----

| [x]  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934                |
|--------------------------------------------------------------------------------------------------------------------|
| For the Fiscal Year Ended December 31, 2010                                                                   |
| [  ]  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. 2010 Annual Report to Stockholders                                            | Part II                                   |
| National Bankshares, Inc. Proxy Statement for the 2011 Annual Meeting of Stockholders    | Part III                                  |

----

| Part I            |                                                                                                               | Page   |
|-------------------|--------------------------------------------------------------------------------------------------------------------|--------|
|              |                                                                                                               |   |
| Item 1.           | Business                                                                                                           | 3      |
|              |                                                                                                               |   |
| Item 1A.          | Risk Factors                                                                                                       | 8      |
|              |                                                                                                               |   |
| Item 1B.          | Unresolved Staff Comments                                                                                          | 8      |
|              |                                                                                                               |   |
| Item 2.           | Properties                                                                                                         | 9      |
|              |                                                                                                               |   |
| Item 3.           | Legal Proceedings                                                                                                  | 9      |
|              |                                                                                                               |   |
| Item 4.           | Reserved                                                                                                           | 9      |
|              |                                                                                                               |   |
| Part II           |                                                                                                               |   |
|              |                                                                                                               |   |
| Item 5.           | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 9      |
|              |                                                                                                               |   |
| 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                                                         | 30     |
|              |                                                                                                               |   |
| Item 8.           | Financial Statements and Supplementary Data                                                                        | 31     |
|              |                                                                                                               |   |
| Item 9.           | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure                               | 67     |
|              |                                                                                                               |   |
| Item 9A.          | Controls and Procedures                                                                                            | 67     |
|              |                                                                                                               |   |
| Item 9B.          | Other Information                                                                                                  | 68     |
|              |                                                                                                               |   |
| Part III          |                                                                                                               |   |
|              |                                                                                                               |   |
| Item 10.          | Directors, Executive Officers and Corporate Governance                                                             | 68     |
|              |                                                                                                               |   |
| Item 11.          | Executive Compensation                                                                                             | 68     |
|              |                                                                                                               |   |
| Item 12.          | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                     | 69     |
|              |                                                                                                               |   |
| Item 13.          | Certain Relationships and Related Transactions, and Director Independence                                          | 69     |
|              |                                                                                                               |   |
| Item 14.          | Principal Accounting Fees and Services                                                                             | 69     |
|              |                                                                                                               |   |
| Part IV           |                                                                                                               |   |
|              |                                                                                                               |   |
| Item 15.          | Exhibits, Financial Statement Schedules                                                                            | 70     |
|              |                                                                                                               |   |
| Signatures        |                                                                                                               | 71     |
|              |                                                                                                               |   |
| Index of Exhibits |                                                                                                               | 76     |

----

|  Period      |   |  Class of Service     |   | Percentage ofTotal Revenues |   |
|-------------------|--------|----------------------------|--------|-----------------------------|--------|
| December 31, 2010 |   | Interest and Fees on Loans |   | 64.22                       | %      |
|              |   | Interest on Investments    |   | 21.03                       | %      |
| 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                       | %      |

----

----

----

----

----

----

|           |   | 2010   |   |   | 2009   |   |   | Dividends per share |   |
|----------------|--------|--------|--------|--------|--------|--------|--------|---------------------|--------|
|           |   | High   |   |   | Low    |   |   | High                |   |   | Low |   |   | 2010 |   |   | 2009 |   |
| First Quarter  |   | $      | 29.15  |   |   |   | 23.01  |                |   | $ | 20.50 |   |   |   | 17.91 |   |   | $ | --- |   |   | $ | --- |   |
| Second Quarter |   |   | 28.50  |   |   |   | 22.96  |                |   |   | 25.80 |   |   |   | 18.51 |   |   |   | 0.44 |   |   |   | 0.41 |   |
| Third Quarter  |   |   | 25.88  |   |   |   | 21.76  |                |   |   | 26.90 |   |   |   | 24.27 |   |   |   | --- |   |   |   | --- |   |
| Fourth Quarter |   |   | 32.28  |   |   |   | 25.39  |                |   |   | 29.21 |   |   |   | 25.08 |   |   |   | 0.47 |   |   |   | 0.43 |   |

----

|                      |   | 2005 |   | 2006 |   | 2007 |   | 2008 |   | 2009 |   | 2010 |   |
|---------------------------|--------|------|--------|------|--------|------|--------|------|--------|------|--------|------|--------|
| NATIONAL BANKSHARES, INC. |   | 100  |   | 106  |   | 78   |   | 93   |   | 139  |   | 160  |   |
| INDEPENDENT BANK INDEX    |   | 100  |   | 112  |   | 90   |   | 77   |   | 88   |   | 87   |   |
| NASDAQ INDEX              |   | 100  |   | 110  |   | 119  |   | 57   |   | 83   |   | 98   |   |

