----

| [x]  Annual Report Pursuant to      Section 13 or 15(d) of the Securities Exchange Act of      1934                |
|------------------------------------------------------------------------------------------------------------------------------|
| For      the Fiscal Year Ended December 31, 2009                                                                        |
| [  ]  Transition Report Pursuant to      Section 13 or 15(d) of the Securities Exchange Act of      1934 |

| Virginia(State      of incorporation) | 54-1375874(I.R.S.      Employer Identification No.) |
|---------------------------------------|-----------------------------------------------------|

| Securities registered pursuant to Section 12(b) of      the Act:None | Securities registered Pursuant to Section 12(g) of      the Act:Common      Stock, Par Value $1.25 per share |
|----------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|

| Document                                                                                                          | Part      of Form 10-K into which incorporated |
|-------------------------------------------------------------------------------------------------------------------|------------------------------------------------|
| National      Bankshares, Inc. 2009 Annual Report to Stockholders                                                 | Part      II                                   |
| National      Bankshares, Inc. Proxy Statement for the 2010 Annual Meeting of      Stockholders    | Part      III                                  |

----

| Part      I       |                                                                                                                         | Page   |
|-------------------|------------------------------------------------------------------------------------------------------------------------------|--------|
|              |                                                                                                                         |   |
| Item      1.      | Business                                                                                                                     | 3      |
|              |                                                                                                                         |   |
| Item      1A.     | Risk      Factors                                                                                                            | 7      |
|              |                                                                                                                         |   |
| Item      1B.     | Unresolved Staff    Comments                                                                                                 | 8      |
|              |                                                                                                                         |   |
| Item      2.      | Properties                                                                                                                   | 8      |
|              |                                                                                                                         |   |
| Item      3.      | Legal      Proceedings                                                                                                       | 8      |
|              |                                                                                                                         |   |
| Item      4.      | Reserved                                                                                                                     | 8      |
|              |                                                                                                                         |   |
| Part      II      |                                                                                                                         |   |
|              |                                                                                                                         |   |
| Item      5.      | Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities | 8      |
|              |                                                                                                                         |   |
| Item      6.      | Selected      Financial Data                                                                                                 | 11     |
|              |                                                                                                                         |   |
| Item      7.      | Management’s Discussion and Analysis of Financial      Condition and Results  of Operations                  | 12     |
|              |                                                                                                                         |   |
| Item      7A.     | Quantitative and Qualitative Disclosures About      Market Risk                                                              | 28     |
|              |                                                                                                                         |   |
| Item      8.      | Financial      Statements and Supplementary Data                                                                             | 29     |
|              |                                                                                                                         |   |
| Item      9.      | Changes      In and Disagreements With Accountants on Accounting and Financial      Disclosure                               | 59     |
|              |                                                                                                                         |   |
| Item      9A.     | Controls      and Procedures                                                                                                 | 59     |
|              |                                                                                                                         |   |
| Item      9B.     | Other      Information                                                                                                       | 60     |
|              |                                                                                                                         |   |
| Part      III     |                                                                                                                         |   |
|              |                                                                                                                         |   |
| Item      10.     | Directors, Executive Officers and Corporate      Governance                                                                  | 60     |
|              |                                                                                                                         |   |
| Item      11.     | Executive Compensation                                                                                                       | 60     |
|              |                                                                                                                         |   |
| Item      12.     | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                     | 61     |
|              |                                                                                                                         |   |
| Item      13.     | Certain      Relationships and Related Transactions, and Director      Independence                                          | 61     |
|              |                                                                                                                         |   |
| Item      14.     | Principal Accounting Fees and      Services                                                                                  | 61     |
|              |                                                                                                                         |   |
| Part      IV      |                                                                                                                         |   |
|              |                                                                                                                         |   |
| Item      15.     | Exhibits, Financial Statement      Schedules                                                                                 | 61     |
|              |                                                                                                                         |   |
| Signatures        |                                                                                                                         | 63     |
|              |                                                                                                                         |   |
| Index of Exhibits |                                                                                                                         | 68     |

----

|  Period           |   |  Class      of Service     |   | Percentage      ofTotal      Revenues |   |
|------------------------|--------|---------------------------------|--------|---------------------------------------|--------|
| December      31, 2009 |   | Interest and Fees on      Loans |   | 63.38                                 | %      |
|                   |   | Interest on      Investments    |   | 21.62                                 | %      |
| December      31, 2008 |   | Interest and Fees on      Loans |   | 62.68                                 | %      |
|                   |   | Interest on      Investments    |   | 21.21                                 | %      |
| December      31, 2007 |   | Interest and Fees on      Loans |   | 62.60                                 | %      |
|                   |   | Interest on      Investments    |   | 21.46                                 | %      |

----

----

----

----

----

----

|                |   | 2009   |   |   | 2008   |   |   | Dividends      per share |   |
|---------------------|--------|--------|--------|--------|--------|--------|--------|--------------------------|--------|
|                |   | High   |   |   | Low    |   |   | High                     |   |   | Low |   |   | 2009 |   |   | 2008 |   |
| First      Quarter  |   | $      | 20.50  |   |   |   | 17.91  |                     |   | $ | 21.98 |   |   |   | 16.86 |   |   | $ | --- |   |   | $ | --- |   |
| Second      Quarter |   |   | 25.80  |   |   |   | 18.51  |                     |   |   | 20.23 |   |   |   | 16.16 |   |   |   | 0.41 |   |   |   | 0.39 |   |
| Third      Quarter  |   |   | 26.90  |   |   |   | 24.27  |                     |   |   | 19.90 |   |   |   | 15.66 |   |   |   | --- |   |   |   | --- |   |
| Fourth      Quarter |   |   | 29.21  |   |   |   | 25.08  |                     |   |   | 20.00 |   |   |   | 15.00 |   |   |   | 0.43 |   |   |   | 0.41 |   |

----

|                           |   | 2004 |   | 2005 |   | 2006 |   | 2007 |   | 2008 |   | 2009 |   |
|--------------------------------|--------|------|--------|------|--------|------|--------|------|--------|------|--------|------|--------|
| NATIONAL      BANKSHARES, INC. |   | 100  |   | 90   |   | 96   |   | 71   |   | 84   |   | 126  |   |
| INDEPENDENT      BANK INDEX    |   | 100  |   | 108  |   | 125  |   | 91   |   | 73   |   | 85   |   |
| NASDAQ      INDEX              |   | 100  |   | 102  |   | 112  |   | 122  |   | 59   |   | 80   |   |

----

| $      in thousands, except per share data       |   | Years      ended December 31, |    |
|--------------------------------------------------|--------|-------------------------------|---------|
|                                             |   | 2009                          |    |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Selected      Income Statement Data:             |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                             |   | $                             | 50,487  |   |   | $ | 50,111 |   |   | $ | 50,769 |   |   | $ | 47,901 |   |   | $ | 45,380 |   |
| Interest      expense                            |   |                          | 15,825  |   |   |   | 18,818 |   |   |   | 21,745 |   |   |   | 18,564 |   |   |   | 14,180 |   |
| Net      interest income                         |   |                          | 34,662  |   |   |   | 31,293 |   |   |   | 29,024 |   |   |   | 29,337 |   |   |   | 31,200 |   |
| Provision      for loan losses                   |   |                          | 1,634   |   |   |   | 1,119 |   |   |   | 423 |   |   |   | 49 |   |   |   | 567 |   |
| Noninterest      income                          |   |                          | 8,804   |   |   |   | 9,087 |   |   |   | 8,760 |   |   |   | 8,802 |   |   |   | 7,613 |   |
| Noninterest      expense                         |   |                          | 23,853  |   |   |   | 22,023 |   |   |   | 20,956 |   |   |   | 21,670 |   |   |   | 21,898 |   |
| Income      taxes                                |   |                          | 3,660   |   |   |   | 3,645 |   |   |   | 3,730 |   |   |   | 3,788 |   |   |   | 3,924 |   |
| Net      income                                  |   |                          | 14,319  |   |   |   | 13,593 |   |   |   | 12,675 |   |   |   | 12,632 |   |   |   | 12,424 |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per      Share Data:                             |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      net income                            |   |                          | 2.07    |   |   |   | 1.96 |   |   |   | 1.82 |   |   |   | 1.80 |   |   |   | 1.77 |   |
| Diluted      net income                          |   |                          | 2.06    |   |   |   | 1.96 |   |   |   | 1.82 |   |   |   | 1.80 |   |   |   | 1.76 |   |
| Cash      dividends declared                     |   |                          | 0.84    |   |   |   | 0.80 |   |   |   | 0.76 |   |   |   | 0.73 |   |   |   | 0.71 |   |
| Book      value                                  |   |                          | 17.61   |   |   |   | 15.89 |   |   |   | 15.07 |   |   |   | 13.86 |   |   |   | 13.10 |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected      Balance Sheet Data at End of Year: |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,      net                                  |   |                          | 583,021 |   |   |   | 569,699 |   |   |   | 518,435 |   |   |   | 495,486 |   |   |   | 487,162 |   |
| Total      securities                            |   |                          | 297,417 |   |   |   | 264,999 |   |   |   | 273,343 |   |   |   | 285,489 |   |   |   | 272,541 |   |
| Total      assets                                |   |                          | 982,367 |   |   |   | 935,374 |   |   |   | 887,647 |   |   |   | 868,203 |   |   |   | 841,498 |   |
| Total      deposits                              |   |                          | 852,112 |   |   |   | 817,848 |   |   |   | 776,339 |   |   |   | 764,692 |   |   |   | 745,649 |   |
| Stockholders’      equity                  |   |                          | 122,076 |   |   |   | 110,108 |   |   |   | 104,800 |   |   |   | 96,755 |   |   |   | 91,939 |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected      Balance Sheet Daily Averages:      |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,      net                                  |   |                          | 572,438 |   |   |   | 533,190 |   |   |   | 505,070 |   |   |   | 488,624 |   |   |   | 487,130 |   |
| Total      securities                            |   |                          | 298,237 |   |   |   | 281,367 |   |   |   | 282,734 |   |   |   | 271,066 |   |   |   | 261,743 |   |
| Total      assets                                |   |                          | 971,538 |   |   |   | 899,462 |   |   |   | 867,061 |   |   |   | 840,080 |   |   |   | 819,341 |   |
| Total      deposits                              |   |                          | 846,637 |   |   |   | 783,774 |   |   |   | 758,657 |   |   |   | 741,071 |   |   |   | 724,015 |   |
| Stockholders’      equity                  |   |                          | 117,086 |   |   |   | 108,585 |   |   |   | 100,597 |   |   |   | 94,194 |   |   |   | 90,470 |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected      Ratios:                            |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return      on average assets                    |   |                          | 1.47    | % |   |   | 1.51 | % |   |   | 1.46 | % |   |   | 1.50 | % |   |   | 1.52 | % |
| Return      on average equity                    |   |                          | 12.23   | % |   |   | 12.52 | % |   |   | 12.60 | % |   |   | 13.41 | % |   |   | 13.73 | % |
| Dividend      payout ratio                       |   |                          | 40.67   | % |   |   | 40.78 | % |   |   | 41.80 | % |   |   | 40.44 | % |   |   | 40.17 | % |
| Average      equity to average assets            |   |                          | 12.05   | % |   |   | 12.07 | % |   |   | 11.60 | % |   |   | 11.21 | % |   |   | 11.04 | % |

----

| ·   | interest      rates, |
|--------------------|----------------------|

| ·   | general      economic conditions, |
|--------------------|-----------------------------------|

| ·   | the      legislative/regulatory climate, |
|--------------------|------------------------------------------|

| ·   | monetary      and fiscal policies of the U.S. Government, including policies of the U.S.      Treasury, the Office of the Comptroller of the Currency, the Federal      Reserve Board and the Federal Deposit Insurance Corporation, and the      impact of any policies or programs implemented pursuant to the Emergency      Economic Stabilization Act of 2008 (EESA) and other financial reform      legislation, |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | unanticipated      increases in the level of unemployment in the Company’s trade      area, |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | the      quality or composition of the loan and/or investment      portfolios, |
|--------------------|--------------------------------------------------------------------------------|

| ·   | demand      for loan products, |
|--------------------|--------------------------------|

| ·   | deposit      flows, |
|--------------------|---------------------|

| ·   | competition, |
|--------------------|--------------|

| ·   | demand      for financial services in the Company’s trade  area, |
|--------------------|------------------------------------------------------------------------|

| ·   | the      real estate market in the Company’s tradearea, |
|--------------------|---------------------------------------------------------------|

| ·   | the      Company’s technology initiatives,and |
|--------------------|-----------------------------------------------------|

| ·   | applicable      accounting principles, policies andguidelines. |
|--------------------|----------------------------------------------------------------|

----

|                                      |   | 12/31/09 |   |   | 12/31/08 |   |
|-------------------------------------------|--------|----------|--------|--------|----------|--------|
| Return      on average assets             |   |     | 1.47   | %      |     |   | 1.51 | % |
| Return      on average equity             |   |     | 12.23  | %      |     |   | 12.52 | % |
| Basic      net earnings per share         |   | $        | 2.07   |   |     | $      | 1.96 |   |
| Fully      diluted net earnings per share |   | $        | 2.06   |   |     | $      | 1.96 |   |
| Net      interest margin (1)              |   |     | 4.23   | %      |     |   | 4.12 | % |
| Noninterest      margin (2)               |   |     | 1.55   | %      |     |   | 1.46 | % |

|   | (1) | Net      Interest Margin – Year-to-date tax equivalent net interest income divided      by year-to-date average earningassets. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Noninterest      Margin – Noninterest income (excluding securities gains and losses) less      noninterest expense (excluding the provision for bad debts and income      taxes) divided by average year-to-dateassets. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|              |   | 12/31/09 |    |   | 12/31/08 |   |
|-------------------|--------|----------|---------|--------|----------|--------|
| Securities        |   | $        | 297,417 |   |     | $      | 264,999 |   |
| Loans,      net   |   |     | 583,021 |   |     |   | 569,699 |   |
| Deposits          |   |     | 852,112 |   |     |   | 817,848 |   |
| Total      assets |   |     | 982,367 |   |     |   | 935,374 |   |

|                                    |   | 12/31/09 |   |   | 12/31/08 |   |
|-----------------------------------------|--------|----------|--------|--------|----------|--------|
| Nonperforming      loans                |   | $        | 6,750  |   |     | $      | 1,333 |   |
| Loans      past due 90 days or more     |   |     | 1,697  |   |     |   | 1,127 |   |
| Other      real estate owned            |   |     | 2,126  |   |     |   | 1,984 |   |
| Allowance      for loan losses to loans |   |     | 1.17   | %      |     |   | 1.02 | % |
| Net      charge-off ratio               |   |     | 0.10   | %      |     |   | 0.09 | % |

----

----

|                                              |   | December      31, 2009 |    |   | December      31, 2008 |   |   | December      31, 2007 |   |
|---------------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|--------|------------------------|--------|
|                                              |   | AverageBalance         |    |   | Interest               |   |   | AverageYield/Rate      |   |   | AverageBalance |   |   | Interest |   |   | AverageYield/Rate |   |   | AverageBalance |   |   | Interest |   |   | AverageYield/Rate |   |
| Interest-earning      assets:                     |   |                   |    |   |                   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,      net (1)(2)(3)                         |   | $                      | 579,581 |   |                   | $      | 37,903 |                   |   |   | 6.54 | % |   | $ | 538,868 |   |   | $ | 37,356 |   |   |   | 6.93 | % |   | $ | 510,772 |   |   | $ | 37,549 |   |   |   | 7.35 | % |
| Taxable      securities                           |   |                   | 134,607 |   |                   |   | 6,273  |                   |   |   | 4.66 | % |   |   | 137,497 |   |   |   | 6,817 |   |   |   | 4.96 | % |   |   | 152,422 |   |   |   | 7,476 |   |   |   | 4.90 | % |
| Nontaxable      securities (1)(4)                 |   |                   | 162,889 |   |                   |   | 10,154 |                   |   |   | 6.23 | % |   |   | 144,137 |   |   |   | 8,911 |   |   |   | 6.18 | % |   |   | 131,864 |   |   |   | 8,233 |   |   |   | 6.24 | % |
| Interest-bearing      deposits                    |   |                   | 35,841  |   |                   |   | 90     |                   |   |   | 0.25 | % |   |   | 21,440 |   |   |   | 449 |   |   |   | 2.09 | % |   |   | 14,180 |   |   |   | 726 |   |   |   | 5.12 | % |
| Total      interest-earning assets                |   | $                      | 912,918 |   |                   | $      | 54,420 |                   |   |   | 5.96 | % |   | $ | 841,942 |   |   | $ | 53,533 |   |   |   | 6.36 | % |   | $ | 809,238 |   |   | $ | 53,984 |   |   |   | 6.67 | % |
| Interest-bearing      liabilities:                |   |                   |    |   |                   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      demand deposits             |   | $                      | 282,532 |   |                   | $      | 3,076  |                   |   |   | 1.09 | % |   | $ | 243,409 |   |   | $ | 3,486 |   |   |   | 1.43 | % |   | $ | 223,771 |   |   | $ | 4,371 |   |   |   | 1.95 | % |
| Savings      deposits                             |   |                   | 48,992  |   |                   |   | 52     |                   |   |   | 0.11 | % |   |   | 45,796 |   |   |   | 132 |   |   |   | 0.29 | % |   |   | 46,943 |   |   |   | 237 |   |   |   | 0.50 | % |
| Time      deposits                                |   |                   | 399,873 |   |                   |   | 12,694 |                   |   |   | 3.17 | % |   |   | 381,961 |   |   |   | 15,188 |   |   |   | 3.98 | % |   |   | 379,089 |   |   |   | 17,102 |   |   |   | 4.51 | % |
| Short-term      borrowings                        |   |                   | 49      |   |                   |   | 3      |                   |   |   | 6.12 | % |   |   | 297 |   |   |   | 12 |   |   |   | 4.04 | % |   |   | 626 |   |   |   | 35 |   |   |   | 5.59 | % |
| Total      interest-bearing liabilities           |   | $                      | 731,446 |   |                   | $      | 15,825 |                   |   |   | 2.16 | % |   | $ | 671,463 |   |   | $ | 18,818 |   |   |   | 2.80 | % |   | $ | 650,429 |   |   | $ | 21,745 |   |   |   | 3.34 | % |
| Net      interest income and interest rate spread |   |                   |    |   |                   | $      | 38,595 |                   |   |   | 3.80 | % |   |   |   |   |   | $ | 34,715 |   |   |   | 3.56 | % |   |   |   |   |   | $ | 32,239 |   |   |   | 3.33 | % |
| Net      yield on average interest-earning assets |   |                   |    |   |                   |   |   |                   |   |   | 4.23 | % |   |   |   |   |   |   |   |   |   |   | 4.12 | % |   |   |   |   |   |   |   |   |   |   | 3.98 | % |

| (1) | Interest      on nontaxable loans and securities is computed on a fully taxable      equivalent basis using a Federal income tax rate of 35% in the three years      presented. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Loan      fees of $956 in 2009, $859 in 2008 and $851 in 2007 are included in total      interest income. |
|-----|-----------------------------------------------------------------------------------------------------------|

| (3) | Nonaccrual      loans are included in average balances for yield    computations. |
|-----|-----------------------------------------------------------------------------------|

| (4) | Daily      averages are shown at amortizedcost. |
|-----|-------------------------------------------------|

