |   | 313,954   |  |   | 292,211  
|Furniture and equipment related expenses |  |      | 441,168   |      |   | 446,155   |  |   | 464,731  
|Data processing                          |  |      | 365,601   |      |   | 327,094   |  |   | 344,672  
|Stationary and printing                  |  |      | 160,512   |      |   | 149,876   |  |   | 122,862  
|Postage                                  |  |      | 166,258   |      |   | 159,494   |  |   | 155,977  
|Bank franchise tax                       |  |      | 164,254   |      |   | 143,879   |  |   | 130,237  
|Other operating expenses                 |  |      | 1,523,191 |      |   | 1,273,849 |  |   | 1,186,187
|                                         |  |      |           |      |   |           |  |   |          
|Total noninterest expenses               |  | $    | 6,627,271 |      | $ | 5,765,705 |  | $ | 5,393,671
|                                         |  |      |           |      |   |           |  |   |          
|Net income before income taxes           |  | $    | 3,054,783 |      | $ | 2,150,183 |  | $ | 2,603,938
|Income Taxes                             |  |      | 647,731   |      |   | 368,493   |  |   | 596,816  
|                                         |  |      |           |      |   |           |  |   |          
|Net income                               |  | $    | 2,407,052 |      | $ | 1,781,690 |  | $ | 2,007,122
|                                         |  |      |           |      |   |           |  |   |          
|Earnings Per Share, basic                |  | $    | 2.04      |      | $ | 1.52      |  | $ | 1.71     
|                                         |  |      |           |      |   |           |  |   |          
|Earnings Per Share, diluted              |  | $    | 2.03      |      | $ | 1.51      |  | $ | 1.71     
|                                         |  |      |           |      |   |           |  |   |          



See
Notes to Consolidated Financial Statements.



F-4



---

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

AND SUBSIDIARIES



Consolidated Statements of Stockholders Equity

Three Years Ended December 31, 2003



|                                                                                    |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|----------------------------------------------------------------------------------- |  | ----------- | --------- | ------------------------ | - | ---------------- |  | - | ----------------------------------- | - | ------------------- | - | --------- | ----- | - | --------- | - |  | - | ---------- | -
|                                                                                    |  | CommonStock |           | AdditionalPaid-InCapital |   | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome |   | ComprehensiveIncome |   |           | Total |  
|Balance, December 31, 2000                                                          |  | $           | 5,849,845 |                          | $ | 4,827,428        |  | $ | 6,367,066                           |   |                     | $ | 170,720   |       |   |           |   |  | $ | 17,215,059 |  
|Comprehensive income:                                                               |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Net income                                                                          |  |             |          |                          |   |                 |  |   | 2,007,122                           |   |                     |   |          |       | $ | 2,007,122 |   |  |   | 2,007,122  |  
|Other comprehensive income, net of tax:                                             |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Unrealized gain on securities available for sale, net of deferred taxes of $177,607 |  |             |          |                          |   |                 |  |   |                                    |   |                     |   |          |       |   | 344,766   |   |  |   |           |  
|Less reclassification adjustment, net of taxes of $832                              |  |             |          |                          |   |                 |  |   |                                    |   |                     |   |          |       |   | (1,616    | ) |  |   |           |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Other comprehensive income, net of tax                                              |  |             |          |                          |   |                 |  |   |                                    |   |                     |   | 343,150   |       | $ | 343,150   |   |  |   | 343,150    |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Total comprehensive income                                                          |  |             |          |                          |   |                 |  |   |                                    |   |                     |   |          |       | $ | 2,350,272 |   |  |   |           |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Cash dividends, $0.50 per share                                                     |  |             |          |                          |   |                 |  |   | (585,683                            | ) |                     |   |          |       |   |           |   |  |   | (585,683   | )
|Fractional shares purchased under dividend reinvestment plan                        |  |             |          |                          |   |                 |  |   | (38                                 | ) |                     |   |          |       |   |           |   |  |   | (38        | )
|Issuance of common stock under dividend reinvestment plan                           |  |             | 20,545    |                          |   | 47,324           |  |   |                                    |   |                     |   |          |       |   |           |   |  |   | 67,869     |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Balance, December 31, 2001                                                          |  | $           | 5,870,390 |                          | $ | 4,874,752        |  | $ | 7,788,467                           |   |                     | $ | 513,870   |       |   |           |   |  | $ | 19,047,479 |  
|Comprehensive income:                                                               |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Net income                                                                          |  |             |          |                          |   |                 |  |   | 1,781,690                           |   |                     |   |          |       | $ | 1,781,690 |   |  |   | 1,781,690  |  
|Other comprehensive income, net of tax:                                             |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Unrealized gain on securities available for sale, net of deferred taxes of $547,631 |  |             |          |                          |   |                 |  |   |                                    |   |                     |   |          |       |   | 1,063,049 |   |  |   |           |  
|Add reclassification adjustment, net of taxes of $466                               |  |             |          |                          |   |                 |  |   |                                    |   |                     |   |          |       |   | 905       |   |  |   |           |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Other comprehensive income, net of tax                                              |  |             |          |                          |   |                 |  |   |                                    |   |                     |   | 1,063,954 |       | $ | 1,063,954 |   |  |   | 1,063,954  |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Total comprehensive income                                                          |  |             |          |                          |   |                 |  |   |                                    |   |                     |   |          |       | $ | 2,845,644 |   |  |   |           |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Cash dividends, $0.53 per share                                                     |  |             |          |                          |   |                 |  |   | (622,716                            | ) |                     |   |          |       |   |           |   |  |   | (622,716   | )
|Fractional shares purchased under dividend reinvestment plan                        |  |             |          |                          |   |                 |  |   | (83                                 | ) |                     |   |          |       |   |           |   |  |   | (83        | )
|Issuance of common stock under dividend reinvestment plan                           |  |             | 17,840    |                          |   | 55,009           |  |   |                                    |   |                     |   |          |       |   |           |   |  |   | 72,849     |  
|Exercise of stock options                                                           |  |             | 1,015     |                          |   | 1,472            |  |   |                                    |   |                     |   |          |       |   |           |   |  |   | 2,487      |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  
|Balance, December 31, 2002 (forwarded)                                              |  | $           | 5,889,245 |                          | $ | 4,931,233        |  | $ | 8,947,358                           |   |                     | $ | 1,577,824 |       |   |           |   |  | $ | 21,345,660 |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                     |   |                     |   |           |       |   |           |   |  |   |            |  



See
Notes to Consolidated Financial Statements.



F-5



---

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

AND SUBSIDIARIES



Consolidated Statements of Stockholders' Equity

(Continued)

Three Years Ended December 31, 2003



|                                                                                    |  |             |           |                          |   |                  |  |   |                                            |   |  |                     |           |   |       |   |           |   |  |   |            |  
|----------------------------------------------------------------------------------- |  | ----------- | --------- | ------------------------ | - | ---------------- |  | - | ------------------------------------------ | - |  | ------------------- | --------- | - | ----- | - | --------- | - |  | - | ---------- | -
|                                                                                    |  | CommonStock |           | AdditionalPaid-InCapital |   | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | ComprehensiveIncome |           |   | Total |  
|Balance, December 31, 2002 (brought forward)                                        |  | $           | 5,889,245 |                          | $ | 4,931,233        |  | $ | 8,947,358                                  |   |  | $                   | 1,577,824 |   |       |   |           |   |  | $ | 21,345,660 |  
|Comprehensive income:                                                               |  |             |           |                          |   |                  |  |   |                                            |   |  |                     |           |   |       |   |           |   |  |   |            |  
|Net income                                                                          |  |             |          |                          |   |                 |  |   | 2,407,052                                  |   |  |                     |          |   |       | $ | 2,407,052 |   |  |   | 2,407,052  |  
|Other comprehensive income, net of tax:                                             |  |             |           |                          |   |                  |  |   |                                            |   |  |                     |           |   |       |   |           |   |  |   |            |  
|Unrealized loss on securities available for sale, net of deferred taxes of $130,812 |  |             |          |                          |   |                 |  |   |                                           |   |  |                     |          |   |       |   | (253,930  | ) |  |   |           |  
|Less reclassification adjustment, net of taxes of $10,405                           |  |             |          |                          |   |                 |  |   |                                           |   |  |                     |          |   |       |   | (20,198   | ) |  |   |           |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                            |   |  |                     |           |   |       |   |           |   |  |   |            |  
|Other comprehensive loss, net of tax                                                |  |             |          |                          |   |                 |  |   |                                           |   |  |                     | (274,128  | ) |       | $ | (274,128  | ) |  |   | (274,128   | )
|                                                                                    |  |             |           |                          |   |                  |  |   |                                            |   |  |                     |           |   |       |   |           |   |  |   |            |  
|Total comprehensive income                                                          |  |             |          |                          |   |                 |  |   |                                           |   |  |                     |          |   |       | $ | 2,132,924 |   |  |   |           |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                            |   |  |                     |           |   |       |   |           |   |  |   |            |  
|Cash dividends, $0.56 per share                                                     |  |             |          |                          |   |                 |  |   | (660,940                                   | ) |  |                     |          |   |       |   |           |   |  |   | (660,940   | )
|Fractional shares purchased under dividend reinvestment plan                        |  |             |          |                          |   |                 |  |   | (6                                         | ) |  |                     |          |   |       |   |           |   |  |   | (6         | )
|Issuance of common stock under dividend reinvestment plan                           |  |             | 14,280    |                          |   | 58,627           |  |   |                                           |   |  |                     |          |   |       |   |           |   |  |   | 72,907     |  
|Exercise of stock options                                                           |  |             | 12,210    |                          |   | 18,993           |  |   |                                           |   |  |                     |          |   |       |   |           |   |  |   | 31,203     |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                            |   |  |                     |           |   |       |   |           |   |  |   |            |  
|Balance, December 31, 2003                                                          |  | $           | 5,915,735 |                          | $ | 5,008,853        |  | $ | 10,693,464                                 |   |  | $                   | 1,303,696 |   |       |   |           |   |  | $ | 22,921,748 |  
|                                                                                    |  |             |           |                          |   |                  |  |   |                                            |   |  |                     |           |   |       |   |           |   |  |   |            |  



See
Notes to Consolidated Financial Statements.