----

|                                                                |   | 2009      Over 2008 |   |   | 2008      Over 2007 |   |
|---------------------------------------------------------------------|--------|---------------------|--------|--------|---------------------|--------|
|                                                                |   | Changes      Due To |   |   |                |   |   | Changes      Due To |   |   |   |   |
|                                                                |   | Rates(2)            |   |   | Volume(2)           |   |   | Net      DollarChange |   |   | Rates(2) |   |   | Volume(2) |   |   | Net      Dollar Change |   |
| Interest      income: (1)                                           |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                               |   | $                   | (2,184 | )      |                | $      | 2,731 |   |   | $ | 547 |   |   | $ | (2,200 | ) |   | $ | 2,008 |   |   | $ | (192 | ) |
| Taxable      securities                                             |   |                | (403   | )      |                |   | (141 | ) |   |   | (544 | ) |   |   | 80 |   |   |   | (739 | ) |   |   | (659 | ) |
| Nontaxable      securities                                          |   |                | 75     |   |                |   | 1,168 |   |   |   | 1,243 |   |   |   | (82 | ) |   |   | 759 |   |   |   | 677 |   |
| Interest-bearing      deposits                                      |   |                | (651   | )      |                |   | 292 |   |   |   | (359 | ) |   |   | (547 | ) |   |   | 270 |   |   |   | (277 | ) |
| Increase      (decrease) in income on interest-earning assets       |   | $                   | (3,163 | )      |                | $      | 4,050 |   |   | $ | 887 |   |   | $ | (2,749 | ) |   | $ | 2,298 |   |   | $ | (451 | ) |
| Interest      expense:                                              |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      demand deposits                               |   | $                   | (916   | )      |                | $      | 506 |   |   | $ | (410 | ) |   | $ | (1,243 | ) |   | $ | 358 |   |   | $ | (885 | ) |
| Savings      deposits                                               |   |                | (89    | )      |                |   | 9 |   |   |   | (80 | ) |   |   | (99 | ) |   |   | (6 | ) |   |   | (105 | ) |
| Time      deposits                                                  |   |                | (3,179 | )      |                |   | 685 |   |   |   | (2,494 | ) |   |   | (2,043 | ) |   |   | 129 |   |   |   | (1,914 | ) |
| Short-term      borrowings                                          |   |                | 4      |   |                |   | (13 | ) |   |   | (9 | ) |   |   | (8 | ) |   |   | (15 | ) |   |   | (23 | ) |
| Increase      (decrease) in expense of interest-bearing liabilities |   | $                   | (4,180 | )      |                | $      | 1,187 |   |   | $ | (2,993 | ) |   | $ | (3,393 | ) |   | $ | 466 |   |   | $ | (2,927 | ) |
| Increase      in net interest income                                |   | $                   | 1,017  |   |                | $      | 2,863 |   |   | $ | 3,880 |   |   | $ | 644 |   |   | $ | 1,832 |   |   | $ | 2,476 |   |

|   | (1)   Taxable      equivalent basis using a Federal income tax rate of 35% in 2009, 2008 and      2007. |
|--------|------------------------------------------------------------------------------------------------------------------------|

| (2) | Variances      caused by the change in rate times the change in volume have been      allocated to rate and volume changes proportional to the relationship of      the absolute dollar amounts of the change in  each. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Rate      Shift (bp)                             |   | Return      on Average Assets |   | Return      on Average Equity |   |
|--------------------------------------------------|--------|-------------------------------|--------|-------------------------------|--------|
|                                             |   | 2009                          |   | 2008                          |   | 2009 |   | 2008 |   |
|        300    |   | 0.87                          | %      | 0.83                          | %      | 8.60 | % | 6.87 | % |
|        200    |   | 1.11                          | %      | 1.08                          | %      | 10.84 | % | 8.81 | % |
|        100    |   | 1.33                          | %      | 1.32                          | %      | 12.92 | % | 10.71 | % |
|        (-)100 |   | 1.79                          | %      | 1.81                          | %      | 17.08 | % | 14.46 | % |
|        (-)200 |   | 1.72                          | %      | 1.85                          | %      | 16.40 | % | 14.79 | % |
|        (-)300 |   | 1.59                          | %      | 1.74                          | %      | 15.26 | % | 13.93 | % |
|                                             |   |                          |   |                          |   |   |   |   |   |

|                                  |   | Year      Ended        |   |
|---------------------------------------|--------|------------------------|--------|
|                                  |   | December      31, 2009 |   |   | December      31, 2008 |   |   | December      31, 2007 |   |
| Service      charges on deposits      |   | $                      | 3,314  |   |   | $ | 3,425 |   |   | $ | 3,291 |   |
| Other      service charges and fees   |   |                   | 343    |   |   |   | 326 |   |   |   | 330 |   |
| Credit      card fees                 |   |                   | 2,803  |   |   |   | 2,808 |   |   |   | 2,740 |   |
| Trust      fees                       |   |                   | 1,053  |   |   |   | 1,231 |   |   |   | 1,333 |   |
| Bank-owned      life insurance income |   |                   | 756    |   |   |   | 684 |   |   |   | 592 |   |
| Other      income                     |   |                   | 491    |   |   |   | 438 |   |   |   | 423 |   |
| Realized      securities gains        |   |                   | 44     |   |   |   | 175 |   |   |   | 51 |   |
| Total      noninterest income         |   | $                      | 8,804  |   |   | $ | 9,087 |   |   | $ | 8,760 |   |

----

|                                      |   | Year      Ended        |   |
|-------------------------------------------|--------|------------------------|--------|
|                                      |   | December      31, 2009 |   |   | December      31, 2008 |   |   | December      31, 2007 |   |
| Salaries      and employee benefits       |   | $                      | 11,336 |   |   | $ | 11,168 |   |   | $ | 10,773 |   |
| Occupancy,      furniture and fixtures    |   |                   | 1,792  |   |   |   | 1,751 |   |   |   | 1,743 |   |
| Data      processing and ATM              |   |                   | 1,371  |   |   |   | 1,381 |   |   |   | 1,149 |   |
| FDIC      assessment                      |   |                   | 1,727  |   |   |   | 209 |   |   |   | 89 |   |
| Credit      card processing               |   |                   | 2,121  |   |   |   | 2,105 |   |   |   | 2,146 |   |
| Intangibles      amortization             |   |                   | 1,093  |   |   |   | 1,119 |   |   |   | 1,138 |   |
| Net      costs of other real estate owned |   |                   | 393    |   |   |   | 100 |   |   |   | 81 |   |
| Franchise      taxes                      |   |                   | 885    |   |   |   | 823 |   |   |   | 578 |   |
| Other      operating expenses             |   |                   | 3,135  |   |   |   | 3,367 |   |   |   | 3,259 |   |
| Total      noninterest expense            |   | $                      | 23,853 |   |   | $ | 22,023 |   |   | $ | 20,956 |   |

----

----

|   | Summary      of Loan Loss Experience |
|--------|--------------------------------------|

|   | A. | Analysis      of the Allowance for Loan Losses |
|--------|----|------------------------------------------------|

|   | The      following tabulation shows average loan balances at the end of each      period; changes in the allowance for loan losses arising from loans      charged off and recoveries on loans previously charged off by loan      category; and additions to the allowance which have been charged to      operating expense: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                  |   | December      31, |    |
|-------------------------------------------------------|--------|-------------------|---------|
|                                                  |   | 2009              |    |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Average      net loans outstanding                    |   | $                 | 579,581 |   |   | $ | 538,868 |   |   | $ | 505,070 |   |   | $ | 488,624 |   |   | $ | 487,130 |   |
| Balance      at beginning of year                     |   |              | 5,858   |   |   |   | 5,219 |   |   |   | 5,157 |   |   |   | 5,449 |   |   |   | 5,729 |   |
| Charge-offs:                                          |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial      and industrial loans                  |   |              | 83      |   |   |   | 146 |   |   |   | --- |   |   |   | 101 |   |   |   | 373 |   |
| Real      estate mortgage loans                       |   |              | 181     |   |   |   | 24 |   |   |   | 66 |   |   |   | 6 |   |   |   | 50 |   |
| Real      estate construction loans                   |   |              | ---     |   |   |   | --- |   |   |   | 64 |   |   |   | --- |   |   |   | --- |   |
| Loans      to individuals                             |   |              | 383     |   |   |   | 441 |   |   |   | 341 |   |   |   | 352 |   |   |   | 678 |   |
| Total      loans charged off                          |   |              | 647     |   |   |   | 611 |   |   |   | 471 |   |   |   | 459 |   |   |   | 1,101 |   |
| Recoveries:                                           |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial      and industrial loans                  |   |              | 3       |   |   |   | 37 |   |   |   | 18 |   |   |   | 29 |   |   |   | 55 |   |
| Real      estate mortgage loans                       |   |              | 16      |   |   |   | --- |   |   |   | 2 |   |   |   | 1 |   |   |   | 35 |   |
| Real      estate construction loans                   |   |              | ---     |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Loans      to individuals                             |   |              | 62      |   |   |   | 94 |   |   |   | 90 |   |   |   | 88 |   |   |   | 164 |   |
| Total      recoveries                                 |   |              | 81      |   |   |   | 131 |   |   |   | 110 |   |   |   | 118 |   |   |   | 254 |   |
| Net      loans charged off                            |   |              | 566     |   |   |   | 480 |   |   |   | 361 |   |   |   | 341 |   |   |   | 847 |   |
| Additions      charged to operations                  |   |              | 1,634   |   |   |   | 1,119 |   |   |   | 423 |   |   |   | 49 |   |   |   | 567 |   |
| Balance      at end of year                           |   | $                 | 6,926   |   |   | $ | 5,858 |   |   | $ | 5,219 |   |   | $ | 5,157 |   |   | $ | 5,449 |   |
| Net      charge-offs to average net loans outstanding |   |              | 0.10    | % |   |   | 0.09 | % |   |   | 0.07 | % |   |   | 0.07 | % |   |   | 0.17 | % |

|   | Factors      influencing management’s judgment in determining the amount of the loan      loss provision charged to operating expense include the quality of the      loan portfolio as determined by management, the historical loan loss      experience, diversification as to type of loans in the portfolio, the      amount of secured as compared with unsecured loans and the value of      underlying collateral, banking industry standards and averages, and      general economic conditions. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | The      allowance for loan losses has been allocated according to the amount      deemed necessary to provide for anticipated losses within the categories      of loans for the years indicated asfollows: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                              |   | December      31, |   |
|-----------------------------------|--------|-------------------|--------|
|                              |   | 2009              |   | 2008 |   | 2007 |   | 2006 |   | 2005 |   |
|                              |   | AllowanceAmount   |   | Percent      ofLoans      in EachCategory      toTotalLoans |   | AllowanceAmount | Percent      ofLoans      inEachCategory      toTotalLoans |   | AllowanceAmount | Percent      ofLoans      inEachCategory      toTotal      Loans |   | AllowanceAmount | Percent      ofLoans      inEachCategory      toTotalLoans |   | AllowanceAmount | Percent      ofLoans      inEachCategory      toTotal      Loans |   |
| Commercialandindustrialloans      |   | $                 | 2,670  |   | 48.05 | % | $ | 2,861 | 42.70 | % | $ | 1,894 | 41.32 | % | $ | 1,651 |  42.90 | % | $ | 1,478 |  53.52 | % |
| Real      estatemortgageloans     |   |              | 980    |   | 28.01 | % |   | 1,213 | 28.22 | % |   | 951 | 27.73 | % |   | 935 | 25.17 | % |   | 1,212 | 23.79 | % |
| Real      estateconstructionloans |   |              | 1,941  |   | 7.72 | % |   | 614 | 10.54 | % |   | 396 | 8.90 | % |   | 342 | 6.75 | % |   | 420 | 5.50 | % |
| Loans      toindividuals          |   |              | 1,049  |   | 16.22 | % |   | 1,048 | 18.54 | % |   | 1,830 | 22.05 | % |   | 1,867 | 25.18 | % |   | 2,190 | 17.19 | % |
| Unallocated                       |   |              | 286    |   |   |   |   | 122 |   |   |   | 148 |   |   |   | 362 |   |   |   | 149 |   |   |
|                              |   | $                 | 6,926  |   | 100.00 | % | $ | 5,858 | 100.00 | % | $ | 5,219 | 100.00 | % | $ | 5,157 | 100.00 | % | $ | 5,449 | 100.00 | % |

| A.   | Types      of Loans |
|----------------|---------------------|

|                                        |   | December      31, |    |
|---------------------------------------------|--------|-------------------|---------|
|                                        |   | 2009              |    |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Commercial      and industrial loans        |   | $                 | 283,998 |   |   | $ | 246,218 |   |   | $ | 216,830 |   |   | $ | 215,244 |   |   | $ | 206,389 |   |
| Real      estate mortgage loans             |   |              | 165,542 |   |   |   | 162,757 |   |   |   | 145,542 |   |   |   | 126,302 |   |   |   | 117,421 |   |
| Real      estate construction loans         |   |              | 45,625  |   |   |   | 60,798 |   |   |   | 46,697 |   |   |   | 33,840 |   |   |   | 27,116 |   |
| Loans      to individuals                   |   |              | 95,844  |   |   |   | 106,907 |   |   |   | 115,704 |   |   |   | 126,316 |   |   |   | 142,598 |   |
| Total loans                                 |   | $                 | 591,009 |   |   | $ | 576,680 |   |   | $ | 524,773 |   |   | $ | 501,702 |   |   | $ | 493,524 |   |
| Less      unearned income and deferred fees |   |              | (1,062  | ) |   |   | (1,123 | ) |   |   | (1,119 | ) |   |   | (1,059 | ) |   |   | (913 | ) |
| Total loans, net of unearned      income    |   | $                 | 589,947 |   |   | $ | 575,557 |   |   | $ | 523,654 |   |   | $ | 500,643 |   |   | $ | 492,611 |   |
| Less      allowance for loans losses        |   |              | (6,926  | ) |   |   | (5,858 | ) |   |   | (5,219 | ) |   |   | (5,157 | ) |   |   | (5,449 | ) |
| Total loans, net                            |   | $                 | 583,021 |   |   | $ | 569,699 |   |   | $ | 518,435 |   |   | $ | 495,486 |   |   | $ | 487,162 |   |

----

| B.   | Maturities      and Interest Rate Sensitivities |
|----------------|-------------------------------------------------|

|                                              |   | December      31, 2009 |    |
|---------------------------------------------------|--------|------------------------|---------|
|                                              |   | <      1 Year       |    |   | 1      – 5 Years |   |   | After      5 Years |   |   | Total |   |
| Commercial      and industrial                    |   | $                      | 110,241 |   |   | $ | 143,881 |   |   | $ | 29,876 |   |   | $ | 283,998 |   |
| Real      estate construction                     |   |                   | 42,023  |   |   |   | 3,602 |   |   |   | --- |   |   |   | 45,625 |   |
| Total                                             |   |                   | 152,264 |   |   |   | 147,483 |   |   |   | 29,876 |   |   |   | 329,623 |   |
| Less      loans with predetermined interest rates |   |                   | 50,159  |   |   |   | 11,172 |   |   |   | 26,205 |   |   |   | 87,536 |   |
| Loans      with adjustable rates                  |   | $                      | 102,105 |   |   | $ | 136,311 |   |   | $ | 3,671 |   |   | $ | 242,087 |   |

|   | The      following table presents aggregate amounts for nonaccrual loans,      restructured loans, other real estate owned net, and accruing loans which      are contractually past due ninety days or more as to interest or principal      payments. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                          |   | December31, |   |
|-----------------------------------------------|--------|-------------|--------|
|                                          |   | 2009        |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Nonaccrual      loans:                        |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and      industrial                |   | $           | 1,455  |   |   | $ | 1,333 |   |   | $ | 1,144 |   |   | $ | --- |   |   | $ | 171 |   |
| Real estate      mortgage                     |   |        | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Real estate      construction                 |   |        | 2,643  |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Loans to      individuals                     |   |        | ---    |   |   |   | --- |   |   |   | 6 |   |   |   | --- |   |   |   | 7 |   |
| Total      nonperforming loans                |   | $           | 4,098  |   |   | $ | 1,333 |   |   | $ | 1,150 |   |   | $ | --- |   |   | $ | 178 |   |
| Restructured      loans:                      |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and      industrial                |   |        | 2,652  |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Real estate      mortgage                     |   |        | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Real estate      construction                 |   |        | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Loans to      individuals                     |   |        | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Total      restructured loans                 |   |        | 2,652  |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Total      nonperforming loans                |   | $           | 6,750  |   |   | $ | 1,333 |   |   | $ | 1,150 |   |   | $ | --- |   |   | $ | 178 |   |
| Other      real estate owned, net             |   |        | 2,126  |   |   |   | 1,984 |   |   |   | 263 |   |   |   | 390 |   |   |   | 376 |   |
| Total      nonperforming assets               |   | $           | 8,876  |   |   | $ | 3,317 |   |   | $ | 1,413 |   |   | $ | 390 |   |   | $ | 554 |   |
| Accruing      loans past due 90 days or more: |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and      industrial                |   | $           | 762    |   |   | $ | 663 |   |   | $ | 984 |   |   | $ | 338 |   |   | $ | 142 |   |
| Real estate      mortgage                     |   |        | 864    |   |   |   | 394 |   |   |   | 55 |   |   |   | 274 |   |   |   | 247 |   |
| Real estate      construction                 |   |        | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Loans to      individuals                     |   |        | 71     |   |   |   | 70 |   |   |   | 142 |   |   |   | 69 |   |   |   | 157 |   |
|                                          |   | $           | 1,697  |   |   | $ | 1,127 |   |   | $ | 1,181 |   |   | $ | 681 |   |   | $ | 546 |   |

----

|                                                                                                           |   | 2009   |   |   | 2008   |   |   | 2007   |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Provision      for loan losses                                                                                 |   | $      | 1,634  |   |   | $      | 1,119  |   |   | $ | 423 |   |
| Net      charge-offs to average net loans                                                                      |   |   | 0.10   | %      |   |   | 0.09   | %      |   |   | 0.07 | % |
| Allowance      for loan losses to loans, net of unearnedincome      and deferred fees                          |   |   | 1.17   | %      |   |   | 1.02   | %      |   |   | 1.00 | % |
| Allowance      for loan losses to nonperforming loans                                                          |   |   | 102.61 | %      |   |   | 439.46 | %      |   |   | 453.83 | % |
| Allowance      for loan losses to nonperforming assets                                                         |   |   | 78.03  | %      |   |   | 176.61 | %      |   |   | 369.36 | % |
| Nonperforming      assets to loans, net of unearned incomeand      deferred fees, plus other real estate owned |   |   | 1.50   | %      |   |   | 0.23   | %      |   |   | 0.27 | % |
| Nonaccrual      loans                                                                                          |   | $      | 4,098  |   |   | $      | 1,333  |   |   | $ | 1,150 |   |
| Restructured      loans                                                                                        |   |   | 2,652  |   |   |   | ---    |   |   |   | --- |   |
| Other      real estate owned, net                                                                              |   |   | 2,126  |   |   |   | 1,984  |   |   |   | 263 |   |
| Total      nonperforming assets                                                                                |   | $      | 8,876  |   |   | $      | 3,317  |   |   | $ | 1,413 |   |
| Accruing      loans past due 90 days or more                                                                   |   | $      | 1,697  |   |   | $      | 1,127  |   |   | $ | 1,181 |   |

----

|   | Maturities      and Associated Yields |
|--------|---------------------------------------|

|                                                         |   | Maturities      and Yields |   |
|--------------------------------------------------------------|--------|----------------------------|--------|
| $      in thousands, except percent data                     |   | December      31, 2009     |   |
|                                                         |   | <      1 Year           |   |   | 1-5      Years |   |   | 5-10      Years |   |   | >      10 Years |   |   | None |   |   | Total |   |
| Available      for Sale:                                     |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.      Treasury                                           |   | $                          | ---    |   |   | $ | 2,177 |   |   | $ | --- |   |   | $ | --- |   |   | $ | --- |   |   | $ | 2,177 |   |
|                                                         |   |                       | ---    |   |   |   | 3.97 | % |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 3.97 | % |
| U.S.      Government agencies                                |   |                       | 3,019  |   |   |   | 6,313 |   |   |   | 6,955 |   |   |   | 31,300 |   |   |   | --- |   |   |   | 47,587 |   |
|                                                         |   |                       | 4.50   | % |   |   | 4.51 | % |   |   | 4.38 | % |   |   | 4.24 | % |   |   | --- |   |   |   | 4.31 | % |
| Mortgage-backed      securities                              |   |                       | 714    |   |   |   | 4,188 |   |   |   | 6,109 |   |   |   | 6,005 |   |   |   | --- |   |   |   | 17,016 |   |
|                                                         |   |                       | 4.79   | % |   |   | 4.53 | % |   |   | 5.07 | % |   |   | 5.29 | % |   |   | --- |   |   |   | 5.00 | % |
| States      and political subdivision – taxable        |   |                       | ---    |   |   |   | 2,741 |   |   |   | 181 |   |   |   | --- |   |   |   | --- |   |   |   | 2,922 |   |
|                                                         |   |                       | ---    |   |   |   | 4.60 | % |   |   | 7.94 | % |   |   | --- |   |   |   | --- |   |   |   | 4.81 | % |
| States      and political subdivision – nontaxable (1) |   |                       | 4,200  |   |   |   | 32,915 |   |   |   | 20,474 |   |   |   | 13,894 |   |   |   | --- |   |   |   | 71,483 |   |
|                                                         |   |                       | 5.23   | % |   |   | 5.80 | % |   |   | 6.05 | % |   |   | 5.62 | % |   |   | --- |   |   |   | 5.81 | % |
| Corporate                                                    |   |                       | 2,951  |   |   |   | 16,675 |   |   |   | 3,016 |   |   |   | --- |   |   |   | --- |   |   |   | 22,642 |   |
|                                                         |   |                       | 3.73   | % |   |   | 4.82 | % |   |   | 5.30 | % |   |   | --- |   |   |   | --- |   |   |   | 4.74 | % |
| Federal      Home Loan Bank stock                            |   |                       | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 1,677 |   |   |   | 1,677 |   |
|                                                         |   |                       | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 0.01 | % |   |   | 0.01 | % |
| Federal      Reserve Bank stock                              |   |                       | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 92 |   |   |   | 92 |   |
|                                                         |   |                       | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 6.00 | % |   |   | 6.00 | % |
| Other      securities                                        |   |                       | 767    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 1,678 |   |   |   | 2,445 |   |
|                                                         |   |                       | 0.12   | % |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 2.77 | % |   |   | 1.94 | % |
| Total                                                        |   | $                          | 11,651 |   |   | $ | 65,009 |   |   | $ | 36,735 |   |   | $ | 51,199 |   |   | $ | 3,447 |   |   | $ | 168,041 |   |
|                                                         |   |                       | 4.30   | % |   |   | 5.23 | % |   |   | 5.52 | % |   |   | 4.74 | % |   |   | 1.51 | % |   |   | 5.00 | % |
| Held      to Maturity:                                       |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.      Government agencies                                |   | $                          | 2,999  |   |   | $ | 3,997 |   |   | $ | --- |   |   | $ | 18,082 |   |   | $ | --- |   |   | $ | 25,078 |   |
|                                                         |   |                       | 4.64   | % |   |   | 4.69 | % |   |   | --- |   |   |   | 4.64 | % |   |   | --- |   |   |   | 4.65 | % |
| Mortgage-backed      securities                              |   |                       | ---    |   |   |   | --- |   |   |   | --- |   |   |   | 1,458 |   |   |   | --- |   |   |   | 1,458 |   |
|                                                         |   |                       | ---    |   |   |   | --- |   |   |   | --- |   |   |   | 5.57 | % |   |   | --- |   |   |   | 5.57 | % |
| States      and political subdivision – taxable        |   |                       | ---    |   |   |   | 2,000 |   |   |   | --- |   |   |   | 2,038 |   |   |   | --- |   |   |   | 4,038 |   |
|                                                         |   |                       | ---    |   |   |   | 5.32 | % |   |   | --- |   |   |   | 4.99 | % |   |   | --- |   |   |   | 5.15 | % |
| States      and political subdivision – nontaxable (1) |   |                       | 6,750  |   |   |   | 21,141 |   |   |   | 12,895 |   |   |   | 49,850 |   |   |   | --- |   |   |   | 90,636 |   |
|                                                         |   |                       | 5.87   | % |   |   | 6.24 | % |   |   | 5.93 | % |   |   | 6.18 | % |   |   | --- |   |   |   | 6.14 | % |
| Corporate                                                    |   |                       | 2,001  |   |   |   | 4,165 |   |   |   | 2,000 |   |   |   | --- |   |   |   | --- |   |   |   | 8,166 |   |
|                                                         |   |                       | 5.51   | % |   |   | 4.55 | % |   |   | 5.03 | % |   |   | --- |   |   |   | --- |   |   |   | 4.90 | % |
| Total                                                        |   | $                          | 11,750 |   |   | $ | 31,303 |   |   | $ | 14,895 |   |   | $ | 71,428 |   |   | $ | --- |   |   | $ | 129,376 |   |
|                                                         |   |                       | 5.49   | % |   |   | 5.76 | % |   |   | 5.81 | % |   |   | 5.74 | % |   |   | --- |   |   |   | 5.73 | % |

|   | (1)  Rates      shown represent weighted average yield on a fully taxable      basis. |
|--------|-------------------------------------------------------------------------------------------------|

|   |      The      majority of mortgage-backed securities and collateralized mortgage      obligations held at December 31, 2009 were backed by U.S. agencies.      Certain holdings are required to be periodically subjected to the Federal      Financial Institution Examination Council’s (FFIEC) high risk mortgage      security test. These tests address possible fluctuations in the average      life and variances caused by the change in rate times the change in volume      have been allocated to rate and volume changes proportional to the      relationship of the absolute dollar amounts of the change in each. Except      for U.S. Government securities, the Company has no securities with any      issuer that exceeds 10% of stockholders’equity. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Deposits |
|--------|----------|

| A. | Average      Amounts of Deposits and Average RatesPaid |
|----|--------------------------------------------------------|

|   | Average      amounts and average rates paid on deposit categories are presented      below: |
|--------|---------------------------------------------------------------------------------------------|

|                                     |   | Year Ended December31, |    |
|------------------------------------------|--------|------------------------|---------|
|                                     |   | 2009                   |    | 2008 |   | 2007 |   |
|                                     |   | AverageAmounts         |    | AverageRatesPaid |   |  AverageAmounts | AverageRatesPaid |   |  AverageAmounts | AverageRatesPaid |   |
| Noninterest-bearing      demand deposits |   | $                      | 115,241 |   | --- |   | $ | 112,608 | --- |   | $ | 108,854 | --- |   |
| Interest-bearing      demand deposits    |   |                   | 282,532 |   | 1.09 | % |   | 243,409 | 1.43 | % |   | 223,771 | 1.95 | % |
| Savings      deposits                    |   |                   | 48,992  |   | 0.11 | % |   | 45,796 | 0.29 | % |   | 46,943 | 0.50 | % |
| Time      deposits                       |   |                   | 399,872 |   | 3.17 | % |   | 381,961 | 3.98 | % |   | 379,089 | 4.51 | % |
| Average      total deposits              |   | $                      | 846,637 |   | 2.16 | % | $ | 783,774 | 2.80 | % | $ | 758,657 | 3.34 | % |

|                                         |   | December31,2009       |   |
|----------------------------------------------|--------|-----------------------|--------|
|                                         |   | 3      Months or Less |   |   | Over      3 Months Through 6 Months |   |   | Over      6 MonthsThrough      12 Months |   |   | Over      12 Months |   |   | Total |   |
| Total      time deposits of $100,000 or more |   | $                     | 25,725 |   |   | $ | 35,128 |   |   | $ | 70,862 |   |   | $ | 17,551 |   |   | $ | 149,266 |   |

----

|                                        |   | PaymentsDuebyPeriod |    |
|---------------------------------------------|--------|---------------------|---------|
|                                        |   | Total               |    |   | Less      Than 1 Year |   |   | 1-3      Years |   |   | 3-5      Years |   |   | More      Than 5 Years |   |
| Commitments      to extend credit           |   | $                   | 133,816 |   |   | $ | 133,816 |   |   | $ | --- |   |   | $ | --- |   |   | $ | --- |   |
| Standby      letters of credit              |   |                | 11,953  |   |   |   | 11,953 |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Mortgage      loans with potential recourse |   |                | 25,487  |   |   |   | 25,487 |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Operating      leases                       |   |                | 1,171   |   |   |   | 222 |   |   |   | 454 |   |   |   | 419 |   |   |   | 76 |   |
| Total                                       |   | $                   | 172,427 |   |   | $ | 171,478 |   |   | $ | 454 |   |   | $ | 419 |   |   | $ | 76 |   |

----

----

|                                                                                                                                                       |   | December31, |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|---------|
| $      in thousands, except share data                                                                                                                     |   | 2009        |    |   | 2008 |   |
| Assets                                                                                                                                                     |   |        |    |   |   |   |
| Cash      and due from banks                                                                                                                               |   | $           | 12,894  |   |   | $ | 16,316 |   |
| Interest-bearing      deposits                                                                                                                             |   |        | 32,730  |   |   |   | 29,656 |   |
| Securities      available for sale, at fair value                                                                                                          |   |        | 168,041 |   |   |   | 147,227 |   |
| Securities      held to maturity (fair value approximates $129,892 at December 31, 2009      and $117,277 atDecember      31, 2008)                        |   |        | 129,376 |   |   |   | 117,772 |   |
| Mortgage      loans held for sale                                                                                                                          |   |        | 126     |   |   |   | 348 |   |
| Loans:                                                                                                                                                     |   |        |    |   |   |   |   |   |
| Real      estate construction loans                                                                                                                        |   |        | 45,625  |   |   |   | 60,798 |   |
| Real      estate mortgage loans                                                                                                                            |   |        | 165,542 |   |   |   | 162,757 |   |
| Commercial      and industrial loans                                                                                                                       |   |        | 283,998 |   |   |   | 246,218 |   |
| Loans      to individuals                                                                                                                                  |   |        | 95,844  |   |   |   | 106,907 |   |
| Total      loans                                                                                                                                           |   |        | 591,009 |   |   |   | 576,680 |   |
| Less      unearned income and deferred fees                                                                                                                |   |        | (1,062  | ) |   |   | (1,123 | ) |
| Loans,      net of unearned income and deferred fees                                                                                                       |   |        | 589,947 |   |   |   | 575,557 |   |
| Less      allowance for loan losses                                                                                                                        |   |        | (6,926  | ) |   |   | (5,858 | ) |
| Loans,      net                                                                                                                                            |   |        | 583,021 |   |   |   | 569,699 |   |
| Premises      and equipment, net                                                                                                                           |   |        | 10,628  |   |   |   | 11,204 |   |
| Accrued      interest receivable                                                                                                                           |   |        | 6,250   |   |   |   | 5,760 |   |
| Other      real estate owned, net                                                                                                                          |   |        | 2,126   |   |   |   | 1,984 |   |
| Intangible      assets and goodwill                                                                                                                        |   |        | 12,626  |   |   |   | 13,719 |   |
| Other      assets                                                                                                                                          |   |        | 24,549  |   |   |   | 21,689 |   |
| Total      assets                                                                                                                                          |   | $           | 982,367 |   |   | $ | 935,374 |   |
|                                                                                                                                                       |   |        |    |   |   |   |   |   |
| Liabilities      and Stockholders’ Equity                                                                                                            |   |        |    |   |   |   |   |   |
| Noninterest-bearing      demand deposits                                                                                                                   |   | $           | 122,549 |   |   | $ | 109,630 |   |
| Interest-bearing      demand deposits                                                                                                                      |   |        | 310,629 |   |   |   | 256,416 |   |
| Saving      deposits                                                                                                                                       |   |        | 51,622  |   |   |   | 45,329 |   |
| Time      deposits                                                                                                                                         |   |        | 367,312 |   |   |   | 406,473 |   |
| Total      deposits                                                                                                                                        |   |        | 852,112 |   |   |   | 817,848 |   |
| Other      borrowed funds                                                                                                                                  |   |        | ---     |   |   |   | 54 |   |
| Accrued      interest payable                                                                                                                              |   |        | 336     |   |   |   | 655 |   |
| Other      liabilities                                                                                                                                     |   |        | 7,843   |   |   |   | 6,709 |   |
| Total      liabilities                                                                                                                                     |   |        | 860,291 |   |   |   | 825,266 |   |
| Commitments      and contingencies                                                                                                                         |   |        | ---     |   |   |   | --- |   |
| Stockholders’      equity:                                                                                                                           |   |        |    |   |   |   |   |   |
| Preferred      stock, no par value, 5,000,000 shares authorized; none issued and      outstanding                                                          |   |        | ---     |   |   |   | --- |   |
| Common      stock of $1.25 par value. Authorized 10,000,000 shares; issued and      outstanding, 6,933,474 shares – 2009, and 6,929,474 – 2008 |   |        | 8,667   |   |   |   | 8,662 |   |
| Retained      earnings                                                                                                                                     |   |        | 113,901 |   |   |   | 105,356 |   |
| Accumulated      other comprehensive (loss), net                                                                                                           |   |        | (492    | ) |   |   | (3,910 | ) |
| Total      stockholders’ equity                                                                                                                      |   |        | 122,076 |   |   |   | 110,108 |   |
| Total      liabilities and stockholders’ equity                                                                                                      |   | $           | 982,367 |   |   | $ | 935,374 |   |