F-6



---

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

AND SUBSIDIARIES



Consolidated Statements of Cash Flows

Three Years Ended December 31, 2003



|                                                                                                 |  |      |             |   |      |   |             |      |  |   |             |  
|------------------------------------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                                 |  | 2003 |             |   | 2002 |   |             | 2001 | 
|Cash Flows from Operating Activities                                                             |  |      |             |   |      |   |             |      |  |   |             |  
|Net income                                                                                       |  | $    | 2,407,052   |   |      | $ | 1,781,690   |      |  | $ | 2,007,122   |  
|Adjustments to reconcile net income to net cash provided by operating activities:                |  |      |             |   |      |   |             |      |  |   |             |  
|Depreciation and amortization                                                                    |  |      | 497,329     |   |      |   | 510,283     |      |  |   | 520,519     |  
|Origination of loans available for sale                                                          |  |      | (10,062,762 | ) |      |   | (5,279,400  | )    |  |   | (4,362,737  | )
|Proceeds from sale of loans available for sale                                                   |  |      | 11,257,085  |   |      |   | 5,058,068   |      |  |   | 3,687,310   |  
|Provision for loan losses                                                                        |  |      | 700,000     |   |      |   | 1,208,000   |      |  |   | 390,000     |  
|(Gain) loss on sale of securities                                                                |  |      | (30,603     | ) |      |   | 1,371       |      |  |   | (2,448      | )
|(Gain) on sale of loans                                                                          |  |      | (63,400     | ) |      |   | (3,291      | )    |  |   | (7,343      | )
|Deferred income tax expense (benefit)                                                            |  |      | 199,857     |   |      |   | 39,480      |      |  |   | (123,267    | )
|Amortization of premiums on securities                                                           |  |      | 250,149     |   |      |   | 164,683     |      |  |   | 106,557     |  
|Accretion of discounts on securities                                                             |  |      | (34,841     | ) |      |   | (35,649     | )    |  |   | (56,445     | )
|(Increase) in accrued interest receivable and other assets                                       |  |      | (406,829    | ) |      |   | (445,063    | )    |  |   | (139,403    | )
|(Decrease) increase in accrued expenses and other liabilities                                    |  |      | (50,172     | ) |      |   | (237,334    | )    |  |   | 80,667      |  
|                                                                                                 |  |      |             |   |      |   |             |      |  |   |             |  
|Net cash provided by operating activities                                                        |  | $    | 4,662,865   |   |      | $ | 2,762,838   |      |  | $ | 2,100,532   |  
|                                                                                                 |  |      |             |   |      |   |             |      |  |   |             |  
|Cash Flows from Investing Activities                                                             |  |      |             |   |      |   |             |      |  |   |             |  
|Proceeds from sales, principal repayments, calls and maturities of securities available for sale |  | $    | 9,037,375   |   |      | $ | 7,620,836   |      |  | $ | 9,235,458   |  
|Proceeds from redemption of equity securities                                                    |  |      | 133,200     |   |      |   | 264,900     |      |  |   |            |  
|Purchase of securities available for sale                                                        |  |      | (16,349,679 | ) |      |   | (13,358,565 | )    |  |   | (12,137,381 | )
|Net decrease (increase) in loans to customers                                                    |  |      | 2,640,965   |   |      |   | (11,053,710 | )    |  |   | (12,698,868 | )
|Decrease (increase) in federal funds sold                                                        |  |      | 2,020,000   |   |      |   | 5,312,000   |      |  |   | (5,204,000  | )
|Purchases of premises and equipment                                                              |  |      | (262,864    | ) |      |   | (255,166    | )    |  |   | (187,183    | )
|                                                                                                 |  |      |             |   |      |   |             |      |  |   |             |  
|Net cash (used in) investing activities                                                          |  | $    | (2,781,003  | ) |      | $ | (11,469,705 | )    |  | $ | (20,991,974 | )
|                                                                                                 |  |      |             |   |      |   |             |      |  |   |             |  



See Notes to Consolidated Financial
Statements.



F-7



---

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

AND SUBSIDIARIES



Consolidated Statements of Cash Flows

(Continued)

Three Years Ended December 31, 2003



|                                                                    |  |      |             |   |      |   |            |      |  |   |            |  
|------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                    |  | 2003 |             |   | 2002 |   |            | 2001 | 
|Cash Flows from Financing Activities                                |  |      |             |   |      |   |            |      |  |   |            |  
|Net increase in demand deposits, NOW accounts, and savings accounts |  | $    | 14,803,759  |   |      | $ | 8,128,198  |      |  | $ | 6,208,896  |  
|Net (decrease) increase in time deposits                            |  |      | (12,783,090 | ) |      |   | 4,635,543  |      |  |   | 17,940,062 |  
|Proceeds from issuance of trust preferred capital notes             |  |      | 4,000,000   |   |      |   |           |      |  |   |           |  
|(Decrease) in Federal Home Loan Bank advances                       |  |      | (4,000,000  | ) |      |   | (4,000,000 | )    |  |   | (3,000,000 | )
|Dividends paid                                                      |  |      | (660,940    | ) |      |   | (622,716   | )    |  |   | (585,683   | )
|Net proceeds from issuance common stock                             |  |      | 104,110     |   |      |   | 75,336     |      |  |   | 67,869     |  
|Cash paid for fractional shares                                     |  |      | (6          | ) |      |   | (83        | )    |  |   | (38        | )
|                                                                    |  |      |             |   |      |   |            |      |  |   |            |  
|Net cash provided by financing activities                           |  | $    | 1,463,833   |   |      | $ | 8,216,278  |      |  | $ | 20,631,106 |  
|                                                                    |  |      |             |   |      |   |            |      |  |   |            |  
|Net increase (decrease) in cash and cash equivalents                |  | $    | 3,345,695   |   |      | $ | (490,589   | )    |  | $ | 1,739,664  |  
|                                                                    |  |      |            
|Cash and Cash Equivalents                                           |  |      |             |   |      |   |            |      |  |   |            |  
|Beginning of year                                                   |  |      | 5,602,887   |   |      |   | 6,093,476  |      |  |   | 4,353,812  |  
|                                                                    |  |      |             |   |      |   |            |      |  |   |            |  
|End of year                                                         |  | $    | 8,948,582   |   |      | $ | 5,602,887  |      |  | $ | 6,093,476  |  
|                                                                    |  |      |             |   |      |   |            |      |  |   |            |  
|Supplemental Disclosure of Cash Flow Information                    |  |      |             |   |      |   |            |      |  |   |            |  
|Cash paid during year:                                              |  |      |             |   |      |   |            |      |  |   |            |  
|Interest                                                            |  | $    | 4,235,545   |   |      | $ | 5,813,134  |      |  | $ | 7,769,836  |  
|                                                                    |  |      |             |   |      |   |            |      |  |   |            |  
|Income taxes                                                        |  | $    | 629,508     |   |      | $ | 575,000    |      |  | $ | 447,151    |  
|                                                                    |  |      |             |   |      |   |            |      |  |   |            |  
|Noncash Investing Activities                                        |  |      |             |   |      |   |            |      |  |   |            |  
|Unrealized (loss) gain on securities available for sale             |  | $    | (415,345    | ) |      | $ | 1,612,051  |      |  | $ | 519,925    |  
|                                                                    |  |      |             |   |      |   |            |      |  |   |            |  
|Transfer of held to maturity securities to available for sale       |  | $    |            |   |      | $ |           |      |  | $ | 3,120,778  |  
|                                                                    |  |      |             |   |      |   |            |      |  |   |            |  



See Notes to Consolidated Financial
Statements.



F-8



---

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|Note 1. | Nature of Banking Activities and Significant Accounting Policies
|------- | ----------------------------------------------------------------



BOE Financial Services of Virginia, Inc. (the Corporation) is a bank holding company, which owns all of the stock of its sole subsidiaries, Bank of Essex
(the Bank) and BOE Statutory Trust I (the Trust). The Bank provides commercial, residential and consumer loans, and a variety of deposit products to its customers in the Northern Neck and Richmond regions of Virginia.



Essex Services, Inc. is a wholly-owned subsidiary of the Bank and was formed
to sell title insurance to the Banks mortgage loan customers. Essex Services, Inc. also offers insurance and investment products through affiliations with two limited liability companies.



Principles of Consolidation



The accompanying consolidated financial statements include the accounts of
BOE Financial Services of Virginia, Inc. and its wholly-owned subsidiaries, Bank of Essex and BOE Statutory Trust I. All material intercompany balances and transactions have been eliminated in consolidation.



Securities



Debt securities that management has the positive intent and ability to hold
to maturity are classified as held to maturity and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as available for
sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.



Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value
of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. Gains and losses on the sale of securities are recorded on the trade date and are
determined using the specific identification method.



Restricted Securities



The Corporation is
required to maintain an investment in the capital stock of certain correspondent banks. The Corporations investment in these securities is recorded at cost.



Loans



The Bank grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans. The
ability of the Banks debtors to honor their contracts is dependent upon the real estate and general economic conditions in the Banks market area.



F-9



---

Notes to Consolidated Financial Statements



Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the
unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.



The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless
the credit is well-secured and in process of collection. Consumer loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest
is considered doubtful.



All interest accrued but not collected
for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual
status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.



Allowance for Loan Losses



The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.



The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically
identified loans, as well as probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectibility of existing loans and prior loss experience. This evaluation also takes into consideration such factors
as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrowers ability to pay. This evaluation does not include the effects
of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance
may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for loan losses, and may require the Bank to
make additions to the allowance based on their judgment about information available to them at the time of their examinations.



The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful or
substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The
general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect managements estimate of probable losses.
The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.



F-10



---

Notes to Consolidated Financial Statements



A loan is considered impaired when, based on current information and events,
it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment
status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of the expected
future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.



Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not
separately identify individual consumer and residential loans for impairment disclosures.



Loans Held for Sale



Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to income.



The Corporation enters into commitments to originate certain
mortgage loans whereby the interest rate on the loans is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. The period of time between issuances
of a loan commitment and closing and the sale of the loan generally ranges from thirty to ninety days. The Corporation protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the
Corporation commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. As a result, the Corporation is not exposed to losses nor will it realize significant
gains related to its rate lock commitments due to changes in interest rates. The correlation between the rate lock commitments and the best efforts contracts is very high due to their similarity. Because of this high correlation, no gain or loss
occurs on the rate lock commitments.



Bank Premises and
Equipment



Bank premises and equipment are stated at cost
less accumulated depreciation. Land is carried at cost. Depreciation of bank premises and equipment is computed on the straight-line method over estimated useful lives of 10 to 50 years for premises and 5 to 20 years for equipment, furniture and
fixtures.



Costs of maintenance and repairs are charged to
expense as incurred and major improvements are capitalized. Upon sale or retirement of depreciable properties, the cost and related accumulated depreciation are eliminated from the accounts and the resulting gain or loss is included in the
determination of income.



F-11



---

Notes to Consolidated Financial Statements



Intangibles



Intangible assets consist of core deposits premiums from a branch
acquisition. Intangible assets are being amortized on a straight-line basis over 15 years.



Other Real Estate



Real
estate acquired through, or in lieu of, loan foreclosure is held for sale and is initially recorded at the lower of the loan balance or the fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations
are periodically performed by management and the assets are carried at the lower of the carrying amount or the fair value less costs to sell. Revenues and expenses from operations and changes in the valuation allowance are included in other
operating expenses. Costs to bring a property to salable condition are capitalized up to the fair value of the property while costs to maintain a property in salable condition are expensed as incurred. The Bank had no other real estate at December
31, 2003 or 2002.



Income Taxes



Deferred income tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities
and gives current recognition to changes in tax rates and laws.



Earnings Per Share



Basic earnings per share
(EPS) is computed based on the weighted average number of shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is computed in a manner similar to basic EPS, except for
certain adjustments to the numerator and the denominator. Diluted EPS gives effect to all dilutive potential common shares that were outstanding during the period. Potential common shares that may be issued by the Corporation relate solely to
outstanding stock options and are determined using the treasury stock method.



Stock-Based Compensation



At December 31, 2003, the Corporation had a stock-based employee compensation plan, which is described more fully in Note 9. The Corporation accounts for the plan under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the
underlying common stock on the date of grant.



F-12



---

Notes to Consolidated Financial Statements



The following table illustrates the effect on net income and earnings per
share as if the Corporation had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                                                                  |  | Years Ended December 31, |          
|                                                                                                                                  |  | 2003                     |           |   | 2002 |   |           | 2001 | 
|Net income, as reported                                                                                                           |  | $                        | 2,407,052 |   |      | $ | 1,781,690 |      |  | $ | 2,007,122 |  
|Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of tax
effect |  |                          | (45,722   | ) |      |   | (32,451   | )    |  |   | (22,218   | )
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Pro forma net income                                                                                                              |  | $                        | 2,361,330 |   |      | $ | 1,749,239 |      |  | $ | 1,984,904 |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Earnings per share:                                                                                                               |  |                          |           |   |      |   |           |      |  |   |           |  
|Basic - as reported                                                                                                               |  | $                        | 2.04      |   |      | $ | 1.52      |      |  | $ | 1.71      |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Basic - pro forma                                                                                                                 |  | $                        | 2.00      |   |      | $ | 1.49      |      |  | $ | 1.70      |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Diluted - as reported                                                                                                             |  | $                        | 2.03      |   |      | $ | 1.51      |      |  | $ | 1.71      |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Diluted - pro forma                                                                                                               |  | $                        | 1.99      |   |      | $ | 1.48      |      |  | $ | 1.69      |  
|                                                                                                                                  |  |                          |           |   |      |   |           |      |  |   |           |  



Cash and Cash
Equivalents



For purposes of the consolidated statements
of cash flows, the Corporation has defined cash equivalents as those amounts included in the balance sheet caption Cash and due from banks.



Advertising Costs



The Corporation follows the policy of charging the costs of production of advertising to expense as incurred. Total advertising expense incurred for 2003,
2002 and 2001 was $62,903, $62,557 and $72,744, respectively.



Use of Estimates



The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management estimates that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, and the valuation of foreclosed real estate and deferred taxes.



Reclassifications



Certain reclassifications have been made to prior period balances to conform to the current year provisions.



F-13



---

Notes to Consolidated Financial Statements



|Note 2. | Securities
|------- | ----------



The amortized cost and fair value of securities available for sale as of December 31, 2003 and 2002, are as follows:



|                                                |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|----------------------------------------------- |  | ------------- | ---------- | -------------------- | - | ----------------------- |  | - | ---------- | - |  | - | ----------
|                                                |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealized(Losses) |  |   | Fair Value
|                                                |  | 2003         
|U.S. Treasury securities                        |  | $             | 1,498,818  |                      | $ | 1,706                   |  | $ | (56        | ) |  | $ | 1,500,468 
|U.S. Agency, mortgage-backed securities         |  |               | 12,549,316 |                      |   | 107,674                 |  |   | (59,731    | ) |  |   | 12,597,259
|Obligations of state and political subdivisions |  |               | 31,372,934 |                      |   | 1,528,315               |  |   | (32,415    | ) |  |   | 32,868,834
|Corporate debt securities                       |  |               | 4,739,084  |                      |   | 329,890                 |  |   |           |   |  |   | 5,068,974 
|Other equity securities                         |  |               | 64,656     |                      |   | 99,913                  |  |   |           |   |  |   | 164,569   
|                                                |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|                                                |  | $             | 50,224,808 |                      | $ | 2,067,498               |  | $ | (92,202    | ) |  | $ | 52,200,104
|                                                |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|                                                | 
|                                                |  | 2002         
|U.S. Agency, mortgage-backed securities         |  | $             | 8,874,019  |                      | $ | 269,690                 |  | $ | (36        | ) |  | $ | 9,143,673 
|Obligations of state and political subdivisions |  |               | 28,646,833 |                      |   | 1,638,262               |  |   | (9,530     | ) |  |   | 30,275,565
|Corporate debt securities                       |  |               | 5,511,700  |                      |   | 450,286                 |  |   | (3,987     | ) |  |   | 5,957,999 
|Other equity securities                         |  |               | 64,656     |                      |   | 45,957                  |  |   |           |   |  |   | 110,613   
|                                                |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|                                                |  | $             | 43,097,208 |                      | $ | 2,404,195               |  | $ | (13,553    | ) |  | $ | 45,487,850
|                                                |  |               |            |                      |   |                         |  |   |            |   |  |   |           



The amortized cost and
fair value of securities available for sale as of December 31, 2003, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without any
penalties.



|                                       |  |               |            |            |   |           
|-------------------------------------- |  | ------------- | ---------- | ---------- | - | ----------
|                                       |  | AmortizedCost |            | Fair Value
|Due in one year or less                |  | $             | 1,696,871  |            | $ | 1,733,721 
|Due after one year through five years  |  |               | 35,177,518 |            |   | 36,423,604
|Due after five years through ten years |  |               | 12,643,950 |            |   | 13,184,108
|Due after ten years                    |  |               | 641,813    |            |   | 694,102   
|Other equity securities                |  |               | 64,656     |            |   | 164,569   
|                                       |  |               |            |            |   |           
|                                       |  | $             | 50,224,808 |            | $ | 52,200,104
|                                       |  |               |            |            |   |           



F-14



---

Notes to Consolidated Financial Statements



As permitted under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, the Corporation transferred securities held to maturity with a book value of $3,120,778 and a market value of $3,175,885 to securities available for sale as of January 1, 2001.



Proceeds from sales, principal repayments, calls and maturities of securities
available for sale during 2003, 2002 and 2001 were $9,037,375, $7,620,836 and $9,235,458, respectively. Gross realized gains of $30,603, $7,561 and $6,287 and gross realized losses of $0, $8,932 and $3,839 were recognized on those sales for the
years ended December 31, 2003, 2002 and 2001, respectively. The tax provision (benefit) applicable to these net realized gains (losses) amounted to $10,405, $(466) and $832, respectively.



Securities with amortized costs of $3,911,455 and $2,877,612 at December 31, 2003 and 2002 were pledged to secure public
deposits and for other purposes required or permitted by law.



A summary of investments in an unrealized loss position at December 31, 2003 follows:



|                                                |  |                                 |           |                    |                   |         |            |       |                    |         |  |            |        |                    |  |   |           |  |   |         |  
|----------------------------------------------- |  | ------------------------------- | --------- | ------------------ | ----------------- | ------- | ---------- | ----- | ------------------ | ------- |  | ---------- | ------ | ------------------ |  | - | --------- |  | - | ------- | -
|                                                |  | Duration of the Unrealized Loss |           |                    |                   |        
|                                                |  | Less Than 12 Months             |           |                    | 12 Months or More |         |            | Total |                   
|                                                |  | Fair Value                      |           | Unrealized(Losses) |                   |         | Fair Value |       | Unrealized(Losses) |         |  | Fair Value |        | Unrealized(Losses) | 
|U.S. Treasury securities                        |  | $                               | 498,438   |                    | $                 | (56     | )          |       | $                  |        |  | $          |       |                    |  | $ | 498,438   |  | $ | (56     | )
|U.S. Agency, mortgage backed securities         |  |                                 | 5,291,694 |                    |                   | (59,731 | )          |       |                    |        |  |            |       |                    |  |   | 5,291,694 |  |   | (59,731 | )
|Obligations of state and political subdivisions |  |                                 | 2,943,886 |                    |                   | (30,276 | )          |       |                    | 178,482 |  |            | (2,139 | )                  |  |   | 3,122,368 |  |   | (32,415 | )
|                                                |  |                                 |           |                    |                   |         |            |       |                    |         |  |            |        |                    |  |   |           |  |   |         |  
|Total temporarily impaired securities           |  | $                               | 8,734,018 |                    | $                 | (90,063 | )          |       | $                  | 178,482 |  | $          | (2,139 | )                  |  | $ | 8,912,500 |  | $ | (92,202 | )
|                                                |  |                                 |           |                    |                   |         |            |       |                    |         |  |            |        |                    |  |   |           |  |   |         |  



The unrealized losses
in the investment portfolio as of December 31, 2003, are generally a result of market fluctuations that occur daily. The unrealized losses are from 24 securities that are all of investment grade, backed by insurance, U.S. government agency
guarantees, or the full faith and credit of local municipalities throughout the United States. The Corporation has the ability to hold these securities to maturity. Market prices are affected by conditions beyond the control of the Corporation.
Investment decisions are made by the management group of the Corporation and reflect the overall liquidity and strategic asset/liability objectives of the Corporation. Management analyzes the securities portfolio frequently and manages the portfolio
to provide an overall positive impact to the Corporations income statement and balance sheet.