----

|                                                     |   | YearsendedDecember31, |   |
|----------------------------------------------------------|--------|-----------------------|--------|
| $      in thousands, except per share data               |   | 2009                  |   |   | 2008 |   |   | 2007 |   |
| Interest      Income                                     |   |                  |   |   |   |   |   |   |   |
| Interest      and fees on loans                          |   | $                     | 37,578 |   |   | $ | 37,108 |   |   | $ | 37,265 |   |
| Interest      on interest-bearing deposits               |   |                  | 90     |   |   |   | 449 |   |   |   | 726 |   |
| Interest      on securities – taxable              |   |                  | 6,273  |   |   |   | 6,816 |   |   |   | 7,476 |   |
| Interest      on securities – nontaxable           |   |                  | 6,546  |   |   |   | 5,738 |   |   |   | 5,302 |   |
| Total      interest income                               |   |                  | 50,487 |   |   |   | 50,111 |   |   |   | 50,769 |   |
|                                                     |   |                  |   |   |   |   |   |   |   |   |   |   |
| Interest      Expense                                    |   |                  |   |   |   |   |   |   |   |   |   |   |
| Interest      on time deposits of $100,000 or more       |   |                  | 5,417  |   |   |   | 6,004 |   |   |   | 6,519 |   |
| Interest      on other deposits                          |   |                  | 10,405 |   |   |   | 12,802 |   |   |   | 15,191 |   |
| Interest      on borrowed funds                          |   |                  | 3      |   |   |   | 12 |   |   |   | 35 |   |
| Total      interest expense                              |   |                  | 15,825 |   |   |   | 18,818 |   |   |   | 21,745 |   |
| Net      interest income                                 |   |                  | 34,662 |   |   |   | 31,293 |   |   |   | 29,024 |   |
| Provision      for loan losses                           |   |                  | 1,634  |   |   |   | 1,119 |   |   |   | 423 |   |
| Net      interest income after provision for loan losses |   |                  | 33,028 |   |   |   | 30,174 |   |   |   | 28,601 |   |
|                                                     |   |                  |   |   |   |   |   |   |   |   |   |   |
| Noninterest      Income                                  |   |                  |   |   |   |   |   |   |   |   |   |   |
| Service      charges on deposit accounts                 |   |                  | 3,314  |   |   |   | 3,425 |   |   |   | 3,291 |   |
| Other      service charges and fees                      |   |                  | 343    |   |   |   | 326 |   |   |   | 330 |   |
| Credit      card fees                                    |   |                  | 2,803  |   |   |   | 2,808 |   |   |   | 2,740 |   |
| Trust      income                                        |   |                  | 1,053  |   |   |   | 1,231 |   |   |   | 1,333 |   |
| BOLI      income                                         |   |                  | 756    |   |   |   | 684 |   |   |   | 592 |   |
| Other      income                                        |   |                  | 491    |   |   |   | 438 |   |   |   | 423 |   |
| Realized      securities gains, net                      |   |                  | 44     |   |   |   | 175 |   |   |   | 51 |   |
| Total      noninterest income                            |   |                  | 8,804  |   |   |   | 9,087 |   |   |   | 8,760 |   |
|                                                     |   |                  |   |   |   |   |   |   |   |   |   |   |
| Noninterest      Expense                                 |   |                  |   |   |   |   |   |   |   |   |   |   |
| Salaries      and employee benefits                      |   |                  | 11,336 |   |   |   | 11,168 |   |   |   | 10,773 |   |
| Occupancy      and furniture and fixtures                |   |                  | 1,792  |   |   |   | 1,751 |   |   |   | 1,743 |   |
| Data      processing and ATM                             |   |                  | 1,371  |   |   |   | 1,381 |   |   |   | 1,149 |   |
| FDIC      assessment                                     |   |                  | 1,727  |   |   |   | 209 |   |   |   | 89 |   |
| Credit      card processing                              |   |                  | 2,121  |   |   |   | 2,105 |   |   |   | 2,146 |   |
| Intangible      assets amortization                      |   |                  | 1,093  |   |   |   | 1,119 |   |   |   | 1,138 |   |
| Net      costs of other real estate owned                |   |                  | 393    |   |   |   | 100 |   |   |   | 81 |   |
| Franchise      taxes                                     |   |                  | 885    |   |   |   | 823 |   |   |   | 578 |   |
| Other      operating expenses                            |   |                  | 3,135  |   |   |   | 3,367 |   |   |   | 3,259 |   |
| Total      noninterest expense                           |   |                  | 23,853 |   |   |   | 22,023 |   |   |   | 20,956 |   |
| Income      before income taxes                          |   |                  | 17,979 |   |   |   | 17,238 |   |   |   | 16,405 |   |
| Income      tax expense                                  |   |                  | 3,660  |   |   |   | 3,645 |   |   |   | 3,730 |   |
| Net      income                                          |   | $                     | 14,319 |   |   | $ | 13,593 |   |   | $ | 12,675 |   |
|                                                     |   |                  |   |   |   |   |   |   |   |   |   |   |
| Basic      net income per share                          |   | $                     | 2.07   |   |   | $ | 1.96 |   |   | $ | 1.82 |   |
| Fully      diluted net income per share                  |   | $                     | 2.06   |   |   | $ | 1.96 |   |   | $ | 1.82 |   |

----

| $      in thousands, except per share data                                                              |   | Common      Stock |   |   | Retained      Earnings |   |    | Accumulated      Other Comprehensive Income (Loss) |   |   | Comprehensive      Income |   |   | Total  |   |
|---------------------------------------------------------------------------------------------------------|--------|-------------------|--------|--------|------------------------|--------|---------|----------------------------------------------------|--------|--------|---------------------------|--------|--------|--------|--------|
| Balance      at December 31, 2006                                                                       |   | $                 | 8,725  |   |                   | $      | 91,123  |                                               |   | $      | (3,093                    | )      |   |   |   |   | $ | 96,755 |   |
| Net      income                                                                                         |   |              | ---    |   |                   |   | 12,675  |                                               |   |   | ---                       |   |   | $      | 12,675 |   |   |   | 12,675 |   |
| Other      comprehensive income:                                                                        |   |              |   |   |                   |   |    |                                               |   |   |                      |   |   |   |   |   |   |   |   |   |
| Unrealized      holding gains on available for sale securities net of gains deferred taxes      of $582 |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   |   | 1,081  |   |   |   | --- |   |
| Reclassification      adjustment, net of income taxes of ($18)                                          |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   |   | (33    | ) |   |   | --- |   |
| Minimum      pension liability adjustment, net of deferred taxes of$186                                 |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   |   | 345    |   |   |   | --- |   |
| Other      comprehensive income, net of tax of $750                                                     |   |              | ---    |   |                   |   | ---     |                                               |   |   | 1,393                     |   |   |   | 1,393  |   |   |   | 1,393 |   |
| Total      comprehensive income                                                                         |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   | $      | 14,068 |   |   |   | --- |   |
| Cash      dividend ($0.76 per share)                                                                    |   |              | ---    |   |                   |   | (5,298  | )                                                  |   |   | ---                       |   |   |   |   |   |   |   | (5,298 | ) |
| Exercise      of stock options                                                                          |   |              | 21     |   |                   |   | 177     |                                               |   |   | ---                       |   |   |   |   |   |   |   | 198 |   |
| Common      stock repurchased                                                                           |   |              | (56    | )      |                   |   | (867    | )                                                  |   |   | ---                       |   |   |   |   |   |   |   | (923 | ) |
| Balance      at December 31, 2007                                                                       |   | $                 | 8,690  |   |                   | $      | 97,810  |                                               |   | $      | (1,700                    | )      |   |   |   |   |   | $ | 104,800 |   |
| Net      income                                                                                         |   |              | ---    |   |                   |   | 13,593  |                                               |   |   | ---                       |   |   | $      | 13,593 |   |   |   | 13,593 |   |
| Other      comprehensive loss:                                                                          |   |              |   |   |                   |   |    |                                               |   |   |                      |   |   |   |   |   |   |   |   |   |
| Unrealized      holding losses on available for sale securities net of deferred taxes of      ($908)    |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   |   | (1,690 | ) |   |   | --- |   |
| Reclassification      adjustment, net of income taxes of ($51)                                          |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   |   | (96    | ) |   |   | --- |   |
| Minimum      pension liability adjustment, net of deferred taxes of    ($230)                           |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   |   | (427   | ) |   |   | --- |   |
| Other      comprehensive loss, net of tax of ($1,189)                                                   |   |              | ---    |   |                   |   | ---     |                                               |   |   | (2,213                    | )      |   |   | (2,213 | ) |   |   | (2,213 | ) |
| Total      comprehensive income                                                                         |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   | $      | 11,380 |   |   |   | --- |   |
| Adjustments      to apply measurement dataprovision of SFAS No. 158, net of      tax of ($24)           |   |              | ---    |   |                   |   | (45     | )                                                  |   |   | 3                         |   |   |   |   |   |   |   | (42 | ) |
| Cash      dividend ($0.80 per share)                                                                    |   |              | ---    |   |                   |   | (5,543  | )                                                  |   |   | ---                       |   |   |   |   |   |   |   | (5,543 | ) |
| Exercise      of stock options                                                                          |   |              | 8      |   |                   |   | 67      |                                               |   |   | ---                       |   |   |   |   |   |   |   | 75 |   |
| Common      stock repurchased                                                                           |   |              | (36    | )      |                   |   | (526    | )                                                  |   |   | ---                       |   |   |   |   |   |   |   | (562 | ) |
| Balance      at December 31, 2008                                                                       |   | $                 | 8,662  |   |                   | $      | 105,356 |                                               |   | $      | (3,910                    | )      |   |   |   |   |   | $ | 110,108 |   |
| Net      income                                                                                         |   |              | ---    |   |                   |   | 14,319  |                                               |   |   | ---                       |   |   | $      | 14,319 |   |   |   | 14,319 |   |
| Other      comprehensive income:                                                                        |   |              |   |   |                   |   |    |                                               |   |   |                      |   |   |   |   |   |   |   |   |   |
| Unrealized      holding gains on available for sale securities net of deferred taxes of      $1,720     |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   |   | 3,193  |   |   |   | --- |   |
| Reclassification      adjustment, net of income taxes of ($10)                                          |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   |   | (19    | ) |   |   | --- |   |
| Minimum      pension liability adjustment, net of deferred taxes of$131                                 |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   |   | 244    |   |   |   | --- |   |
| Other      comprehensive income, net of tax of $1,841                                                   |   |              | ---    |   |                   |   | ---     |                                               |   |   | 3,418                     |   |   |   | 3,418  |   |   |   | 3,418 |   |
| Total      comprehensive income                                                                         |   |              | ---    |   |                   |   | ---     |                                               |   |   | ---                       |   |   | $      | 17,737 |   |   |   | --- |   |
| Cash      dividend ($0.84 per share)                                                                    |   |              | ---    |   |                   |   | (5,823  | )                                                  |   |   | ---                       |   |   |   |   |   |   |   | (5,823 | ) |
| Exercise      of stock options                                                                          |   |              | 5      |   |                   |   | 49      |                                               |   |   | ---                       |   |   |   |   |   |   |   | 54 |   |
| Balance      at December 31, 2009                                                                       |   | $                 | 8,667  |   |                   | $      | 113,901 |                                               |   | $      | (492                      | )      |   |   |   |   |   | $ | 122,076 |   |

----

|                                                                                       |   | YearsEndedDecember31, |    |
|--------------------------------------------------------------------------------------------|--------|-----------------------|---------|
| $      in thousands                                                                        |   | 2009                  |    |   | 2008 |   |   | 2007 |   |
| Cash      Flows from Operating Activities                                                  |   |                  |    |   |   |   |   |   |   |
| Net      income                                                                            |   | $                     | 14,319  |   |   | $ | 13,593 |   |   | $ | 12,675 |   |
| Adjustment      to reconcile net income to net cash provided by operating      activities: |   |                  |    |   |   |   |   |   |   |   |   |   |
| Provision for loan      losses                                                             |   |                  | 1,634   |   |   |   | 1,119 |   |   |   | 423 |   |
| Deferred income tax      benefit                                                           |   |                  | (1,057  | ) |   |   | (310 | ) |   |   | (144 | ) |
| Depreciation of premises and      equipment                                                |   |                  | 906     |   |   |   | 965 |   |   |   | 1,013 |   |
| Amortization of      intangibles                                                           |   |                  | 1,093   |   |   |   | 1,119 |   |   |   | 1,138 |   |
| Amortization of premiums and      accretion of discounts, net                              |   |                  | 357     |   |   |   | 250 |   |   |   | 237 |   |
| (Gains) on sale and calls of      securities available for sale, net                       |   |                  | (29     | ) |   |   | (147 | ) |   |   | (51 | ) |
| (Gains) on calls of securities      held to maturity, net                                  |   |                  | (15     | ) |   |   | (28 | ) |   |   | --- |   |
| Losses and writedowns on other      real estate owned                                      |   |                  | 309     |   |   |   | 6 |   |   |   | 38 |   |
| Originations of mortgage loans      held for sale                                          |   |                  | (25,265 | ) |   |   | (13,594 | ) |   |   | (19,780 | ) |
| Sales of mortgage loans held for      sale                                                 |   |                  | 25,487  |   |   |   | 13,466 |   |   |   | 20,368 |   |
| (Gains) losses on sale and      disposal of fixed assets                                   |   |                  | ---     |   |   |   | 32 |   |   |   | (6 | ) |
| Net      change in:                                                                        |   |                  |    |   |   |   |   |   |   |   |   |   |
| Accrued      interest receivable                                                           |   |                  | (490    | ) |   |   | (49 | ) |   |   | (29 | ) |
| Other      assets                                                                          |   |                  | (3,564  | ) |   |   | (1,414 | ) |   |   | (646 | ) |
| Accrued      interest payable                                                              |   |                  | (319    | ) |   |   | (137 | ) |   |   | (71 | ) |
| Other      liabilities                                                                     |   |                  | 1,508   |   |   |   | 993 |   |   |   | 363 |   |
| Net      cash provided by operating activities                                             |   |                  | 14,874  |   |   |   | 15,864 |   |   |   | 15,528 |   |
|                                                                                       |   |                  |    |   |   |   |   |   |   |   |   |   |
| Cash      Flows from Investing Activities                                                  |   |                  |    |   |   |   |   |   |   |   |   |   |
| Net      change in interest-bearing deposits                                               |   |                  | (3,074  | ) |   |   | 31 |   |   |   | (10,070 | ) |
| Proceeds      from repayments of mortgage-backed securities                                |   |                  | 7,119   |   |   |   | 5,394 |   |   |   | 6,010 |   |
| Proceeds      from sales of securities available for sale                                  |   |                  | ---     |   |   |   | 290 |   |   |   | --- |   |
| Proceeds      from calls and maturities of securities available for sale                   |   |                  | 22,446  |   |   |   | 19,636 |   |   |   | 18,329 |   |
| Proceeds      from calls and maturities of securities held to maturity                     |   |                  | 36,951  |   |   |   | 29,003 |   |   |   | 12,015 |   |
| Purchases      of securities available for sale                                            |   |                  | (45,439 | ) |   |   | (16,800 | ) |   |   | (11,288 | ) |
| Purchases      of securities held to maturity                                              |   |                  | (49,003 | ) |   |   | (32,350 | ) |   |   | (11,494 | ) |
| Purchases      of loan participations                                                      |   |                  | (13     | ) |   |   | (1,614 | ) |   |   | (3,250 | ) |
| Collections      of loan participations                                                    |   |                  | 727     |   |   |   | 1,021 |   |   |   | 4,435 |   |
| Loan      originations and principal collections, net                                      |   |                  | (16,662 | ) |   |   | (53,715 | ) |   |   | (24,965 | ) |
| Purchase      of bank-owned life insurance                                                 |   |                  | ---     |   |   |   | (2,250 | ) |   |   | --- |   |
| Proceeds      from disposal of other real estate owned                                     |   |                  | 460     |   |   |   | 67 |   |   |   | 387 |   |
| Recoveries      on loans charged off                                                       |   |                  | 81      |   |   |   | 131 |   |   |   | 110 |   |
| Additions      to premises and equipment                                                   |   |                  | (330    | ) |   |   | (351 | ) |   |   | (341 | ) |
| Proceeds      from sale of premises and equipment                                          |   |                  | ---     |   |   |   | 166 |   |   |   | 20 |   |
| Net cash used in investing      activities                                                 |   |                  | (46,737 | ) |   |   | (51,341 | ) |   |   | (20,102 | ) |
|                                                                                       |   |                  |    |   |   |   |   |   |   |   |   |   |
| Cash      Flows from Financing Activities                                                  |   |                  |    |   |   |   |   |   |   |   |   |   |
| Net      change in time deposits                                                           |   |                  | (39,161 | ) |   |   | 25,616 |   |   |   | (1,657 | ) |
| Net      change in other deposits                                                          |   |                  | 73,425  |   |   |   | 15,893 |   |   |   | 13,304 |   |
| Net      change in other borrowed funds                                                    |   |                  | (54     | ) |   |   | (10 | ) |   |   | (9 | ) |
|                                                                                       |   |                  |    |   |   |   |   |   |   | (continued) |   |