F-15



---

Notes to Consolidated Financial Statements



|Note 3. | Loans
|------- | -----



Major classifications of loans are summarized as follows:



|                                |  |                |         |      |   |        
|------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                |  | December 31,  
|                                |  | 2003           |         | 2002
|                                |  | (in thousands)
|Mortgage loans on real estate:  |  |                |         |      |   |        
|Residential 1-4 family          |  | $              | 35,047  |      | $ | 38,674 
|Commercial                      |  |                | 61,604  |      |   | 74,333 
|Construction                    |  |                | 21,505  |      |   | 1,465  
|Equity lines of credit          |  |                | 9,561   |      |   | 8,563  
|Commercial loans                |  |                | 26,099  |      |   | 33,428 
|Consumer installment loans:     |  |                |         |      |   |        
|Personal                        |  |                | 5,821   |      |   | 6,527  
|Credit cards                    |  |                | 872     |      |   | 848    
|                                |  |                |         |      |   |        
|                                |  | $              | 160,509 |      | $ | 163,838
|Less: Allowance for loan losses |  |                | 2,128   |      |   | 2,116  
|                                |  |                |         |      |   |        
|Loans, net                      |  | $              | 158,381 |      | $ | 161,722
|                                |  |                |         |      |   |        



A summary of the
transactions affecting the allowance for loan losses is as follows:



|                                           |  |      |           |   |      |   |            |      |  |   |           |  
|------------------------------------------ |  | ---- | --------- | - | ---- | - | ---------- | ---- |  | - | --------- | -
|                                           |  | 2003 |           |   | 2002 |   |            | 2001 | 
|Balance, beginning of year                 |  | $    | 2,115,611 |   |      | $ | 2,084,091  |      |  | $ | 1,818,538 |  
|Provision for loan losses                  |  |      | 700,000   |   |      |   | 1,208,000  |      |  |   | 390,000   |  
|Loans charged off                          |  |      | (828,994  | ) |      |   | (1,244,173 | )    |  |   | (170,629  | )
|Recoveries of loans previously charged off |  |      | 141,637   |   |      |   | 67,693     |      |  |   | 46,182    |  
|                                           |  |      |           |   |      |   |            |      |  |   |           |  
|Balance, end of year                       |  | $    | 2,128,254 |   |      | $ | 2,115,611  |      |  | $ | 2,084,091 |  
|                                           |  |      |           |   |      |   |            |      |  |   |           |  



F-16



---

Notes to Consolidated Financial Statements



The following is a summary of information pertaining to impaired loans:



|                                              |  |              |           |      |   |           |  |   |        
|--------------------------------------------- |  | ------------ | --------- | ---- | - | --------- |  | - | -------
|                                              |  | December 31,
|                                              |  | 2003         |           | 2002 |   | 2001     
|Impaired loans with a valuation allowance     |  | $            | 1,519,200 |      | $ | 2,011,425 |  | $ | 662,810
|Impaired loans without a valuation allowance  |  |              |          |      |   |          |  |   |       
|                                              |  |              |           |      |   |           |  |   |        
|Total impaired loans                          |  | $            | 1,519,200 |      | $ | 2,011,425 |  | $ | 662,810
|                                              |  |              |           |      |   |           |  |   |        
|Valuation allowance related to impaired loans |  | $            | 262,530   |      | $ | 721,448   |  | $ | 160,862
|                                              |  |              |           |      |   |           |  |   |        



|                                                                        |  |      |           |      |   |         |  |   |        
|----------------------------------------------------------------------- |  | ---- | --------- | ---- | - | ------- |  | - | -------
|                                                                        |  | 2003 |           | 2002 |   | 2001   
|Nonaccrual loans                                                        |  | $    | 218,070   |      | $ | 399,088 |  | $ | 182,100
|Loans past due ninety days or more and still accruing                   |  |      | 285,050   |      |   | 102,000 |  |   | 988,000
|Average monthly balance of impaired loans (based on month-end balances) |  |      | 1,754,385 |      |   | 724,556 |  |   | 799,282
|Interest income recognized on impaired loans                            |  |      |          |      |   | 10,333  |  |   | 8,338  
|Interest income recognized on a cash basis on impaired loans            |  |      |          |      |   | 10,333  |  |   | 8,338  



The Corporation has
not committed to lend additional funds to these debtors.



|Note 4. | Premises and Equipment
|------- | ----------------------



A summary of the cost and accumulated depreciation of bank premises and equipment at December 31, 2003 and 2002 follows:



|                         |  |      |            |      |   |           
|------------------------ |  | ---- | ---------- | ---- | - | ----------
|                         |  | 2003 |            | 2002
|Land                     |  | $    | 2,622,565  |      | $ | 2,622,565 
|Buildings                |  |      | 3,891,317  |      |   | 3,890,717 
|Furniture and fixtures   |  |      | 4,000,952  |      |   | 3,813,002 
|                         |  |      |            |      |   |           
|                         |  | $    | 10,514,834 |      | $ | 10,326,284
|Accumulated depreciation |  |      | 3,988,908  |      |   | 3,691,716 
|                         |  |      |            |      |   |           
|                         |  | $    | 6,525,926  |      | $ | 6,634,568 
|                         |  |      |            |      |   |           



Depreciation expense
for the years ended December 31, 2003, 2002 and 2001, amounted to $371,506, $384,460 and $394,696, respectively.



F-17



---

Notes to Consolidated Financial Statements



|Note 5. | Deposits
|------- | --------



The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2003 and 2002 was $21,681,028 and $24,502,815, respectively.



The scheduled maturities of time deposits at December 31, 2003
are as follows:



|           |  |   |            
|---------- |  | - | -----------
|2004       |  | $ | 64,195,663 
|2005       |  |   | 18,063,585 
|2006       |  |   | 13,364,599 
|2007       |  |   | 7,791,938  
|2008       |  |   | 9,203,557  
|Thereafter |  |   | 39,000     
|           |  |   |            
|           |  | $ | 112,658,342
|           |  |   |            



At December 31, 2003
and 2002, overdraft demand deposits reclassified to loans totaled $98,952 and $92,068, respectively.



|Note 6. | Income Taxes
|------- | ------------



The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities follows:



|                                                 |  |      |           |   |      |   |           |  
|------------------------------------------------ |  | ---- | --------- | - | ---- | - | --------- | -
|                                                 |  | 2003 |           |   | 2002 |  
|Deferred tax assets:                             |  |      |           |   |      |   |           |  
|Allowance for loan losses                        |  | $    | 561,072   |   |      | $ | 579,059   |  
|Deferred compensation                            |  |      | 185,591   |   |      |   | 185,774   |  
|Nonaccrual loan interest                         |  |      | 54,601    |   |      |   | 55,464    |  
|Alternative minimum tax credit                   |  |      | 35,362    |   |      |   | 31,362    |  
|Allowance for deposit losses                     |  |      | 13,600    |   |      |   |          |  
|Organizational costs                             |  |      | 10,023    |   |      |   | 16,705    |  
|                                                 |  |      |           |   |      |   |           |  
|                                                 |  | $    | 860,249   |   |      | $ | 868,364   |  
|                                                 |  |      |           |   |      |   |           |  
|Deferred tax liabilities:                        |  |      |           |   |      |   |           |  
|Depreciation                                     |  | $    | 319,110   |   |      | $ | 300,923   |  
|Discount accretion on securities                 |  |      | 29,611    |   |      |   | 28,839    |  
|Partnership losses                               |  |      | 39,367    |   |      |   | 42,678    |  
|Accrued pension liability                        |  |      | 216,767   |   |      |   | 40,673    |  
|Unrealized gain on securities available for sale |  |      | 671,601   |   |      |   | 812,818   |  
|Other                                            |  |      | 21,983    |   |      |   | 21,983    |  
|                                                 |  |      |           |   |      |   |           |  
|                                                 |  | $    | 1,298,439 |   |      | $ | 1,247,914 |  
|                                                 |  |      |           |   |      |   |           |  
|Net deferred tax (liabilities)                   |  | $    | (438,190  | ) |      | $ | (379,550  | )
|                                                 |  |      |           |   |      |   |           |  



F-18



---

Notes to Consolidated Financial Statements



Allocation of the income tax expense between current and deferred portions is
as follows:



|                               |  |      |         |      |   |         |  |   |          |  
|------------------------------ |  | ---- | ------- | ---- | - | ------- |  | - | -------- | -
|                               |  | 2003 |         | 2002 |   | 2001    | 
|Current tax provision          |  | $    | 447,874 |      | $ | 329,013 |  | $ | 720,083  |  
|Deferred tax expense (benefit) |  |      | 199,857 |      |   | 39,480  |  |   | (123,267 | )
|                               |  |      |         |      |   |         |  |   |          |  
|                               |  | $    | 647,731 |      | $ | 368,493 |  | $ | 596,816  |  
|                               |  |      |         |      |   |         |  |   |          |  



The following is a
reconciliation of the expected income tax expense with the reported expense for each year:



|                                     |  |       |   |  |       |   |  |       |  
|------------------------------------ |  | ----- | - |  | ----- | - |  | ----- | -
|                                     |  | 2003  |   |  | 2002  |   |  | 2001  |  
|Statutory Federal income tax rate    |  | 34.0  | % |  | 34.0  | % |  | 34.0  | %
|(Reduction) in taxes resulting from: |  |       |   |  |       |   |  |       |  
|Municipal interest                   |  | (12.2 | ) |  | (16.5 | ) |  | (10.3 | )
|Other, net                           |  | (0.6  | ) |  | (0.4  | ) |  | (0.8  | )
|                                     |  |       |   |  |       |   |  |       |  
|Effective income tax rate            |  | 21.2  | % |  | 17.1  | % |  | 22.9  | %
|                                     |  |       |   |  |       |   |  |       |  



|Note 7. | Federal Home Loan Bank Advances and Lines of Credit
|------- | ---------------------------------------------------



The Corporation had advances on lines of credit with the Federal Home Loan Bank of Atlanta that totaled $4,000,000 at December 31, 2002. The Corporation
had no advances at December 31, 2003. The average interest rates on the fixed-rate advances was 2.75%. Advances on the lines are secured by all of the Corporations first lien loans on one-to-four unit single-family dwellings. As of December
31, 2003, the book value of these loans totaled approximately $32,589,000. The amount of available credit is limited to seventy-five percent of qualifying collateral. Any borrowings in excess of the qualifying collateral require pledging of
additional assets.



The Corporation has unsecured lines of
credit with correspondent banks available for overnight borrowing totaling approximately $18,634,000. At December 31, 2003, no amounts had been drawn on these lines of credit.



|Note 8. | Employee Benefit Plans
|------- | ----------------------



The Corporation has a noncontributory, defined benefit pension plan for all full-time employees over 21 years of age. Benefits are generally based upon
years of service and the employees compensation. The Corporation funds pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act.



F-19



---

Notes to Consolidated Financial Statements



The following tables provide a reconciliation of the changes in the
plans benefit obligations and fair value of assets over the years ending December 31, 2003, 2002 and 2001, computed as of October 1, 2003, 2002 and 2001, respectively:



|                                          |  |      |            |   |      |   |            |      |  |   |           |  
|----------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | --------- | -
|                                          |  | 2003 |            |   | 2002 |   |            | 2001 | 
|Change in Benefit Obligation              |  |      |            |   |      |   |            |      |  |   |           |  
|Benefit obligation, beginning             |  | $    | 2,413,139  |   |      | $ | 1,814,197  |      |  | $ | 1,612,875 |  
|Service cost                              |  |      | 200,871    |   |      |   | 144,992    |      |  |   | 152,755   |  
|Interest cost                             |  |      | 168,750    |   |      |   | 135,883    |      |  |   | 120,784   |  
|Actuarial (gain) loss                     |  |      | 306,696    |   |      |   | 392,367    |      |  |   | (67,685   | )
|Benefits paid                             |  |      | (23,131    | ) |      |   | (74,300    | )    |  |   | (4,532    | )
|                                          |  |      |            |   |      |   |            |      |  |   |           |  
|Benefit obligation, ending                |  | $    | 3,066,325  |   |      | $ | 2,413,139  |      |  | $ | 1,814,197 |  
|                                          |  |      |            |   |      |   |            |      |  |   |           |  
|Change in Plan Assets                     |  |      |            |   |      |   |            |      |  |   |           |  
|Fair value of plan assets, beginning      |  | $    | 1,365,307  |   |      | $ | 1,405,336  |      |  | $ | 1,509,157 |  
|Actual return (loss) on plan assets       |  |      | 314,955    |   |      |   | (110,561   | )    |  |   | (230,849  | )
|Employer contributions                    |  |      | 264,071    |   |      |   | 144,832    |      |  |   | 131,560   |  
|Benefits paid                             |  |      | (23,131    | ) |      |   | (74,300    | )    |  |   | (4,532    | )
|                                          |  |      |            |   |      |   |            |      |  |   |           |  
|Fair value of plan assets, ending         |  | $    | 1,921,202  |   |      | $ | 1,365,307  |      |  | $ | 1,405,336 |  
|                                          |  |      |            |   |      |   |            |      |  |   |           |  
|Funded status                             |  | $    | (1,145,123 | ) |      | $ | (1,047,832 | )    |  | $ | (408,861  | )
|Unrecognized net actuarial loss           |  |      | 985,126    |   |      |   | 897,418    |      |  |   | 266,371   |  
|Unrecognized net obligation at transition |  |      | (25,608    | ) |      |   | (28,808    | )    |  |   | (32,008   | )
|Unrecognized prior service cost           |  |      | 27,457     |   |      |   | 30,888     |      |  |   | 34,319    |  
|                                          |  |      |            |   |      |   |            |      |  |   |           |  
|Accrued benefit cost at October 1         |  | $    | (158,148   | ) |      | $ | (148,334   | )    |  | $ | (140,179  | )
|Contributions made in December            |  |      | 791,807    |   |      |   | 267,961    |      |  |   | 148,722   |  
|                                          |  |      |            |   |      |   |            |      |  |   |           |  
|Prepaid benefit cost at December 31       |  | $    | 633,659    |   |      | $ | 119,627    |      |  | $ | 8,543     |  
|                                          |  |      |            |   |      |   |            |      |  |   |           |  



The accumulated
benefit obligation for the defined benefit pension plan was $1,855,455, $1,412,338 and $1,020,620 at September 30, 2003, 2002 and 2001, respectively.



F-20



---

Notes to Consolidated Financial Statements



The following table provides the components of net periodic benefit cost for
the plans for the years ended December 31, 2003, 2002 and 2001:



|                                             |  |      |          |   |      |   |          |      |  |   |          |  
|-------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                             |  | 2003 |          |   | 2002 |   |          | 2001 | 
|Components of Net Periodic Benefit Cost      |  |      |          |   |      |   |          |      |  |   |          |  
|Service cost                                 |  | $    | 200,871  |   |      | $ | 144,992  |      |  | $ | 152,755  |  
|Interest cost                                |  |      | 168,750  |   |      |   | 135,883  |      |  |   | 120,784  |  
|Expected return on plan assets               |  |      | (132,417 | ) |      |   | (132,839 | )    |  |   | (141,564 | )
|Amortization of prior service cost           |  |      | 3,431    |   |      |   | 3,431    |      |  |   | 3,431    |  
|Amortization of net obligation at transition |  |      | (3,200   | ) |      |   | (3,200   | )    |  |   | (3,200   | )
|Recognized net actuarial loss                |  |      | 36,450   |   |      |   | 4,720    |      |  |   |         |  
|                                             |  |      |          |   |      |   |          |      |  |   |          |  
|Net periodic benefit cost                    |  | $    | 273,885  |   |      | $ | 152,987  |      |  | $ | 132,206  |  
|                                             |  |      |          |   |      |   |          |      |  |   |          |  



The weighted-average
assumptions used in the measurement of the Corporations benefit obligation and net periodic benefit cost are shown in the following table:



|                               |  |      |   |  |      |   |  |      |  
|------------------------------ |  | ---- | - |  | ---- | - |  | ---- | -
|                               |  | 2003 |   |  | 2002 |   |  | 2001 |  
|Discount rate                  |  | 6.50 | % |  | 7.00 | % |  | 7.50 | %
|Expected return on plan assets |  | 8.50 | % |  | 9.00 | % |  | 9.00 | %
|Rate of compensation increase  |  | 5.00 | % |  | 5.00 | % |  | 5.00 | %



Long-Term Rate of
Return



The plan sponsor selects the expected long-term
rate-of-return-on-assets assumption in consultation with their investment advisors and actuary. This rate is intended to reflect the average rate of earnings expected to be earned on the funds invested or to be invested to provide plan benefits.
Historical performance is reviewed, especially with respect to real rates of return (net of inflation), for the major asset classes held or anticipated to be held by the trust, and for the trust itself. Undue weight is not given to recent experience
that may not continue over the measurement period, with higher significance placed on current forecasts of future long-term economic conditions.



Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, solely for this purpose, the plan is assumed to
continue in force and not terminate during the period during which assets are invested. However, consideration is given to the potential impact of current and future investment policy, cash flow into and out of the trust, and expenses (both
investment and non-investment) typically paid from plan assets (to the extent such expenses are not explicitly estimated within periodic cost).



F-21



---

Notes to Consolidated Financial Statements



Asset Allocation



The pension plans weighted-average asset allocations at September 30,
2003 and 2002, by asset category are as follows:



|                            |  |                             |   |  |      |  
|--------------------------- |  | --------------------------- | - |  | ---- | -
|                            |  | Plan Assets atSeptember 30, |  
|                            |  | 2003                        |   |  | 2002 |  
|Asset Category              |  |                             |   |  |      |  
|Mutual funds - fixed income |  | 40                          | % |  | 40   | %
|Mutual funds - equity       |  | 60                          | % |  | 60   | %
|                            |  |                             |   |  |      |  
|                            |  | 100                         | % |  | 100  | %
|                            |  |                             |   |  |      |  



The trust fund is
sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return, with a targeted asset allocation of 40% fixed income and 60% equities. The investment manager selects investment fund managers with demonstrated
experience and expertise, and funds with demonstrated historical performance, for the implementation of the plans investment strategy. The investment manager will consider both actively and passively managed investment strategies and will
allocate funds across the asset classes to develop an efficient investment structure.



It is the responsibility of the trustee to administer the investments of the trust within reasonable costs, being careful to avoid sacrificing quality. These costs include, but are not limited to, management and
custodial fees, consulting fees, transaction costs and other administrative costs chargeable to the trust.



The Corporation expects to contribute approximately $186,000 to its pension plan in 2004.



401(k) Plan



The Corporation has also adopted a contributory 401(k) profit sharing plan which covers substantially all employees. The employee may contribute up to 15%
of compensation, subject to statutory limitations. The Corporation matches 50% of employee contributions up to 4% of compensation. The plan also provides for an additional discretionary contribution to be made by the Corporation as determined each
year. The amounts charged to expense under this plan for the years ended December 31, 2003, 2002 and 2001 were $47,589, $39,156 and $34,611, respectively.