----

|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Cash      dividends paid                                         |   |   | (5,823 | )      |   |   | (5,543 | )      |   |   | (5,298 | )      |
| Common      stock repurchased                                    |   |   | ---    |   |   |   | (562   | )      |   |   | (923   | )      |
| Stock      options exercised                                     |   |   | 54     |   |   |   | 75     |   |   |   | 198    |   |
| Net cash provided by financing      activities                   |   |   | 28,441 |   |   |   | 35,469 |   |   |   | 5,615  |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      change in cash and due from banks                       |   |   | (3,422 | )      |   |   | (8     | )      |   |   | 1,041  |   |
| Cash      and due from banks at beginning of year                |   |   | 16,316 |   |   |   | 16,324 |   |   |   | 15,283 |   |
| Cash      and due from banks at end of year                      |   | $      | 12,894 |   |   | $      | 16,316 |   |   | $      | 16,324 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental      Disclosures of Cash Flow Information           |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      paid on deposits and borrowed funds                |   | $      | 16,144 |   |   | $      | 18,955 |   |   | $      | 21,816 |   |
| Income      taxes paid                                           |   |   | 3,914  |   |   |   | 4,231  |   |   |   | 3,740  |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental      Disclosures of Noncash Activities              |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans      charged against the allowance for loan losses         |   | $      | 647    |   |   | $      | 611    |   |   | $      | 471    |   |
| Loans      transferred to other real estate owned                |   |   | 911    |   |   |   | 1,794  |   |   |   | 298    |   |
| Unrealized      gains (losses) on securities available for sale  |   |   | 4,884  |   |   |   | (2,742 | )      |   |   | 1,612  |   |
| Minimum      pension liability adjustment                        |   |   | 375    |   |   |   | (657   | )      |   |   | 531    |   |
| Capital      reduction due to change in pension measurement date |   |   | ---    |   |   |   | (66    | )      |   |   | ---    |   |

----

----

----

----

|                                                                                               |   | 2009      |   | 2008      |   | 2007      |   |
|----------------------------------------------------------------------------------------------------|--------|-----------|--------|-----------|--------|-----------|--------|
| Average      number of common shares outstanding                                                   |   | 6,932,126 |   | 6,929,755 |   | 6,970,982 |   |
| Effect      of dilutive options                                                                    |   | 13,404    |   | 6,195     |   | 14,348    |   |
| Average      number of common shares outstanding used to calculate diluted earnings per      share |   | 6,945,530 |   | 6,935,950 |   | 6,985,330 |   |

----

----

|                                                 |   | December      31, 2009 |    |
|------------------------------------------------------|--------|------------------------|---------|
| Available      for sale:                             |   | AmortizedCost          |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | Fair      Value |   |
| U.S.      Treasury                                   |   | $                      | 2,020   |   |   | $ | 157 |   |   | $ | --- |   |   | $ | 2,177 |   |
| U.S.      Government agencies and corporations       |   |                   | 48,137  |   |   |   | 375 |   |   |   | 925 |   |   |   | 47,587 |   |
| States      and political subdivisions               |   |                   | 72,743  |   |   |   | 2,016 |   |   |   | 354 |   |   |   | 74,405 |   |
| Mortgage-backed      securities                      |   |                   | 16,250  |   |   |   | 766 |   |   |   | --- |   |   |   | 17,016 |   |
| Corporate      debt securities                       |   |                   | 21,950  |   |   |   | 754 |   |   |   | 62 |   |   |   | 22,642 |   |
| Federal      Home Loan Bank stock – restricted |   |                   | 1,677   |   |   |   | --- |   |   |   | --- |   |   |   | 1,677 |   |
| Federal      Reserve Bank stock – restricted   |   |                   | 92      |   |   |   | --- |   |   |   | --- |   |   |   | 92 |   |
| Other      securities                                |   |                   | 2,662   |   |   |   | --- |   |   |   | 217 |   |   |   | 2,445 |   |
| Total      securities available for sale             |   | $                      | 165,531 |   |   | $ | 4,068 |   |   | $ | 1,558 |   |   | $ | 168,041 |   |

|                                                 |   | December      31, 2008 |    |
|------------------------------------------------------|--------|------------------------|---------|
| Available      for sale:                             |   | AmortizedCost          |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | Fair      Value |   |
| U.S.      Treasury                                   |   | $                      | 3,024   |   |   | $ | 273 |   |   | $ | --- |   |   | $ | 3,297 |   |
| U.S.      Government agencies and corporations       |   |                   | 11,985  |   |   |   | 565 |   |   |   | --- |   |   |   | 12,550 |   |
| States      and political subdivisions               |   |                   | 81,166  |   |   |   | 849 |   |   |   | 1,192 |   |   |   | 80,823 |   |
| Mortgage-backed      securities                      |   |                   | 23,052  |   |   |   | 533 |   |   |   | 12 |   |   |   | 23,573 |   |
| Corporate      debt securities                       |   |                   | 25,924  |   |   |   | 51 |   |   |   | 3,342 |   |   |   | 22,633 |   |
| Federal      Home Loan Bank stock – restricted |   |                   | 1,589   |   |   |   | --- |   |   |   | --- |   |   |   | 1,589 |   |
| Federal      Reserve Bank stock – restricted   |   |                   | 92      |   |   |   | --- |   |   |   | --- |   |   |   | 92 |   |
| Other      securities                                |   |                   | 2,766   |   |   |   | --- |   |   |   | 96 |   |   |   | 2,670 |   |
| Total      securities available for sale             |   | $                      | 149,598 |   |   | $ | 2,271 |   |   | $ | 4,642 |   |   | $ | 147,227 |   |

----

|                                        |   | December      31, 2009 |    |
|---------------------------------------------|--------|------------------------|---------|
|                                        |   | Amortized      Cost    |    |   | Fair      Value |   |
| Due      in one year or less                |   | $                      | 11,608  |   |   | $ | 11,651 |   |
| Due      after one year through five years  |   |                   | 62,529  |   |   |   | 65,009 |   |
| Due      after five years through ten years |   |                   | 35,688  |   |   |   | 36,735 |   |
| Due      after ten years                    |   |                   | 52,043  |   |   |   | 51,199 |   |
| No      maturity                            |   |                   | 3,663   |   |   |   | 3,447 |   |
|                                        |   | $                      | 165,531 |   |   | $ | 168,041 |   |

|                                           |   | December      31, 2009 |    |
|------------------------------------------------|--------|------------------------|---------|
| Held      to maturity:                         |   | AmortizedCost          |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | Fair      Value |   |
| U.S.      Government agencies and corporations |   | $                      | 25,078  |   |   | $ | 279 |   |   | $ | 426 |   |   | $ | 24,931 |   |
| States      and political subdivisions         |   |                   | 94,674  |   |   |   | 1,847 |   |   |   | 915 |   |   |   | 95,606 |   |
| Mortgage-backed      securities                |   |                   | 1,458   |   |   |   | 87 |   |   |   | --- |   |   |   | 1,545 |   |
| Corporate      debt securities                 |   |                   | 8,166   |   |   |   | 66 |   |   |   | 422 |   |   |   | 7,810 |   |
| Total      securities held to maturity         |   | $                      | 129,376 |   |   | $ | 2,279 |   |   | $ | 1,763 |   |   | $ | 129,892 |   |

|                                           |   | December      31, 2008 |    |
|------------------------------------------------|--------|------------------------|---------|
| Held      to maturity:                         |   | AmortizedCost          |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | Fair      Value |   |
| U.S.      Government agencies and corporations |   | $                      | 37,973  |   |   | $ | 798 |   |   | $ | 4 |   |   | $ | 38,767 |   |
| States      and political subdivisions         |   |                   | 67,011  |   |   |   | 748 |   |   |   | 1,343 |   |   |   | 66,416 |   |
| Mortgage-backed      securities                |   |                   | 1,801   |   |   |   | 46 |   |   |   | --- |   |   |   | 1,847 |   |
| Corporate      debt securities                 |   |                   | 10,987  |   |   |   | 24 |   |   |   | 764 |   |   |   | 10,247 |   |
| Total      securities held to maturity         |   | $                      | 117,772 |   |   | $ | 1,616 |   |   | $ | 2,111 |   |   | $ | 117,277 |   |

|                                        |   | December      31, 2009 |    |
|---------------------------------------------|--------|------------------------|---------|
|                                        |   | Amortized Cost    |    |   | FairValue |   |
| Due      in one year or less                |   | $                      | 11,750  |   |   | $ | 11,938 |   |
| Due      after one year through five years  |   |                   | 31,303  |   |   |   | 32,316 |   |
| Due      after five years through ten years |   |                   | 14,895  |   |   |   | 14,929 |   |
| Due      after ten years                    |   |                   | 71,428  |   |   |   | 70,709 |   |
|                                        |   | $                      | 129,376 |   |   | $ | 129,892 |   |

----

|                                            | December      31, 2009   |   |
|-------------------------------------------------|--------------------------|--------|
|                                            | Less      Than 12 Months |   | 12      Months or More |   |
|                                            | FairValue                |   |   | UnrealizedLoss |   | FairValue |   |   | UnrealizedLoss |   |
| U.      S. Government agencies and corporations |                     | $      | 42,876 |   |   | $ | 1,351 |   |   | $ | --- |   |   | $ | --- |   |
| State      and political subdivisions           |                     |   | 28,537 |   |   |   | 571 |   |   |   | 13,382 |   |   |   | 698 |   |
| Corporate      debt securities                  |                     |   | 662 |   |   |   | 1 |   |   |   | 3,517 |   |   |   | 483 |   |
| Other                                           |                     |   | --- |   |   |   | --- |   |   |   | 277 |   |   |   | 217 |   |
| Total      temporarily impaired securities      |                     | $      | 72,075 |   |   | $ | 1,923 |   |   | $ | 17,176 |   |   | $ | 1,398 |   |

|                                            |   | December      31, 2008   |   |
|-------------------------------------------------|--------|--------------------------|--------|
|                                            |   | Less      Than 12 Months |   |   | 12      Months or More |   |
|                                            |   | FairValue                |   |   | UnrealizedLoss |   |   | FairValue |   |   | UnrealizedLoss |   |
| U.      S. Treasury                             |   | $                        | 995    |   |   | $ | 4 |   |   | $ | --- |   |   | $ | --- |   |
| U.      S. Government agencies and corporations |   |                     | 54,480 |   |   |   | 2,533 |   |   |   | 1,000 |   |   |   | 2 |   |
| State      and political subdivisions           |   |                     | 1,309  |   |   |   | 9 |   |   |   | 635 |   |   |   | 3 |   |
| Mortgage-backed      securities                 |   |                     | 13,786 |   |   |   | 851 |   |   |   | 12,046 |   |   |   | 3,255 |   |
| Corporate      debt securities                  |   |                     | ---    |   |   |   | --- |   |   |   | 492 |   |   |   | 96 |   |
| Total      temporarily impaired securities      |   | $                        | 70,570 |   |   | $ | 3,397 |   |   | $ | 14,173 |   |   | $ | 3,356 |   |

----

|                                            |   | Years      ended December 31, |   |
|-------------------------------------------------|--------|-------------------------------|--------|
|                                            |   | 2009                          |   |   | 2008 |   |   | 2007 |   |
| Balance      at beginning of year               |   | $                             | 5,858  |   |   | $ | 5,219 |   |   | $ | 5,157 |   |
| Provision      for loan losses                  |   |                          | 1,634  |   |   |   | 1,119 |   |   |   | 423 |   |
| Loans      charged off                          |   |                          | (647   | ) |   |   | (611 | ) |   |   | (471 | ) |
| Recoveries      of loans previously charged off |   |                          | 81     |   |   |   | 131 |   |   |   | 110 |   |
| Balance      at end of year                     |   | $                             | 6,926  |   |   | $ | 5,858 |   |   | $ | 5,219 |   |

|                                               |   | December      31, |   |
|----------------------------------------------------|--------|-------------------|--------|
|                                               |   | 2009              |   |   | 2008 |   |   | 2007 |   |
| Impaired      loans without a valuation allowance  |   | $                 | 50     |   |   | $ | 1,028 |   |   | $ | 1,144 |   |
| Impaired      loans with a valuation allowance     |   |              | 7,630  |   |   |   | 2,548 |   |   |   | --- |   |
| Total      impaired loans                          |   | $                 | 7,680  |   |   | $ | 3,576 |   |   | $ | 1,144 |   |
| Valuation      allowance related to impaired loans |   | $                 | 2,495  |   |   | $ | 679 |   |   | $ | --- |   |

|                                                              | Years      ended December 31, |   |
|-------------------------------------------------------------------|-------------------------------|--------|
|                                                              | 2009                          |   | 2008 |   | 2007 |   |
| Average      investment in impaired loans                         |                          | $      | 7,851 |   |   | $ | 3,790 |   |   | $ | 1,138 |   |
| Interest      income recognized on impaired loans                 |                          |   | 169 |   |   |   | 140 |   |   |   | --- |   |
| Interest      income recognized on a cash basis on impaired loans |                          |   | --- |   |   |   | --- |   |   |   | --- |   |

|                             |   | December      31, |    |
|----------------------------------|--------|-------------------|---------|
|                             |   | 2009              |    |   | 2008 |   |
| Premises                         |   | $                 | 14,225  |   |   | $ | 14,285 |   |
| Furniture      and equipment     |   |              | 11,918  |   |   |   | 11,614 |   |
| Construction-in-progress         |   |              | 195     |   |   |   | 109 |   |
| Premises      and equipment      |   | $                 | 26,338  |   |   | $ | 26,008 |   |
| Accumulated      depreciation    |   |              | (15,710 | ) |   |   | (14,804 | ) |
| Premises      and equipment, net |   | $                 | 10,628  |   |   | $ | 11,204 |   |

----

| 2010       |   | $      | 302,010 |   |
|------------|--------|--------|---------|--------|
| 2011       |   |   | 32,839  |   |
| 2012       |   |   | 17,507  |   |
| 2013       |   |   | 9,383   |   |
| 2014       |   |   | 4,466   |   |
| Thereafter |   |   | 1,107   |   |
|       |   | $      | 367,312 |   |

|                                                   |   | December      31, |   |
|--------------------------------------------------------|--------|-------------------|--------|
|                                                   |   | 2009              |   |   | 2008 |   |   | 2007 |   |
| Change      in benefit obligation                      |   |              |   |   |   |   |   |   |   |
| Projected      benefit obligation at beginning of year |   | $                 | 10,703 |   |   | $ | 11,859 |   |   | $ | 11,729 |   |
| Service      cost                                      |   |              | 353    |   |   |   | 500 |   |   |   | 608 |   |
| Interest      cost                                     |   |              | 661    |   |   |   | 719 |   |   |   | 702 |   |
|                                                   |   |              |   |   |   |   |   |   |   | (continued) |   |