Deferred Compensation Agreements



The Corporation has a nonqualified deferred compensation program which permits key employees and the Board of Directors to defer a portion of their
compensation for their retirement. The retirement benefit to be provided is fixed based upon the amount of compensation earned and deferred. Deferred compensation expense amounted to $39,100, $48,604 and $40,078 for the years ended December 31,
2003, 2002 and 2001, respectively.



F-22



---

Notes to Consolidated Financial Statements



Concurrent with the establishment of the deferred compensation plan, the
Corporation purchased life insurance policies on this key management group, with the Corporation named as owner and beneficiary. These life insurance policies are intended to be utilized as a source for funding the deferred compensation plan. The
Corporation has recorded in other assets $294,969 and $267,905 representing cash surrender value of these policies for the years ended December 31, 2003 and 2002, respectively.



|Note 9. | Stock Option Plans
|------- | ------------------



Employee Incentive Stock Plan



During the year ending December 31, 2000, the Corporation adopted a stock incentive plan for all employees, which is accounted for in accordance with
Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees, and related interpretations. The plan provides that 100,000 shares of the Corporations common stock will be reserved for both incentive and
non-statutory stock options to purchase common stock of the Corporation. The exercise price per share for incentive stock options and non-statutory stock options shall not be less than the fair market value of a share of common stock on the date of
grant, and may be exercised at such times as may be specified by the Board of Directors in the participants stock option agreement. Each incentive and non-statutory stock option shall expire not more than ten years from the date the option is
granted. The options vest at the rate of one quarter per year from the grant date.



A summary of the status of the employee incentive stock plan follows:



|                                                               |  |                 |   |      |                              |       |                  |        |   |                              |   |                 |  |        |                              |  |   |      
|-------------------------------------------------------------- |  | --------------- | - | ---- | ---------------------------- | ----- | ---------------- | ------ | - | ---------------------------- | - | --------------- |  | ------ | ---------------------------- |  | - | -----
|                                                               |  | 2003            |   | 2002 |                              | 2001 
|                                                               |  | Numberof Shares |   |      | WeightedAverageExercisePrice |       | Number of Shares |        |   | WeightedAverageExercisePrice |   | Numberof Shares |  |        | WeightedAverageExercisePrice
|Outstanding at beginning of year                               |  | 24,475          |   |      | $                            | 16.34 |                  | 14,912 |   |                              | $ | 12.25           |  |       |                              |  | $ |     
|Granted                                                        |  | 9,396           |   |      |                              | 25.00 |                  | 10,805 |   |                              |   | 21.68           |  | 16,288 |                              |  |   | 12.25
|Exercised                                                      |  | (2,422          | ) |      |                              | 12.78 |                  | (203   | ) |                              |   | 12.25           |  |       |                              |  |   |     
|Forfeited                                                      |  | (1,329          | ) |      |                              | 17.33 |                  | (1,039 | ) |                              |   | 13.89           |  | (1,376 | )                            |  |   | 12.25
|                                                               |  |                 |   |      |                              |       |                  |        |   |                              |   |                 |  |        |                              |  |   |      
|Outstanding at year end                                        |  | 30,120          |   |      |                              | 19.29 |                  | 24,475 |   |                              |   | 16.34           |  | 14,912 |                              |  |   | 12.25
|                                                               |  |                 |   |      |                              |       |                  |        |   |                              |   |                 |  |        |                              |  |   |      
|Exercisable at year end                                        |  | 7,937           |   |      |                              | 15.15 |                  | 3,460  |   |                              |   | 12.25           |  |       |                              |  |   |     
|                                                               |  |                 |   |      |                              |      
|Weighted average fair value of options granted during the year |  |                 |   |      |                              | 7.17  |                  |        |   |                              |   | 6.74            |  |        |                              |  |   | 5.04 



F-23



---

Notes to Consolidated Financial Statements



Director Incentive Stock Plan



During the year ended December 31, 2000, the Corporation adopted a stock
option plan for outside directors. The Corporation applies APB Opinion 25 and related interpretations in accounting for the stock option plan. The plan provides that 10,000 shares of the Corporations common stock will be reserved for
non-statutory stock options to purchase common stock of the Corporation. The exercise price per share for each non-statutory stock option shall not be less than the fair market value of a share of common stock on the date of grant, and may be
exercised at such times as may be specified by the Board of Directors in the participants stock option agreement. Each non-statutory stock option shall expire not more than ten years from the date the option is granted. The options vest at a
rate of one quarter per year from the grant date.



A summary of
the director incentive stock plan follows:



|                                                               |  |                 |   |      |                              |       |                 |       |                              |   |                 |  |                              |  |   |      
|-------------------------------------------------------------- |  | --------------- | - | ---- | ---------------------------- | ----- | --------------- | ----- | ---------------------------- | - | --------------- |  | ---------------------------- |  | - | -----
|                                                               |  | 2003            |   | 2002 |                              | 2001 
|                                                               |  | Numberof Shares |   |      | WeightedAverageExercisePrice |       | Numberof Shares |       | WeightedAverageExercisePrice |   | Numberof Shares |  | WeightedAverageExercisePrice
|Outstanding at beginning of year                               |  | 2,810           |   |      | $                            | 15.25 |                 | 2,010 |                              | $ | 12.41           |  |                             |  | $ |     
|Granted                                                        |  | 800             |   |      |                              | 25.00 |                 | 800   |                              |   | 22.40           |  | 2,010                        |  |   | 12.41
|Exercised                                                      |  | (20             | ) |      |                              | 12.25 |                 |      |                              |   |                |  |                             |  |   |     
|Forfeited                                                      |  | (520            | ) |      |                              | 15.99 |                 |      |                              |   |                |  |                             |  |   |     
|                                                               |  |                 |   |      |                              |       |                 |       |                              |   |                 |  |                              |  |   |      
|Outstanding at year end                                        |  | 3,070           |   |      |                              | 17.69 |                 | 2,810 |                              |   | 15.25           |  | 2,010                        |  |   | 12.41
|                                                               |  |                 |   |      |                              |       |                 |       |                              |   |                 |  |                              |  |   |      
|Exercisable at year end                                        |  | 975             |   |      |                              | 13.92 |                 | 503   |                              |   | 12.41           |  |                             |  |   |     
|                                                               |  |                 |   |      |                              |      
|Weighted average fair value of options granted during the year |  |                 |   |      |                              | 7.17  |                 |       |                              |   | 6.87            |  |                              |  |   | 5.11 



The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



|                        |  |                          |   |  |          |   |  |          |  
|----------------------- |  | ------------------------ | - |  | -------- | - |  | -------- | -
|                        |  | Years Ended December 31, |  
|                        |  | 2003                     |   |  | 2002     |   |  | 2001     |  
|Dividend yield          |  | 2.74                     | % |  | 2.85     | % |  | 2.82     | %
|Expected life           |  | 10 years                 |   |  | 10 years |   |  | 10 years |  
|Expected volatility     |  | 26.43                    | % |  | 27.56    | % |  | 29.64    | %
|Risk-free interest rate |  | 4.31                     | % |  | 4.92     | % |  | 4.92     | %



F-24



---

Notes to Consolidated Financial Statements



Information pertaining to options outstanding at December 31, 2003 is as
follows:



|                        |  |                           |  |                     |  |                                |       |                   |   |                                |  |   |      
|----------------------- |  | ------------------------- |  | ------------------- |  | ------------------------------ | ----- | ----------------- | - | ------------------------------ |  | - | -----
|                        |  |                           |  | Options Outstanding |  | Options Exercisable           
|Range of Exercise Price |  | RemainingContractual Life |  | NumberOutstanding   |  | WeightedAverage Exercise Price |       | NumberExercisable |   | WeightedAverage Exercise Price
|$12.25                  |  | 7 years                   |  | 12,653              |  | $                              | 12.25 |                   | $ | 6,327                          |  | $ | 12.25
|$16.55 - $19.00         |  | 8 years                   |  | 1,500               |  |                                | 18.18 |                   |   | 375                            |  |   | 18.18
|$22.40                  |  | 8.5 years                 |  | 8,841               |  |                                | 22.40 |                   |   | 2,210                          |  |   | 22.40
|$25.00                  |  | 9.8 years                 |  | 10,196              |  |                                | 25.00 |                   |   |                               |  |   |     



|Note 10. | Earnings Per Share
|-------- | ------------------



The following shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of
diluted potential stock. Potential dilutive common stock had no effect on income available to common stockholders.



|                                 |  |           |  |           |      |       |           |           |   |        |  |           |  |   |     
|-------------------------------- |  | --------- |  | --------- | ---- | ----- | --------- | --------- | - | ------ |  | --------- |  | - | ----
|                                 |  | 2003      |  | 2002      |      | 2001 
|                                 |  | Shares    |  | Per Share |      | Share |           | Per Share |   | Shares |  | Per Share
|Basic earnings per share         |  | 1,179,640 |  | $         | 2.04 |       | 1,175,018 |           | $ | 1.52   |  | 1,170,973 |  | $ | 1.71
|                                 |  |           |  |           |      |       |           |           |   |        |  |           |  |   |     
|Effect of dilutive stock options |  | 7,999     |  |           |      |       | 6,540     |           |   |        |  | 3,348     |  |   |     
|                                 |  |           |  |           |      |       |           |           |   |        |  |           |  |   |     
|Diluted earnings per share       |  | 1,187,639 |  | $         | 2.03 |       | 1,181,558 |           | $ | 1.51   |  | 1,174,321 |  | $ | 1.71
|                                 |  |           |  |           |      |       |           |           |   |        |  |           |  |   |     



The Company has
granted options to employees and directors to purchase 2,422 shares and 7,328 shares during the years ended December 31, 2003 and 2002, respectively. Those options were not included in the computation of diluted earnings per share because the
exercise price of those options exceeded the average market price of the common shares during the year. There were no antidilutive shares outstanding for the year ended December 31, 2001.



F-25



---

Notes to Consolidated Financial Statements



|Note 11. | Related Party Transactions
|-------- | --------------------------



In the ordinary course of business, the Bank has and expects to continue to have transactions, including borrowings, with its executive officers,
directors, and their affiliates. All such loans are made on substantially the same terms as those prevailing at the time for comparable loans to unrelated persons. Loans to such borrowers are summarized as follows:



|                                 |  |      |            |   |      |   |            |  
|-------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                 |  | 2003 |            |   | 2002 |  
|Balance, beginning of year       |  | $    | 4,848,000  |   |      | $ | 3,569,660  |  
|Principal additions              |  |      | 452,256    |   |      |   | 3,086,952  |  
|Repayments and reclassifications |  |      | (3,977,819 | ) |      |   | (1,808,612 | )
|                                 |  |      |            |   |      |   |            |  
|Balance, end of year             |  | $    | 1,322,437  |   |      | $ | 4,848,000  |  
|                                 |  |      |            |   |      |   |            |  



|Note 12. | Commitments and Contingent Liabilities
|-------- | --------------------------------------



In the normal course of business, there are outstanding various commitments and contingent liabilities, such as guarantees, commitments to extend credit,
etc., which are not reflected in the accompanying consolidated financial statements. The Bank does not anticipate losses as a result of these transactions. See Note 15 with respect to financial instruments with off-balance-sheet risk.



As members of the Federal Reserve System, the Bank is required to maintain
certain average reserve balances. For the final weekly reporting period in the years ended December 31, 2003 and 2002, the aggregate amount of daily average required balances were approximately $1,090,000 and $951,000, respectively.



The Bank is required to maintain certain required reserve balances with a
correspondent bank. Those required balances were $5,200,000 and $2,300,000 at December 31, 2003 and 2002, respectively.



|Note 13. | Dividend Limitations on Affiliate Bank
|-------- | --------------------------------------



Transfers of funds from the banking subsidiary to the parent corporation in the form of loans, advances and cash dividends are restricted by federal and
state regulatory authorities. As of December 31, 2003, the aggregate amount of unrestricted funds, which could be transferred from the banking subsidiary to the parent corporation, without prior regulatory approval, totaled $4,212,904.



F-26



---

Notes to Consolidated Financial Statements



|Note 14. | Concentration of Credit Risk
|-------- | ----------------------------



The Bank has a diversified loan portfolio consisting of commercial, real estate and consumer (installment) loans. Substantially all of the Banks
customers are residents or operate business ventures in its market area consisting of Essex, King William, Hanover, Henrico and adjacent counties. Therefore, a substantial portion of its debtors ability to honor their contracts and the
Banks ability to realize the value of any underlying collateral, if needed, is influenced by the economic conditions in this market area.



The Bank maintains a portion of its cash balances with several financial institutions located in its market area. Accounts at each institution are secured
by the Federal Deposit Insurance Corporation up to $100,000. Uninsured balances were approximately $6,538,000 and $3,046,000 at December 31, 2003 and 2002, respectively.



|Note 15. | Financial Instruments With Off-Balance-Sheet Risk
|-------- | -------------------------------------------------



The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The
contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.



The Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.



A summary of the contract amounts of the Banks exposure to
off-balance-sheet risk as of December 31, 2003 and 2002, is as follows:



|                                                                    |  |      |            |      |   |           
|------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                                                    |  | 2003 |            | 2002
|Financial instruments whose contract amounts represent credit risk: |  |      |            |      |   |           
|Commitments to extend credit                                        |  | $    | 33,053,000 |      | $ | 36,939,000
|Standby letters of credit                                           |  |      | 3,866,000  |      |   | 3,834,000 



Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customers credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on managements credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, and
income-producing commercial properties.



F-27



---

Notes to Consolidated Financial Statements



Unfunded commitments under commercial lines-of credit, revolving credit lines
and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines-of-credit are generally uncollateralized and usually do not contain a specified maturity date and may not be drawn upon
to the total extent to which the Bank is committed.



Standby
letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper,
bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The amount of collateral obtained, if deemed necessary by the Bank
upon extension of credit, is based on managements evaluation of the counterparty. Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements.



|Note 16. | Minimum Regulatory Capital Requirements
|-------- | ---------------------------------------



The Corporation (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporations and Banks
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding companies



Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as
defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2003 and 2002, that the Corporation and Bank met all capital adequacy
requirements to which they are subject.



As of December 31,
2003, the most recent notification from the Federal Reserve Bank categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Banks category.



F-28



---

Notes to Consolidated Financial Statements



The Corporations and the Banks actual capital amounts and ratios
as of December 31, 2003 and 2002, are also presented in the table.



|                                                      |  |                        |        |       |                           |   |        |                                                                      |        |  |     |        |  |       |        |  |      |  
|----------------------------------------------------- |  | ---------------------- | ------ | ----- | ------------------------- | - | ------ | -------------------------------------------------------------------- | ------ |  | --- | ------ |  | ----- | ------ |  | ---- | -
|                                                      |  | Actual                 |        |       | MinimumCapitalRequirement |   |        | Minimum To Be WellCapitalizedUnder PromptCorrective ActionProvisions |       
|                                                      |  | Amount                 |        | Ratio |                           |   | Amount |                                                                      | Ratio  |  |     | Amount |  | Ratio |       
|                                                      |  | (dollars in thousands) |       
|As of December 31, 2003:                              |  |                        |        |       |                           |   |        |                                                                      |        |  |     |        |  |       |        |  |      |  
|Total Capital (to Risk Weighted Assets) Consolidated  |  | $                      | 26,910 |       | 14.9                      | % |        | $                                                                    | 14,470 |  | 8.0 | %      |  |       | N/A    |  | N/A  |  
|Bank of Essex                                         |  | $                      | 26,495 |       | 14.7                      | % |        | $                                                                    | 14,437 |  | 8.0 | %      |  | $     | 18,046 |  | 10.0 | %
|Tier 1 Capital (to Risk Weighted Assets) Consolidated |  | $                      | 24,782 |       | 13.7                      | % |        | $                                                                    | 7,235  |  | 4.0 | %      |  |       | N/A    |  | N/A  |  
|Bank of Essex                                         |  | $                      | 24,367 |       | 13.5                      | % |        | $                                                                    | 7,219  |  | 4.0 | %      |  | $     | 10,828 |  | 6.0  | %
|Tier 1 Capital (to Average Assets) Consolidated       |  | $                      | 24,782 |       | 10.8                      | % |        | $                                                                    | 9,179  |  | 4.0 | %      |  |       | N/A    |  | N/A  |  
|Bank of Essex                                         |  | $                      | 24,367 |       | 10.6                      | % |        | $                                                                    | 9,179  |  | 4.0 | %      |  | $     | 11,474 |  | 5.0  | %
|                                                      |  |                        |        |       |                           |  
|As of December 31, 2002:                              |  |                        |        |       |                           |   |        |                                                                      |        |  |     |        |  |       |        |  |      |  
|Total Capital (to Risk Weighted Assets) Consolidated  |  | $                      | 20,887 |       | 11.6                      | % |        | $                                                                    | 14,415 |  | 8.0 | %      |  |       | N/A    |  | N/A  |  
|Bank of Essex                                         |  | $                      | 20,611 |       | 11.5                      | % |        | $                                                                    | 14,310 |  | 8.0 | %      |  | $     | 17,887 |  | 10.0 | %
|Tier 1 Capital (to Risk Weighted Assets) Consolidated |  | $                      | 18,771 |       | 10.4                      | % |        | $                                                                    | 7,208  |  | 4.0 | %      |  |       | N/A    |  | N/A  |  
|Bank of Essex                                         |  | $                      | 18,495 |       | 10.3                      | % |        | $                                                                    | 7,155  |  | 4.0 | %      |  | $     | 10,732 |  | 6.0  | %
|Tier 1 Capital (to Average Assets) Consolidated       |  | $                      | 18,771 |       | 8.1                       | % |        | $                                                                    | 9,230  |  | 4.0 | %      |  |       | N/A    |  | N/A  |  
|Bank of Essex                                         |  | $                      | 18,495 |       | 8.0                       | % |        | $                                                                    | 9,230  |  | 4.0 | %      |  | $     | 11,538 |  | 5.0  | %



|Note 17. | Fair Value of Financial Instruments and Interest Rate Risk
|-------- | ----------------------------------------------------------



The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate
that value:



Cash and Short-Term Investments



For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.



F-29



---

Notes to Consolidated Financial Statements



Securities



For securities held for investment purposes, fair values are based on quoted
market prices or dealer quotes.



Restricted Securities



The carrying value of restricted securities approximates
their fair value.



Loans Held for Sale



Fair value of loans held for sale is based on commitments on hand from
investors or prevailing market prices.



Loans Receivable



For certain homogeneous categories of loans, such as some
residential mortgages, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.



Deposit Liabilities



The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.



Federal Home Loan Bank Advances



The fair values of the Corporations long-term borrowings are estimated using discounted cash flow analyses based on the Corporations current
incremental borrowing rates for similar types of borrowing arrangements.



Long-Term Borrowings



The fair values of the Corporations long-term borrowings are estimated using discounted cash flow analyses based on the Corporations current incremental borrowing rates for similar types of borrowing arrangements.



Accrued Interest



The carrying amounts of accrued interest approximate fair value.



F-30



---

Notes to Consolidated Financial Statements



Off-Balance-Sheet Financial Instruments



The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates.



The
fair value of stand-by letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.



At December 31, 2003 and 2002, the fair values of loan commitments and
stand-by letters of credit were deemed to be immaterial.