----

| Actuarial      (gain) loss                                                                                                         |   |   | 362    |   |   |   | (613   | )      |   |        | (227   | )      |
|------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|
| Benefits      paid                                                                                                                 |   |   | (481   | )      |   |   | (336   | )      |   |        | (953   | )      |
| Prior      cost due  to amendment                                                                                        |   |   | ---    |   |   |   | (1,426 | )      |   |        | ---    |   |
| Projected      benefit obligation at end of year                                                                                   |   |   | 11,598 |   |   |   | 10,703 |   |   |        | 11,859 |   |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |        |   |   |
| Change      in plan assets                                                                                                         |   |   |   |   |   |   |   |   |   |        |   |   |
| Fair      value of plan assets at beginning of year                                                                                |   |   | 6,337  |   |   |   | 8,242  |   |   |        | 7,835  |   |
| Actual      return on plan assets                                                                                                  |   |   | 1,249  |   |   |   | (1,964 | )      |   |        | 763    |   |
| Employer      contribution                                                                                                         |   |   | 356    |   |   |   | 395    |   |   |        | 597    |   |
| Benefits      paid                                                                                                                 |   |   | (481   | )      |   |   | (336   | )      |   |        | (953   | )      |
| Fair      value of plan assets at end of year                                                                                      |   |   | 7,461  |   |   |   | 6,337  |   |   |        | 8,242  |   |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |        |   |   |
| Funded      status at the end of the year                                                                                          |   | $      | (4,137 | )      |   | $      | (4,366 | )      |   | $           | (3,617 | )      |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |        |   |   |
| Amounts      recognized in the Balance Sheet                                                                                       |   |   |   |   |   |   |   |   |   |        |   |   |
| Other      liabilities                                                                                                             |   | $      | (4,137 | )      |   | $      | (4,366 | )      |   | $           | (3,617 | )      |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |        |   |   |
| Amounts      recognized in accumulated other comprehensive income (loss),      net                                                 |   |   |   |   |   |   |   |   |   |        |   |   |
| Net      income (loss)                                                                                                             |   | $      | (4,420 | )      |   | $      | (5,114 | )      |   | $           | (3,163 | )      |
| Prior      service cost                                                                                                            |   |   | 1,180  |   |   |   | 1,281  |   |   |        | (28    | )      |
| Deferred      tax asset                                                                                                            |   |   | 1,130  |   |   |   | 1,335  |   |   |        | 1,104  |   |
| Net      obligation at transition                                                                                                  |   |   | 11     |   |   |   | 23     |   |   |        | 38     |   |
| Amount      recognized                                                                                                             |   | $      | (2,099 | )      |   | $      | (2,475 | )      |   | $           | (2,049 | )      |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |        |   |   |
| Components      of net periodic benefit cost                                                                                       |   |   |   |   |   |   |   |   |   |        |   |   |
| Service      cost                                                                                                                  |   | $      | 353    |   |   | $      | 429    |   |   | $           | 608    |   |
| Interest      cost                                                                                                                 |   |   | 661    |   |   |   | 616    |   |   |        | 702    |   |
| Expected      return on plan assets                                                                                                |   |   | (527   | )      |   |   | (667   | )      |   |        | (637   | )      |
| Amortization      of prior service cost                                                                                            |   |   | (101   | )      |   |   | (101   | )      |   |        | 9      |   |
| Amortization      of net obligation at transition                                                                                  |   |   | (13    | )      |   |   | (13    | )      |   |        | (13    | )      |
| Recognized      net actuarial loss                                                                                                 |   |   | 335    |   |   |   | 154    |   |   |        | 180    |   |
| Net      periodic benefit cost                                                                                                     |   | $      | 708    |   |   | $      | 418    |   |   | $           | 849    |   |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |        |   |   |
| Other      changes in plan assets and benefit obligations recognized in accumulated      other comprehensive income (loss)         |   |   |   |   |   |   |   |   |   |        |   |   |
| Net      (gain) loss                                                                                                               |   | $      | (489   | )      |   | $      | 1,951  |   |   | $           | (533   | )      |
| Prior      service cost                                                                                                            |   |   | ---    |   |   |   | (1,426 | )      |   |        | ---    |   |
| Amortization      of prior service cost                                                                                            |   |   | 101    |   |   |   | 117    |   |   |        | (9     | )      |
| Amortization      of net obligation at transition                                                                                  |   |   | 13     |   |   |   | 15     |   |   |        | 11     |   |
| Deferred      income tax (benefit) expenses                                                                                        |   |   | 131    |   |   |   | (230   | )      |   |        | 186    |   |
| Total      recognized                                                                                                              |   | $      | (244   | )      |   | $      | 427    |   |   | $           | (345   | )      |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |        |   |   |
| Total      recognized in net periodic benefit cost and other comprehensive income      (loss), net of income tax (benefit) expense |   | $      | 464    |   |   | $      | 845    |   |   | $           | 504    |   |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |        |   |   |
| Adjustments      to retained earnings due to change in measurement date                                                            |   |   |   |   |   |   |   |   |   |        |   |   |
| Service      cost                                                                                                                  |   | $      | ---    |   |   | $      | 71     |   |   | $           | ---    |   |
| Interest      cost                                                                                                                 |   |   | ---    |   |   |   | 102    |   |   |        | ---    |   |
|                                                                                                                               |   |   |   |   |   |   |   |   |   | (continued) |   |

----

| Expected      return on plan assets                   |   |   | ---    |   |   |   | (111   | )      |   |   | ---    |   |
|-------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Amortization      of prior service cost               |   |   | ---    |   |   |   | (17    | )      |   |   | ---    |   |
| Amortization      of net obligation at transition     |   |   | ---    |   |   |   | (2     | )      |   |   | ---    |   |
| Recognized      net actuarial loss                    |   |   | ---    |   |   |   | 26     |   |   |   | ---    |   |
| Deferred      tax benefit                             |   |   | ---    |   |   |   | (24    | )      |   |   | ---    |   |
| Adjustment      to retained earnings                  |   | $      | ---    |   |   | $      | 45     |   |   | $      | ---    |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average assumptions at end of the year  |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount      rate used for net periodic pension cost |   |   | 6.00   | %      |   |   | 6.00   | %      |   |   | 6.00   | %      |
| Discount      rate used for disclosure                |   |   | 6.00   | %      |   |   | 6.00   | %      |   |   | 6.00   | %      |
| Expected      return on plan assets                   |   |   | 8.00   | %      |   |   | 8.00   | %      |   |   | 8.00   | %      |
| Rate      of compensation increase                    |   |   | 4.00   | %      |   |   | 4.00   | %      |   |   | 4.00   | %      |

|                                                    |   |   |  Fair      Value Measurements at |   |
|---------------------------------------------------------|--------|--------|---------------------------------------|--------|
|                                                    |   |   |   December      31, 2009    |   |
|    Asset      Category                   |   |   | Total                                 |   | Quoted      Prices in Active Markets for Identical Assets (Level 1) |   |   | Significant  Observable      Inputs (Level 2) |   | Significant      Unobservable Inputs (Level 3) |   |
| Cash                                                    |   | $      | 632                                   |   | $ | 632 |   | $ | --- |   | $ | --- |   |
| Equity      securities:                                 |   |   |                                  |   |   |   |   |   |   |   |   |   |   |
| U. S.companies                                          |   |   | 2,598                                 |   |   | 2,598 |   |   | --- |   |   | --- |   |
| International      companies                            |   |   | 81                                    |   |   | 81 |   |   | --- |   |   | --- |   |
| Equities      mutual funds (a)                          |   |   | 1,186                                 |   |   | 1,186 |   |   | --- |   |   | --- |   |
| U.      S. government agencies and corporations         |   |   | 607                                   |   |   | --- |   |   | 607 |   |   | --- |   |
| State      and political subdivisions                   |   |   | 113                                   |   |   | --- |   |   | 113 |   |   | --- |   |
| Corporate      bonds – investment grade (b)       |   |   | 2,090                                 |   |   | --- |   |   | 2,090 |   |   | --- |   |
| Corporate      bonds – below investment grade (c) |   |   | 154                                   |   |   | --- |   |   | 154 |   |   | --- |   |
| Total      pension plan assets                          |   | $      | 7,461                                 |   |  $ | 4,497 |   |  $ | 2,964 |   |  $ | --- |   |

----

| (a)   | This      category comprises actively managed equity funds invested in large-cap and      mid-cap U.S. companies. |
|-----------------|-------------------------------------------------------------------------------------------------------------------|

| (b)   | This      category represents investment grade bonds of U.S. issuers from diverse      industries. |
|-----------------|----------------------------------------------------------------------------------------------------|

| (c)   | This      category represents bonds from U.S. issuers from diverse industries that      were purchased at investment grade, but which have fallen below investment      grade. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2010             |   | $ | 282       |   |
|------------------|--------|---|-----------|--------|
| 2011             |   | $ | 288       |   |
| 2012             |   | $ | 334       |   |
| 2013             |   | $ | 386       |   |
| 2014             |   | $ |  511 |   |
| 2015      - 2019 |   | $ | 3,717     |   |

|    Options             |   |    Shares |   |  Weighted-AverageExercisePrice |   |   | Weighted-AverageRemainingContractualTerm |   | AggregateIntrinsicValue |   |
|---------------------------------------|--------|--------------------------|--------|-------------------------------------|--------|--------|------------------------------------------|--------|-------------------------|--------|
| Outstanding      at January 1, 2009   |   | 113,500                  |   | $                                   | 21.84  |   |                                     |   |                    |   |   |   |
| Granted                               |   | ---                      |   |                                | ---    |   |                                     |   |                    |   |   |   |
| Exercised                             |   | (4,000                   | )      |                                | 13.58  |   |                                     |   |                    |   |   |   |
| Forfeited      or expired             |   | ---                      |   |                                | ---    |   |                                     |   |                    |   |   |   |
| Outstanding      at December 31, 2009 |   | 109,500                  |   | $                                   | 22.14  |   |                                     | 5.49   |                    | $      | 673 |   |
| Exercisable      at December 31, 2009 |   | 109,500                  |   | $                                   | 22.14  |   |                                     | 5.49   |                    | $      | 673 |   |

|                          |        | Years      ended December 31, |   |
|-------------------------------|--------|-------------------------------|--------|
|                          |   | 2009                          |   |   | 2008 |   |   | 2007 |   |
| Current                       |   | $                             | 4,717  |   |   | $ | 3,955 |   |   | $ | 3,874 |   |
| Deferred                      |   |                          | (1,057 | ) |   |   | (310 | ) |   |   | (144 | ) |
| Total      income tax expense |   | $                             | 3,660  |   |   | $ | 3,645 |   |   | $ | 3,730 |   |

----

|                                                    |   | Years      ended December 31, |   |
|---------------------------------------------------------|--------|-------------------------------|--------|
|                                                    |   | 2009                          |   |   | 2008 |   |   | 2007 |   |
| Computed      “expected” income tax expense |   | $                             | 6,293  |   |   | $ | 6,033 |   |   | $ | 5,742 |   |
| Tax-exempt      interest income                         |   |                          | (2,556 | ) |   |   | (2,224 | ) |   |   | (2,090 | ) |
| Nondeductible      interest expense                     |   |                          | 267    |   |   |   | 291 |   |   |   | 344 |   |
| Other,      net                                         |   |                          | (344   | ) |   |   | (455 | ) |   |   | (266 | ) |
| Reported      income tax expense                        |   | $                             | 3,660  |   |   | $ | 3,645 |   |   | $ | 3,730 |   |

|                                                        |   | December      31, |   |
|-------------------------------------------------------------|--------|-------------------|--------|
|                                                        |   | 2009              |   |   | 2008 |   |
| Deferred      tax assets:                                   |   |              |   |   |   |   |
| Allowance      for loan losses and unearned fee income      |   | $                 | 2,365  |   |   | $ | 2,105 |   |
| Valuation      allowance on other real estate owned         |   |              | 159    |   |   |   | 25 |   |
| Deferred      compensation and other liabilities            |   |              | 2,483  |   |   |   | 1,992 |   |
| Net      unrealized losses on securities available for sale |   |              | ---    |   |   |   | 831 |   |
| Total deferred tax      assets                              |   | $                 | 5,007  |   |   | $ | 4,953 |   |
|                                                        |   |              |   |   |   |   |   |   |
| Deferred      tax liabilities:                              |   |              |   |   |   |   |   |   |
| Fixed      assets                                           |   | $                 | (77    | ) |   | $ | (102 | ) |
| Discount      accretion on securities                       |   |              | (77    | ) |   |   | (98 | ) |
| Deposit      intangibles and goodwill                       |   |              | (677   | ) |   |   | (552 | ) |
| Other                                                       |   |              | (182   | ) |   |   | (228 | ) |
| Net      unrealized gains on securities available for sale  |   |              | (875   | ) |   |   | --- |   |
| Total deferred tax      liabilities                         |   |              | (1,888 | ) |   |   | (980 | ) |
| Net      deferred tax assets                                |   | $                 | 3,119  |   |   | $ | 3,973 |   |

----

|                                          |   | Actual |    | Minimum      CapitalRequirement |   | Minimum      To Be WellCapitalized      UnderPrompt      CorrectiveAction      Provisions       |   |
|-----------------------------------------------|--------|--------|---------|---------------------------------|--------|-------------------------------------------------------------------------------------------------|--------|
|                                          |   | Amount |    | Ratio                           |   | Amount                                                                                          | Ratio  |   | Amount | Ratio |   |
| December      31, 2009                        |   |   |    |                            |   |                                                                                            |   |   |   |   |   |   |   |   |
| Total      capital (to risk weighted assets)  |   |   |    |                            |   |                                                                                            |   |   |   |   |   |   |   |   |
| NBI      consolidated                         |   | $      | 116,783 |                            | 17.3   | %                                                                                               | $      | 53,931 | 8.0 | % |   | N/A | N/A |   |
| NBB                                           |   |   | 113,310 |                            | 16.9   | %                                                                                               |   | 53,625 | 8.0 | % | $ | 67,031 | 10.0 | % |
| Tier      1 capital (to risk weighted assets) |   |   |    |                            |   |                                                                                            |   |   |   |   |   |   |   |   |
| NBI      consolidated                         |   | $      | 109,857 |                            | 16.3   | %                                                                                               | $      | 26,966 | 4.0 | % |   | N/A |  N/A |   |
| NBB                                           |   |   | 106,384 |                            | 15.9   | %                                                                                               |   | 26,812 | 4.0 | % | $ | 40,218 | 6.0 | % |
| Tier      1 capital (to average assets)       |   |   |    |                            |   |                                                                                            |   |   |   |   |   |   |   |   |
| NBI      consolidated                         |   | $      | 109,857 |                            | 11.5   | %                                                                                               | $      | 38,259 | 4.0 | % |   | N/A | N/A |   |
| NBB                                           |   |   | 106,384 |                            | 11.2   | %                                                                                               |   | 37,981 | 4.0 | % | $ | 47,477 | 5.0 | % |
|                                          |   | Actual |    | Minimum      CapitalRequirement |   | Minimum      To Be Well Capitalized      UnderPrompt      CorrectiveAction      Provisions |   |
|                                          |   | Amount |    | Ratio                           |   | Amount                                                                                          | Ratio  |   | Amount | Ratio |   |
| December      31, 2008                        |   |   |    |                            |   |                                                                                            |   |   |   |   |   |   |   |   |
| Total      capital (to risk weighted assets)  |   |   |    |                            |   |                                                                                            |   |   |   |   |   |   |   |   |
| NBI      consolidated                         |   | $      | 106,151 |                            | 16.1   | %                                                                                               | $      | 52,786 | 8.0 | % |   | N/A | N/A |   |
| NBB                                           |   |   | 102,468 |                            | 15.6   | %                                                                                               |   | 52,470 | 8.0 | % | $ | 65,588 | 10.0 | % |
| Tier      1 capital (to risk weighted assets) |   |   |    |                            |   |                                                                                            |   |   |   |   |   |   |   |   |
| NBI      consolidated                         |   | $      | 100,293 |                            | 15.2   | %                                                                                               | $      | 26,393 | 4.0 | % |   | N/A |  N/A |   |
| NBB                                           |   |   | 96,610  |                            | 14.7   | %                                                                                               |   | 26,235 | 4.0 | % | $ | 39,353 | 6.0 | % |
| Tier      1 capital (to average assets)       |   |   |    |                            |   |                                                                                            |   |   |   |   |   |   |   |   |
| NBI      consolidated                         |   | $      | 100,293 |                            | 11.1   | %                                                                                               | $      | 36,016 | 4.0 | % |   | N/A | N/A |   |
| NBB                                           |   |   | 96,610  |                            | 10.7   | %                                                                                               |   | 36,012 | 4.0 | % | $ | 45,015 | 5.0 | % |

----

|                                                  |   | December      31, |    |
|-------------------------------------------------------|--------|-------------------|---------|
|                                                  |   | 2009              |    |   | 2008 |   |
| Assets                                                |   |              |    |   |   |   |
| Cash      due from subsidiaries                       |   | $                 | 13      |   |   | $ | 39 |   |
| Securities      available for sale                    |   |              | 2,445   |   |   |   | 2,704 |   |
| Investments      in subsidiaries, at equity           |   |              | 119,472 |   |   |   | 107,333 |   |
| Refundable      income taxes due from subsidiaries    |   |              | 56      |   |   |   | 25 |   |
| Other      assets                                     |   |              | 645     |   |   |   | 582 |   |
| Total      assets                                     |   | $                 | 122,631 |   |   | $ | 110,683 |   |
|                                                  |   |              |    |   |   |   |   |   |
| Liabilities      And Stockholders’ Equity       |   |              |    |   |   |   |   |   |
| Other      liabilities                                |   | $                 | 555     |   |   | $ | 575 |   |
| Stockholders’      equity                       |   |              | 122,076 |   |   |   | 110,108 |   |
| Total      liabilities and stockholders’ equity |   | $                 | 122,631 |   |   | $ | 110,683 |   |

|                                           |   | Years      Ended December 31, |   |
|------------------------------------------------|--------|-------------------------------|--------|
|                                           |   | 2009                          |   |   | 2008 |   |   | 2007 |   |
| Income                                         |   |                          |   |   |   |   |   |   |   |
| Dividends      from Subsidiaries               |   | $                             | 5,884  |   |   | $ | 5,591 |   |   | $ | 6,698 |   |
| Interest      on securities – taxable    |   |                          | 7      |   |   |   | 41 |   |   |   | 26 |   |
| Interest      on securities – nontaxable |   |                          | 61     |   |   |   | 62 |   |   |   | 68 |   |
| Other      income                              |   |                          | 1,129  |   |   |   | 1,147 |   |   |   | 1,147 |   |
| Securities      gains (losses)                 |   |                          | 2      |   |   |   | (62 | ) |   |   | 30 |   |
|                                           |   |                          | 7,083  |   |   |   | 6,779 |   |   |   | 7,969 |   |

|                                                                                              |   |   |   |   |   |   |   |   |   |
|---------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Expenses                                                                                          |   |   |   |   |   |   |   |   |   |
| Other      expenses                                                                               |   |   | 1,590  |   |   |   | 1,720  |   |   |   | 1,643 |   |
| Income      before income tax benefit and equity in undistributed net income of      subsidiaries |   |   | 5,493  |   |   |   | 5,059  |   |   |   | 6,326 |   |
| Applicable      income tax benefit                                                                |   |   | 120    |   |   |   | 182    |   |   |   | 136 |   |
| Income      before equity in undistributed net income of subsidiaries                             |   |   | 5,613  |   |   |   | 5,241  |   |   |   | 6,462 |   |
| Equity      in undistributed net income of subsidiaries                                           |   |   | 8,706  |   |   |   | 8,352  |   |   |   | 6,213 |   |
| Net      income                                                                                   |   | $      | 14,319 |   |   | $      | 13,593 |   |   | $ | 12,675 |   |

----

|                                                                                        |   | Years      ended December 31, |   |
|---------------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                                        |   | 2009                          |   |   | 2008 |   |   | 2007 |   |
| Cash      Flows from Operating Expenses                                                     |   |                          |   |   |   |   |   |   |   |
| Net      income                                                                             |   | $                             | 14,319 |   |   | $ | 13,593 |   |   | $ | 12,675 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities: |   |                          |   |   |   |   |   |   |   |   |   |   |
| Equity in undistributed net      income of subsidiaries                                     |   |                          | (8,706 | ) |   |   | (8,352 | ) |   |   | (6,213 | ) |
| Amortization of premiums and      accretion of discounts, net                               |   |                          | 1      |   |   |   | 1 |   |   |   | 26 |   |
| Depreciation    expense                                                                     |   |                          | 9      |   |   |   | 9 |   |   |   | 7 |   |
| Securities (gains)      losses                                                              |   |                          | (2     | ) |   |   | 62 |   |   |   | (30 | ) |
| Net change in refundable income      taxes due from subsidiaries                            |   |                          | (31    | ) |   |   | 59 |   |   |   | 76 |   |
| Net change in other      assets                                                             |   |                          | (56    | ) |   |   | (28 | ) |   |   | 7 |   |
| Net change in other      liabilities                                                        |   |                          | 66     |   |   |   | 4 |   |   |   | 155 |   |
| Net cash provided by operating      activities                                              |   |                          | 5,600  |   |   |   | 5,348 |   |   |   | 6,703 |   |
|                                                                                        |   |                          |   |   |   |   |   |   |   |   |   |   |
| Cash      Flows from Investing Activities                                                   |   |                          |   |   |   |   |   |   |   |   |   |   |
| Purchases      of securities available for sale                                             |   |                          | (327   | ) |   |   | (930 | ) |   |   | (909 | ) |
| Maturities      and calls of securities available for sale                                  |   |                          | 524    |   |   |   | 1,615 |   |   |   | 200 |   |
| Net cash (used in) provided by      investing activities                                    |   |                          | 197    |   |   |   | 685 |   |   |   | (709 | ) |
|                                                                                        |   |                          |   |   |   |   |   |   |   |   |   |   |
| Cash      Flows from Financing Activities                                                   |   |                          |   |   |   |   |   |   |   |   |   |   |
| Cash      dividends paid                                                                    |   |                          | (5,823 | ) |   |   | (5,543 | ) |   |   | (5,298 | ) |
| Common      stock repurchased                                                               |   |                          | ---    |   |   |   | (562 | ) |   |   | (923 | ) |
| Exercise      of stock options                                                              |   |                          | 54     |   |   |   | 75 |   |   |   | 198 |   |
| Note      payable                                                                           |   |                          | (54    | ) |   |   | --- |   |   |   | --- |   |
| Net cash used in financing      activities                                                  |   |                          | (5,823 | ) |   |   | (6,030 | ) |   |   | (6,023 | ) |
| Net      change in cash                                                                     |   |                          | (26    | ) |   |   | 3 |   |   |   | (29 | ) |
| Cash      due from subsidiaries at beginning of year                                        |   |                          | 39     |   |   |   | 36 |   |   |   | 65 |   |
| Cash      due from subsidiaries at end of year                                              |   | $                             | 13     |   |   | $ | 39 |   |   | $ | 36 |   |

|                                                                     |   | December      31, |    |
|--------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                     |   | 2009              |    |   | 2008 |   |
| Financial      instruments whose contract amounts represent credit risk: |   |              |    |   |   |   |
| Commitments      to extend credit                                        |   | $                 | 133,816 |   |   | $ | 110,714 |   |
| Standby      letters of credit                                           |   |              | 11,953  |   |   |   | 11,481 |   |
| Mortgage      loans sold with potential recourse                         |   |              | 25,487  |   |   |   | 13,466 |   |

----

|   | Level      1 – |   | Valuation      is based on quoted prices in active markets for identical assets and      liabilities.                                                                                                                                                                                                                                                                                       |
|--------|----------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Level      2 – |   | Valuation      is based on observable inputs including quoted prices in active markets      for similar assets and liabilities, quoted prices for identical or similar      assets and liabilities in less active markets, and model-based valuation      techniques for which significant assumptions can be derived primarily from      or corroborated by observable data in the market. |
|   | Level      3 – |   | Valuation      is based on model-based techniques that use one or more significant inputs      or assumptions that are unobservable in the  market.                                                                                                                                                                                                                                         |

----

|                               |   |                                          |   | Fair      Value Measurements at December 31, 2009 Using                             |   |
|------------------------------------|--------|-----------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|
| Description                        |   | Balance      as of December      31,2009 |   | Quoted      Pricesin      ActiveMarkets      forIdentical      Assets(Level      1) |   | SignificantOtherObservableInputs(Level      2) |   | SignificantUnobservable      Inputs(Level      3) |   |
| Assets:                            |   |                                          |   |                                                                                |   |   |   |   |   |   |   |   |   |
| Securities      available for sale |   | $                                             |   | 166,272                                                                             |   | $ |   | --- |   | $ |   | 166,272 |   | $ |   | --- |   |

----

|                                           |   |                                          |   | Carrying      value at December 31, 2009                                            |   |
|------------------------------------------------|--------|-----------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|
| Description                                    |   | Balance      as of December      31,2009 |   | Quoted      Pricesin      ActiveMarkets      forIdentical      Assets(Level      1) |   | SignificantOtherObservableInputs(Level      2) |   | SignificantUnobservable      Inputs(Level      3) |   |
| Assets:                                        |   |                                          |   |                                                                                |   |   |   |   |   |   |   |   |   |
| Impaired      loans net of valuation allowance |   | $                                             |   | 5,135                                                                               |   | $  |   | --- |   | $ |   | --- |   | $ |   | 5,135 |   |

|                                                    |   |                                          |   | Carrying      Value at December 31, 2009                                            |   |
|---------------------------------------------------------|--------|-----------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|
| Description                                             |   | Balance      as of December      31,2009 |   | Quoted      Pricesin      ActiveMarkets      forIdentical      Assets(Level      1) |   | SignificantOtherObservableInputs(Level      2) |   | SignificantUnobservable      Inputs(Level      3) |   |
| Assets:                                                 |   |                                          |   |                                                                                |   |   |   |   |   |   |   |   |   |
| Other      real estate owned net of valuation allowance |   | $                                             |   | 1,868                                                                               |   | $ |   | --- |   | $ |   | --- |   | $ |   | 1,868 |   |

----

|                              |   | December      31, |    |
|-----------------------------------|--------|-------------------|---------|
|                              |   | 2009              |    |   | 2008 |   |
|                              |   | CarryingAmount    |    |   | Estimated      Fair Value |   |   | CarryingAmount |   |   | Estimated      FairValue |   |
| Financial      assets:            |   |              |    |   |   |   |   |   |   |   |   |   |
| Cash and due from      banks      |   | $                 | 12,894  |   |   | $ | 12,894 |   |   | $ | 16,316 |   |   | $ | 16,316 |   |
| Interest-bearing      deposits    |   |              | 32,730  |   |   |   | 32,730 |   |   |   | 29,656 |   |   |   | 29,656 |   |
| Securities                        |   |              | 297,417 |   |   |   | 297,933 |   |   |   | 264,999 |   |   |   | 264,504 |   |
| Mortgage loans held for      sale |   |              | 126     |   |   |   | 126 |   |   |   | 348 |   |   |   | 348 |   |
| Loans, net                        |   |              | 583,021 |   |   |   | 588,201 |   |   |   | 569,699 |   |   |   | 586,727 |   |
| Accrued interest      receivable  |   |              | 6,250   |   |   |   | 6,250 |   |   |   | 5,760 |   |   |   | 5,760 |   |
| Financial      liabilities:       |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                          |   | $                 | 852,112 |   |   | $ | 856,556 |   |   | $ | 817,848 |   |   | $ | 824,789 |   |
| Other borrowed      funds         |   |              | ---     |   |   |   | --- |   |   |   | 54 |   |   |   | 54 |   |
| Accrued interest      payable     |   |              | 336     |   |   |   | 336 |   |   |   | 655 |   |   |   | 655 |   |

|                                    |   | 2009         |   |
|-----------------------------------------|--------|--------------|--------|
|                                    |   | FirstQuarter |   |   | SecondQuarter |   |   | ThirdQuarter |   |   | FourthQuarter |   |
| Income      Statement Data:             |   |         |   |   |   |   |   |   |   |   |   |   |
| Interest      income                    |   | $            | 12,578 |   |   | $ | 12,711 |   |   | $ | 12,616 |   |   | $ | 12,582 |   |
| Interest      expense                   |   |         | 4,412  |   |   |   | 4,274 |   |   |   | 3,876 |   |   |   | 3,263 |   |
| Net      interest income                |   |         | 8,166  |   |   |   | 8,437 |   |   |   | 8,740 |   |   |   | 9,319 |   |
| Provision      for loan losses          |   |         | 370    |   |   |   | 278 |   |   |   | 305 |   |   |   | 681 |   |
| Noninterest      income                 |   |         | 2,107  |   |   |   | 2,172 |   |   |   | 2,212 |   |   |   | 2,313 |   |
| Noninterest      expense                |   |         | 5,630  |   |   |   | 6,180 |   |   |   | 5,891 |   |   |   | 6,152 |   |
| Income      taxes                       |   |         | 886    |   |   |   | 794 |   |   |   | 976 |   |   |   | 1,004 |   |
| Net      income                         |   | $            | 3,387  |   |   | $ | 3,357 |   |   | $ | 3,780 |   |   | $ | 3,795 |   |
| Per      Share Data:                    |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      net income per share         |   | $            | 0.49   |   |   | $ | 0.48 |   |   | $ | 0.55 |   |   | $ | 0.55 |   |
| Fully      diluted net income per share |   |         | 0.49   |   |   |   | 0.48 |   |   |   | 0.54 |   |   |   | 0.55 |   |
| Cash      dividends per share           |   |         | ---    |   |   |   | 0.41 |   |   |   | --- |   |   |   | 0.43 |   |
| Book      value per share               |   |         | 16.39  |   |   |   | 16.58 |   |   |   | 17.52 |   |   |   | 17.61 |   |
|                                    |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                    |   | 2008         |   |
|-----------------------------------------|--------|--------------|--------|
|                                    |   | FirstQuarter |   |   | SecondQuarter |   |   | ThirdQuarter |   |   | FourthQuarter |   |
| Income      Statement Data:             |   |         |   |   |   |   |   |   |   |   |   |   |
| Interest      income                    |   | $            | 12,711 |   |   | $ | 12,472 |   |   | $ | 12,409 |   |   | $ | 12,519 |   |
| Interest      expense                   |   |         | 5,407  |   |   |   | 4,815 |   |   |   | 4,195 |   |   |   | 4,401 |   |
| Net      interest income                |   |         | 7,304  |   |   |   | 7,657 |   |   |   | 8,214 |   |   |   | 8,118 |   |
| Provision      for loan losses          |   |         | 100    |   |   |   | 135 |   |   |   | 280 |   |   |   | 604 |   |
| Noninterest      income                 |   |         | 2,296  |   |   |   | 2,227 |   |   |   | 2,208 |   |   |   | 2,356 |   |
| Noninterest      expense                |   |         | 5,457  |   |   |   | 5,306 |   |   |   | 5,531 |   |   |   | 5,729 |   |
| Income      taxes                       |   |         | 862    |   |   |   | 974 |   |   |   | 996 |   |   |   | 813 |   |
| Net      income                         |   | $            | 3,181  |   |   | $ | 3,469 |   |   | $ | 3,615 |   |   | $ | 3,328 |   |
| Per      Share Data:                    |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      net income per share         |   | $            | 0.46   |   |   | $ | 0.50 |   |   | $ | 0.52 |   |   | $ | 0.48 |   |
| Fully      diluted net income per share |   |         | 0.46   |   |   |   | 0.50 |   |   |   | 0.52 |   |   |   | 0.48 |   |
| Cash      dividends per share           |   |         | ---    |   |   |   | 0.39 |   |   |   | --- |   |   |   | 0.41 |   |
| Book      value per share               |   |         | 15.73  |   |   |   | 15.50 |   |   |   | 15.80 |   |   |   | 15.89 |   |

|                                      |   | Gross      Carrying Value |   |   | Accumulated      Amortization |   |   | Net      Carrying Value |   |
|-------------------------------------------|--------|---------------------------|--------|--------|-------------------------------|--------|--------|-------------------------|--------|
| December      31, 2009                    |   |                      |   |   |                          |   |   |                    |   |
| Amortizable      core deposit intangibles |   | $                         | 16,257 |   |                          | $      | 9,479  |                    |   | $ | 6,778 |   |
| Unamortizable      goodwill               |   | $                         | 5,848  |   |                          | $      | ---    |                    |   | $ | 5,848 |   |
|                                      |   |                      |   |   |                          |   |   |                    |   |   |   |   |
| December      31, 2008                    |   |                      |   |   |                          |   |   |                    |   |   |   |   |
| Amortizable      core deposit intangibles |   | $                         | 16,257 |   |                          | $      | 8,386  |                    |   | $ | 7,871 |   |
| Unamortizable      goodwill               |   | $                         | 5,848  |   |                          | $      | ---    |                    |   | $ | 5,848 |   |

| 2010       |   | $      | 1,083 |   |
|------------|--------|--------|-------|--------|
| 2011       |   |   | 1,083 |   |
| 2012       |   |   | 1,083 |   |
| 2013       |   |   | 1,077 |   |
| 2014       |   |   | 1,075 |   |
| Thereafter |   |   | 1,377 |   |
| Total      |   | $      | 6,778 |   |

----

----

----

----

| /s/      JAMES G. RAKES       |   | /s/      DAVID K. SKEENS       |
|-------------------------------------------------------------|--------|--------------------------------------------------------------|
| Chairman,      President andChief      Executive Officer    |   | Treasurer      andChief      Financial Officer               |

----

| Name                    | Age | Offices      and Positions Held                                                                                                                                                                                                                                                                                                                                                            | Year      Elected an Officer/Director |
|-------------------------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------|
| James      G. Rakes     | 65  | Chairman,      President and Chief Executive Officer, National Bankshares, Inc.;      President and Chief Executive Officer of The National Bank of Blacksburg      since 1983 and Chairman since 2005. Chairman, President and Treasurer of      National Bankshares Financial Services, Inc. since 2001.                                                                                 | 1986                                  |
| David      K. Skeens    | 43  | Treasurer      and Chief Financial Officer of National Bankshares, Inc. since January 14,      2009; Senior Vice President/Operations & Risk Management & CFO of      National Bank of Blacksburg since 2009; prior thereto Senior Vice      President/Operations & Risk Management since 2008; prior thereto Vice      President/Operations & Risk Management since 2004. | 2009                                  |
| F.      Brad Denardo    | 57  | Executive      Vice President, National Bankshares, Inc. since 2008; Interim Treasurer      and Chief Financial Officer from May 23, 2008 to January 14, 2009; prior      thereto Corporate Officer since 1989; Executive Vice President/Chief      Operating Officer of The National Bank of Blacksburg since      2002.                                                                  | 1989                                  |
| Marilyn      B. Buhyoff | 61  | Secretary      & Counsel, National Bankshares, Inc.; Counsel of The National Bank of      Blacksburg since 1989; Secretary of National Bankshares Financial      Services, Inc. since 2001, and Executive Vice President since      2004.                                                                                                                                              | 1989                                  |