The
carrying amounts and estimated fair values of the Corporations financial instruments are as follows:



|                                |  |                |         |                     |   |                |  |                     |         |  |   |        
|------------------------------- |  | -------------- | ------- | ------------------- | - | -------------- |  | ------------------- | ------- |  | - | -------
|                                |  | 2003           |         | 2002               
|                                |  | CarryingAmount |         | EstimatedFair Value |   | CarryingAmount |  | EstimatedFair Value
|                                |  | (in thousands)
|Financial assets:               |  |                |         |                     |   |                |  |                     |         |  |   |        
|Cash and short-term investments |  | $              | 8,949   |                     | $ | 8,949          |  | $                   | 5,603   |  | $ | 5,603  
|Federal funds sold              |  |                | 285     |                     |   | 285            |  |                     | 2,305   |  |   | 2,305  
|Securities                      |  |                | 52,200  |                     |   | 52,200         |  |                     | 45,488  |  |   | 45,488 
|Restricted securities           |  |                | 947     |                     |   | 947            |  |                     | 1,080   |  |   | 1,080  
|Loans held for sale             |  |                |        |                     |   |               |  |                     | 1,131   |  |   | 1,131  
|Loans, net of allowance         |  |                | 158,381 |                     |   | 162,937        |  |                     | 161,722 |  |   | 168,395
|Accrued interest receivable     |  |                | 1,186   |                     |   | 1,186          |  |                     | 1,260   |  |   | 1,260  
|                                |  |                |         |                    
|Financial liabilities:          |  |                |         |                     |   |                |  |                     |         |  |   |        
|Deposits                        |  | $              | 203,282 |                     | $ | 205,143        |  | $                   | 201,261 |  | $ | 204,146
|Federal Home Loan Bank advances |  |                |        |                     |   |               |  |                     | 4,000   |  |   | 4,036  
|Trust preferred capital notes   |  |                | 4,000   |                     |   | 4,000          |  |                     |        |  |   |       
|Accrued interest payable        |  |                | 330     |                     |   | 330            |  |                     | 493     |  |   | 493    



F-31



---

Notes to Consolidated Financial Statements



The Corporation assumes interest rate risk (the risk that general interest
rate levels will change) as a result of its normal operations. As a result, the fair values of the Corporations financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the
Corporation. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and
more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment.
Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Corporations overall
interest rate risk.



|Note 18. | Trust Preferred Capital Notes
|-------- | -----------------------------



On December 12, 2003, BOE Statutory Trust I, a wholly-owned subsidiary of the Corporation, was formed for the purpose of issuing redeemable Capital
Securities. On December 12, 2003, $4 million of trust preferred securities were issued through a direct placement. The securities have a LIBOR-indexed floating rate of interest. During the period from December 12, 2003 through December 31, 2003, the
interest rate was 4.17%. The securities have a mandatory redemption date of December 12, 2033, and are subject to varying call provisions beginning December 12, 2008. The principal asset of the Trust is $4 million of the Corporations junior
subordinated debt securities with the like maturities and like interest rates to the Capital Securities.



The Trust Preferred Securities may be included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25% of Tier 1 capital after
its inclusion. The portion of the Trust Preferred not considered as Tier 1 capital may be included in Tier 2 capital.



The obligations of the Corporation with respect to the issuance of the Capital Securities constitute a full and unconditional guarantee by the Corporation
of the Trusts obligations with respect to the Capital Securities.



Subject to certain exceptions and limitations, the Corporation may elect from time to time to defer interest payments on the junior subordinated debt securities, which would result in a deferral of distribution payments on the related
Capital Securities.



F-32



---

Notes to Consolidated Financial Statements



|Note 19. | Parent Corporation Only Financial Statements
|-------- | --------------------------------------------



BOE FINANCIAL SERVICES OF VIRGINIA, INC.

(Parent Corporation Only)



Balance Sheets
(Condensed)

December 31, 2003 and 2002



|                                                                   |  |      |            |      |   |           
|------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                                                                   |  | 2003 |            | 2002
|Assets                                                             |  |      |            |      |   |           
|                                                                   |  |     
|Cash                                                               |  | $    | 182,429    |      | $ | 180,391   
|Investment in subsidiaries, at cost, plus undistributed net income |  |      | 26,506,531 |      |   | 21,070,454
|Securities available for sale                                      |  |      | 164,569    |      |   | 110,613   
|Other assets                                                       |  |      | 239,273    |      |   | 5,105     
|                                                                   |  |      |            |      |   |           
|Total assets                                                       |  | $    | 27,092,802 |      | $ | 21,366,563
|                                                                   |  |      |            |      |   |           
|Liabilities and Stockholders Equity                               |  |      |            |      |   |           
|                                                                   |  |     
|Trust preferred capital notes                                      |  | $    | 4,124,000  |      | $ |          
|Other liabilities                                                  |  |      | 47,054     |      |   | 20,903    
|Stockholders equity                                               |  |      | 22,921,748 |      |   | 21,345,660
|                                                                   |  |      |            |      |   |           
|Total liabilities and stockholders equity                         |  | $    | 27,092,802 |      | $ | 21,366,563
|                                                                   |  |      |            |      |   |           



F-33



---

Notes to Consolidated Financial Statements



BOE FINANCIAL SERVICES OF VIRGINIA, INC.

(Parent Corporation Only)



Statements of Income (Condensed)

Three
Years Ended December 31, 2003



|                                                                                     |  |      |           |   |      |   |           |      |  |   |          
|------------------------------------------------------------------------------------ |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | ---------
|                                                                                     |  | 2003 |           |   | 2002 |   |           | 2001
|Income:                                                                              |  |      |           |   |      |   |           |      |  |   |          
|Dividends from subsidiary                                                            |  | $    | 668,000   |   |      | $ | 623,000   |      |  | $ | 690,855  
|Dividends on other securities                                                        |  |      | 2,428     |   |      |   | 1,658     |      |  |   | 2,202    
|                                                                                     |  |      |           |   |      |   |           |      |  |   |          
|Total income                                                                         |  | $    | 670,428   |   |      | $ | 624,658   |      |  | $ | 693,057  
|                                                                                     |  |      |           |   |      |   |           |      |  |   |          
|Expenses:                                                                            |  |      |           |   |      |   |           |      |  |   |          
|Interest expense                                                                     |  | $    | 9,076     |   |      | $ |          |      |  | $ |         
|Other                                                                                |  |      |          |   |      |   | 73        |      |  |   |         
|                                                                                     |  |      |           |   |      |   |           |      |  |   |          
|Total expenses                                                                       |  |      | 9,076     |   |      | $ | 73        |      |  | $ |         
|                                                                                     |  |      |           |   |      |   |           |      |  |   |          
|Income before allocated tax benefit (expense) and undistributed income of subsidiary |  | $    | 661,352   |   |      | $ | 624,585   |      |  | $ | 693,057  
|                                                                                     |  |      |          
|Allocated income tax benefit (expense)                                               |  |      | (115      | ) |      |   | (2,809    | )    |  |   | 6,890    
|                                                                                     |  |      |           |   |      |   |           |      |  |   |          
|Income before equity in undistributed income of subsidiary                           |  | $    | 661,237   |   |      | $ | 621,776   |      |  | $ | 699,947  
|                                                                                     |  |      |          
|Equity in undistributed income of subsidiary                                         |  |      | 1,745,815 |   |      |   | 1,159,914 |      |  |   | 1,307,175
|                                                                                     |  |      |           |   |      |   |           |      |  |   |          
|Net income                                                                           |  | $    | 2,407,052 |   |      | $ | 1,781,690 |      |  | $ | 2,007,122
|                                                                                     |  |      |           |   |      |   |           |      |  |   |          



F-34



---

Notes to Consolidated Financial Statements



BOE FINANCIAL SERVICES OF VIRGINIA, INC.

(Parent Corporation Only)



Statements of Cash Flows (Condensed)

Three Years Ended December 31, 2003



|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                  |  | 2003 |            |   | 2002 |   |            | 2001 | 
|Cash Flows from Operating Activities                                              |  |      |            |   |      |   |            |      |  |   |            |  
|Net income                                                                        |  | $    | 2,407,052  |   |      | $ | 1,781,690  |      |  | $ | 2,007,122  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |            |   |      |   |            |      |  |   |            |  
|(Increase) decrease in other assets                                               |  |      | (234,168   | ) |      |   | 1,785      |      |  |   | (6,890     | )
|Deferred tax (benefit) provision                                                  |  |      | 6,682      |   |      |   | 6,680      |      |  |   | (2,525     | )
|Undistributed earnings of subsidiary                                              |  |      | (1,745,815 | ) |      |   | (1,159,914 | )    |  |   | (1,307,175 | )
|Increase (decrease) in liabilities                                                |  |      | 1,123      |   |      |   |           |      |  |   | (95,067    | )
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash provided by operating activities                                         |  | $    | 434,874    |   |      | $ | 630,241    |      |  | $ | 595,465    |  
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Cash Flows from Investing Activities,                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Investment in subsidiary                                                          |  | $    | (4,000,000 | ) |      | $ |           |      |  | $ |           |  
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Cash Flows from Financing Activities                                              |  |      |            |   |      |   |            |      |  |   |            |  
|Proceeds from issuance of trust preferred capital notes                           |  | $    | 4,124,000  |   |      | $ |           |      |  | $ |           |  
|Cash dividends paid                                                               |  |      | (660,940   | ) |      |   | (622,716   | )    |  |   | (585,683   | )
|Net proceeds from issuance of common stock                                        |  |      | 104,110    |   |      |   | 75,336     |      |  |   | 67,869     |  
|Cash paid for fractional shares                                                   |  |      | (6         | ) |      |   | (83        | )    |  |   | (38        | )
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash provided by (used in) financing activities                               |  | $    | 3,567,164  |   |      | $ | (547,463   | )    |  | $ | (517,852   | )
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Increase in cash and cash equivalents                                             |  | $    | 2,038      |   |      | $ | 82,778     |      |  | $ | 77,613     |  
|                                                                                  |  |      |           
|Cash and Cash Equivalents                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Beginning                                                                         |  |      | 180,391    |   |      |   | 97,613     |      |  |   | 20,000     |  
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Ending                                                                            |  | $    | 182,429    |   |      | $ | 180,391    |      |  | $ | 97,613     |  
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  



F-35