----

| Plan      Category                                                                             | Number      of Shares to beIssued      upon Exercise ofOutstanding      Optionsand      Warrants |   | Weighted      Average Exercise Price      of OutstandingOptions      and Warrants |   | Number      of Shares RemainingAvailable      for Future IssuanceUnder      Equity CompensationPlans      (Excluding SharesReflected      in First Column) |
|------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity      compensation plans approved by stockholders 1999 Stock      Option  Plan | 109,500                                                                                          |   | $                                                                                      | 22.14  |                                                                                                                                                       | 109,500 |
| Equity      compensation plans not approved by stockholders                                    | ---                                                                                              |   |                                                                                   | ---    |                                                                                                                                                       | --- |
| Total                                                                                          | 109,500                                                                                          |   | $                                                                                      | 22.14  |                                                                                                                                                       | 109,500 |

|                    |   | 2009   |    | 2008       |   |
|-------------------------|--------|--------|---------|------------|--------|
|                    |   | Fees   |    | Percentage |   | Fees |   | Percentage |   |
| Audit      fees         |   | $      | 102,500 |       | 78     | % | $ | 93,000 |   | 73 | % |
| Audit-related      fees |   |   | 21,300  |       | 16     | % |   | 26,579 |   | 21 | % |
| Tax      fees           |   |   | 8,492   |       | 6      | % |   | 7,250 |   | 6 | % |
|                    |   | $      | 132,292 |       | 100    | % | $ | 126,829 |   | 100 | % |

|   | Reports      of Independent Registered Public AccountingFirm |
|--------|--------------------------------------------------------------|

|   | Consolidated      Balance Sheets – As of December 31, 2009 and  2008 |
|--------|----------------------------------------------------------------------------|

|   | Consolidated      Statements of Income – Years ended December 31, 2009, 2008 and      2007 |
|--------|--------------------------------------------------------------------------------------------------|

|   | Consolidated      Statements of Changes in Stockholders’ Equity – Years ended December 31,      2009, 2008 and 2007 |
|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | Consolidated      Statements of Cash Flows – Years ended December 31, 2009, 2008 and      2007 |
|--------|------------------------------------------------------------------------------------------------------|

|   | Notes      to Consolidated FinancialStatements |
|--------|------------------------------------------------|

----

|   | (a)      (2) Financial Statement Schedules |
|--------|--------------------------------------------|

| Exhibit      No. |  Description                                                                                                                        | Page      No. inSequential      System                                                                                                                 |
|------------------|------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3(i)             | Amended      and Restated Articles of Incorporation of National Bankshares,      Inc.                                                    | (incorporated      herein by reference to Exhibit 3.1 of the Form 8K for filed on March 16,      2006)                                                 |
| 3(ii)            | Amended      By-laws of National Bankshares, Inc.                                                                                        | (incorporated      herein by reference to Exhibit 3(ii) of the Annual Report on Form 10K for      fiscal year ended December 31, 2007)                 |
| 4(i)             | Specimen      copy of certificate for National Bankshares, Inc. common    stock                                                          | (incorporated      herein by reference to Exhibit 4(a) of the Annual Report on Form 10K for      fiscal year ended December 31, 1993)                  |
| *10(iii)(A)      | National      Bankshares, Inc. 1999 Stock Option Plan                                                                                    | (incorporated      herein by reference to Exhibit 4.3 of the Form S-8, filed as Registration      No. 333-79979 with the Commission on June 4, 1999)   |
| *10(iii)(A)      | Executive      Employment Agreement dated December 17, 2008, between National Bankshares,      Inc. and James G. Rakes                   | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K      for fiscal  year ended December 31, 2008) |
| *10(iii)(A)      | Employee      Lease Agreement dated August 14, 2002, between National Bankshares, Inc.      and The National Bank of Blacksburg          | (incorporated      herein by reference to Exhibit 10 (iii) (A) of Form 10Q for the period      ended September 30, 2002)                               |
| *10(iii)(A)      | Executive      Employment Agreement dated December 17, 2008, between National Bankshares,      Inc. and F. Brad Denardo                  | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K      for fiscal  year ended December 31, 2008) |
| *10(iii)(A)      | Executive      Employment Agreement dated December 17, 2008, between National Bankshares,      Inc. and Marilyn B. Buhyoff               | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K      for fiscal  year ended December 31, 2008) |
| *10(iii)(A)      | Salary      Continuation Agreement dated February 8, 2006, between The National Bank      of Blacksburg and James G. Rakes               | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on February      8, 2006)                                            |
| *10(iii)(A)      | Salary      Continuation Agreement dated February 8, 2006, between The National Bank      of Blacksburg and F. Brad Denardo              | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on February      8, 2006)                                            |
| *10(iii)(A)      | Salary      Continuation Agreement dated February 8, 2006, betweenNational      Bankshares, Inc. and Marilyn B. Buhyoff                  | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on February      8, 2006)                                            |
| *10(iii)(A)      | First      Amendment, dated December 19, 2007, to The National Bank of Blacksburg      Salary Continuation Agreement for James G. Rakes  | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on December      19, 2007)                                           |
| *10(iii)(A)      | First      Amendment, dated December 19, 2007, to The National Bank of Blacksburg      Salary Continuation Agreement for F. Brad Denardo | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on December      19, 2007)                                           |

----

| *10(iii)(A)  | First      Amendment, dated December 19, 2007, to National Bankshares, Inc. Salary      Continuation Agreement for Marilyn B. Buhyoff                                                                                | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on December      19, 2007)                                            |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| *10(viii)(A) | Second      Amendment, dated June 12, 2008, to The National Bank of Blacksburg Salary      Continuation Agreement for F. Brad Denardo                                                                                | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on June 12,      2008)                                                |
| *10(viii)(A) | Second      Amendment, dated December 17, 2008, to The National Bank of Blacksburg      Salary Continuation Agreement for James G. Rakes                                                                             | (incorporated      herein by reference to Exhibit 10(viii)(A) of the Annual Report on Form      10K for fiscal  year ended December 31, 2008) |
| *10(viii)(A) | Second      Amendment, dated December 17, 2008, to The National Bank of Blacksburg      Salary Continuation Agreement for Marilyn B. Buhyoff                                                                         | (incorporated      herein by reference to Exhibit 10(viii)(A) of the Annual Report on Form      10K for fiscal  year ended December 31, 2008) |
| *10(viii)(A) | Third      Amendment, dated December 17, 2008, to The National Bank of Blacksburg      Salary Continuation Agreement for F. Brad Denardo                                                                             | (incorporated      herein by reference to Exhibit 10(viii)(A) of the Annual Report on Form      10K for fiscal  year ended December 31, 2008) |
| +23          | Consent      of Yount, Hyde & Barbour, P.C. to incorporation by reference of      independent auditor’s report included in this Form 10-K, into registrant’s      registration statement on Form S-8 | Page      69                                                                                                                                            |
| +31(i)       | Section      906 Certification of Chief Executive Officer                                                                                                                                                            | Page      64                                                                                                                                            |
| +31(ii)      | Section      906 Certification of Chief Financial Officer                                                                                                                                                            | Page      65                                                                                                                                            |
| +32(i)       | 18      U.S.C. Section 1350 Certification of Chief Executive    Officer                                                                                                                                              | Page      67                                                                                                                                            |
| +32(ii)      | 18      U.S.C. Section 1350 Certification of Chief Financial    Officer                                                                                                                                              | Page      67                                                                                                                                            |

| /s/      JAMES G. RAKES                                                     |
|-----------------------------------------------------------------------------------------------------------|
| James      G. RakesChairman,      President and Chief Executive Officer(Principal      Executive Officer) |
|                                                                                                      |
| /s/      DAVID K. SKEENS                                                    |
| David      K. SkeensTreasurer(Principal      Financial Officer)(Principal      Accounting Officer)        |
|                                                                                                      |
| Date:      March 12, 2010                                                                                 |

----

| 1. | I      have reviewed this annual report on Form 10-K of National Bankshares,      Inc.; |
|----|-----------------------------------------------------------------------------------------|

| 2. | Based      on my knowledge, this report does not contain any untrue statement of a      material fact or omit to state a material fact necessary to make the      statements made, in light of the circumstances under which such statements      were made, not misleading with respect to the period covered by this      report; |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Based      on my knowledge, the financial statements, and other financial information      included in this report, fairly present in all material respects the      financial condition, results of operations and cash flows of the      registrant as of, and for, the periods presented in this      report; |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | The      registrant’s other certifying officer(s) and I are responsible for      establishing and maintaining disclosure controls and procedures (as      defined in Exchange Act Rules 13a – 15 (e) and 15d – 15 (e)) and internal      control over financial reporting (as defined in Exchange Act Rules 13a –      15(f) and 15d – 15(f)) for the registrant and  have: |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | Designed      such disclosure controls and procedures, or caused such disclosure      controls and procedures to be designed under our supervision, to ensure      that material information relating to the registrant, including its      consolidated subsidiaries, is made known to us by others within those      entities, particularly during the period in which this report is being      prepared; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Designed      such internal control over financial reporting, or caused such internal      control over financial reporting to be designed under our supervision, to      provide reasonable assurance regarding the reliability of financial      reporting and the preparation of financial statements for external      purposes in accordance with generally accepted accounting      principles; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Evaluated      the effectiveness of the registrant’s disclosure controls and procedures      and presented in this report our conclusions about the effectiveness of      the disclosure controls and procedures, as of the end of the period      covered by this report based on such evaluations;  and |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Disclosed      in this report any change in the registrant’s internal control over      financial reporting that occurred during the registrant’s most recent      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an      annual report) that has materially affected, or is reasonably likely to      materially affect, the registrant’s internal control over financial      reporting; and |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | The      registrant’s other certifying officer(s) and I have disclosed, based on      our most recent evaluation of internal control over financial reporting,      to the registrant’s auditors and the audit committee of the registrant’s      board of directors (or persons performing the equivalent      functions): |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | All      significant deficiencies and material weaknesses in the design or      operation of internal control over financial reporting which are      reasonably likely to adversely affect the registrant’s ability to record,      process, summarize and report financial information;  and |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Any      fraud, whether or not material, that involves management or other      employees who have a significant role in the registrant’s internal control      over financial reporting. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| /s/      JAMES G. RAKES                                                     |
|-----------------------------------------------------------------------------------------------------------|
| James      G. RakesChairman,      President and Chief Executive Officer(Principal      Executive Officer) |

----

| 1. | I      have reviewed this annual report on Form 10-K of National Bankshares,      Inc.; |
|----|-----------------------------------------------------------------------------------------|

| 2. | Based      on my knowledge, this report does not contain any untrue statement of a      material fact or omit to state a material fact necessary to make the      statements made, in light of the circumstances under which such statements      were made, not misleading with respect to the period covered by this      report; |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Based      on my knowledge, the financial statements, and other financial information      included in this report, fairly present in all material respects the      financial condition, results of operations and cash flows of the      registrant as of, and for, the periods presented in this      report; |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | The      registrant’s other certifying officer(s) and I are responsible for      establishing and maintaining disclosure controls and procedures (as      defined in Exchange Act Rules 13a – 15 (e) and 15d – 15 (e)) and internal      control over financial reporting (as defined in Exchange Act Rules 13a –      15(f) and 15d – 15(f)) for the registrant and  have: |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | Designed      such disclosure controls and procedures, or caused such disclosure      controls and procedures to be designed under our supervision, to ensure      that material information relating to the registrant, including its      consolidated subsidiaries, is made known to us by others within those      entities, particularly during the period in which this report is being      prepared; and |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Designed      such internal control over financial reporting, or caused such internal      control over financial reporting to be designed under our supervision, to      provide reasonable assurance regarding the reliability of financial      reporting and the preparation of financial statements for external purpose      in accordance with generally accepted accounting    principles; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Evaluated      the effectiveness of the registrant’s disclosure controls and procedures      and presented in this report our conclusions about the effectiveness of      the disclosure controls and procedures, as of the end of the period      covered by this report based on such evaluations;  and |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Disclosed      in this report any change in the registrant’s internal control over      financial reporting that occurred during the registrant’s most recent      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an      annual report) that has materially affected, or is reasonably likely to      materially affect, the registrant’s internal control over financial      reporting; and |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | The      registrant’s other certifying officer(s) and I have disclosed, based on      our most recent evaluation of internal control over financial reporting,      to the registrant’s auditors and the audit committee of the registrant’s      board of directors (or persons performing the equivalent      functions): |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a) | All      significant deficiencies and material weaknesses in the design or      operation of internal control over financial reporting which are      reasonably likely to adversely affect the registrant’s ability to record,      process, summarize and report financial information;  and |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | Any      fraud, whether or not material, that involves management or other      employees who have a significant role in the registrant’s internal control      over financial reporting. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| /s/      DAVID K. SKEENS                                               |
|------------------------------------------------------------------------------------------------------|
| David      K. SkeensTreasurer      andChief      Financial Officer(Principal      Financial Officer) |

----

|                                                          | Date       | Title                                                                                    |
|---------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|
|                                                          |       |                                                                                     |
| /s/      L. J. BALL        | 03/12/2010 | Director                                                                                 |
| L.      J. Ball                                               |       |                                                                                     |
|                                                          |       |                                                                                     |
| /s/      J. W. BOWLING                    | 03/12/2010 | Director                                                                                 |
| J.      W. Bowling                                            |       |                                                                                     |
|                                                          |       |                                                                                     |
| /s/      J. H. HARRY                 | 03/12/2010 | Director                                                                                 |
| J.      H. Harry                                              |       |                                                                                     |
|                                                          |       |                                                                                     |
| /s/      J. M. LEWIS                      | 03/12/2010 | Director                                                                                 |
| J.      M. Lewis                                              |       |                                                                                     |
|                                                          |       |                                                                                     |
| /s/      M. G. MILLER                     | 03/12/2010 | Director                                                                                 |
| M.      G. Miller                                             |       |                                                                                     |
|                                                          |       |                                                                                     |
| /s/      W. A. PEERY                      | 03/12/2010 | Director                                                                                 |
| W.      A. Peery                                              |       |                                                                                     |
|                                                          |       |                                                                                     |
| /s/      J. G. RAKES            | 03/12/2010 | Chairman      of the Board                                                               |
| J.      G. Rakes                                              |       | President      and Chief Executive Officer –National      Bankshares, Inc.Director |
|                                                          |       |                                                                                     |
| /s/      G. P. REYNOLDS              | 03/12/2010 | Director                                                                                 |
| G.      P. Reynolds                                           |       |                                                                                     |
|                                                          |       |                                                                                     |
| /s/      J. M. SHULER           | 03/12/2010 | Director                                                                                 |
| J.      M. Shuler                                             |       |                                                                                     |

----

|   | (1) | such      Form 10-K for the year ended December 31, 2009, fully complies with the      requirements of section 13(a) or 15(d) of the Securities Act of 1934;      and |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | the      information contained in such Form 10-K for the year ended December 31,      2009, fairly presents in all material respects, the financial condition      and results of operations of National Bankshares,  Inc. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| /s/      JAMES G. RAKES                                                     |
|-----------------------------------------------------------------------------------------------------------|
| James      G. RakesChairman,      President and Chief Executive Officer(Principal      Executive Officer) |

|   | (1)  such      Form 10-K for the year ended December 31, 2009, fully complies with the      requirements of section 13(a) or 15(d) of the Securities Act of 1934;      and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2)  the      information contained in such Form 10-K for the year ended December 31,      2009, fairly presents in all material respects, the financial condition      and results of operations of National Bankshares,  Inc. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| /s/      DAVID K. SKEENS                                               |
|------------------------------------------------------------------------------------------------------|
| David      K. SkeensTreasurer      andChief      Financial Officer(Principal      Financial Officer) |

----

| Exhibit      No. | Title                                                                                                                                                                                                                 | Page      Number   |
|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
| 23               | Consent      of Yount, Hyde & Barbour, P.C. to incorporation by reference of      independent auditor’s report included in this Form 10-K, into registrant’s      registration statement on Form S-8. | Page  69 |
| 31(i)            | Section      906 Certification of Chief Executive Officer                                                                                                                                                             | Page      64       |
| 31(ii)           | Section      906 Certification of Chief Financial Officer                                                                                                                                                             | Page      65       |
| 32(i)            | 18      U.S.C. Section 1350 Certification of Chief Executive    Officer                                                                                                                                               | Page      67       |
| 32(ii)           | 18      U.S.C. Section 1350 Certification of Chief Financial    Officer                                                                                                                                               | Page      67       |

----

----