----

| $ in thousands, except per share data       |   | Years ended December 31, |      |
|---------------------------------------------|--------|--------------------------|-----------|
|                                        |   | 2010                     |      |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Selected Income Statement Data:             |   |                     |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                             |   | $                        | 49,139    |   |   | $ | 50,487 |   |   | $ | 50,111 |   |   | $ | 50,769 |   |   | $ | 47,901 |   |
| Interest expense                            |   |                     | 11,158    |   |   |   | 15,825 |   |   |   | 18,818 |   |   |   | 21,745 |   |   |   | 18,564 |   |
| Net interest income                         |   |                     | 37,981    |   |   |   | 34,662 |   |   |   | 31,293 |   |   |   | 29,024 |   |   |   | 29,337 |   |
| Provision for loan losses                   |   |                     | 3,409     |   |   |   | 1,634 |   |   |   | 1,119 |   |   |   | 423 |   |   |   | 49 |   |
| Noninterest income                          |   |                     | 8,347     |   |   |   | 8,804 |   |   |   | 9,087 |   |   |   | 8,760 |   |   |   | 8,802 |   |
| Noninterest expense                         |   |                     | 23,127    |   |   |   | 23,853 |   |   |   | 22,023 |   |   |   | 20,956 |   |   |   | 21,670 |   |
| Income taxes                                |   |                     | 4,223     |   |   |   | 3,660 |   |   |   | 3,645 |   |   |   | 3,730 |   |   |   | 3,788 |   |
| Net income                                  |   |                     | 15,569    |   |   |   | 14,319 |   |   |   | 13,593 |   |   |   | 12,675 |   |   |   | 12,632 |   |
|                                        |   |                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per Share Data:                             |   |                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic net income                            |   |                     | 2.25      |   |   |   | 2.07 |   |   |   | 1.96 |   |   |   | 1.82 |   |   |   | 1.80 |   |
| Diluted net income                          |   |                     | 2.24      |   |   |   | 2.06 |   |   |   | 1.96 |   |   |   | 1.82 |   |   |   | 1.80 |   |
| Cash dividends declared                     |   |                     | 0.91      |   |   |   | 0.84 |   |   |   | 0.80 |   |   |   | 0.76 |   |   |   | 0.73 |   |
| Book value                                  |   |                     | 18.63     |   |   |   | 17.61 |   |   |   | 15.89 |   |   |   | 15.07 |   |   |   | 13.86 |   |
|                                        |   |                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected Balance Sheet Data at End of Year: |   |                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans, net                                  |   |                     | 568,779   |   |   |   | 583,021 |   |   |   | 569,699 |   |   |   | 518,435 |   |   |   | 495,486 |   |
| Total securities                            |   |                     | 315,907   |   |   |   | 297,417 |   |   |   | 264,999 |   |   |   | 273,343 |   |   |   | 285,489 |   |
| Total assets                                |   |                     | 1,022,238 |   |   |   | 982,367 |   |   |   | 935,374 |   |   |   | 887,647 |   |   |   | 868,203 |   |
| Total deposits                              |   |                     | 884,583   |   |   |   | 852,112 |   |   |   | 817,848 |   |   |   | 776,339 |   |   |   | 764,692 |   |
| Stockholders’ equity                  |   |                     | 129,187   |   |   |   | 122,076 |   |   |   | 110,108 |   |   |   | 104,800 |   |   |   | 96,755 |   |
|                                        |   |                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected Balance Sheet Daily Averages:      |   |                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans, net                                  |   |                     | 577,210   |   |   |   | 572,438 |   |   |   | 533,190 |   |   |   | 505,070 |   |   |   | 488,624 |   |
| Total securities                            |   |                     | 289,532   |   |   |   | 298,237 |   |   |   | 281,367 |   |   |   | 282,734 |   |   |   | 271,066 |   |
| Total assets                                |   |                     | 989,952   |   |   |   | 971,538 |   |   |   | 899,462 |   |   |   | 867,061 |   |   |   | 840,080 |   |
| Total deposits                              |   |                     | 852,953   |   |   |   | 846,637 |   |   |   | 783,774 |   |   |   | 758,657 |   |   |   | 741,071 |   |
| Stockholders’ equity                  |   |                     | 129,003   |   |   |   | 117,086 |   |   |   | 108,585 |   |   |   | 100,597 |   |   |   | 94,194 |   |
|                                        |   |                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected Ratios:                            |   |                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return on average assets                    |   |                     | 1.57      | % |   |   | 1.47 | % |   |   | 1.51 | % |   |   | 1.46 | % |   |   | 1.50 | % |
| Return on average equity                    |   |                     | 12.07     | % |   |   | 12.23 | % |   |   | 12.52 | % |   |   | 12.60 | % |   |   | 13.41 | % |
| Dividend payout ratio                       |   |                     | 40.52     | % |   |   | 40.67 | % |   |   | 40.78 | % |   |   | 41.80 | % |   |   | 40.44 | % |
| Average equity to average assets            |   |                     | 13.03     | % |   |   | 12.05 | % |   |   | 12.07 | % |   |   | 11.60 | % |   |   | 11.21 | % |

----

| ·   | 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) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) 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 trade area, |
|--------------------|-----------------------------------------------------------|

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

| ·   | applicable accounting principles, policies and guidelines. |
|--------------------|------------------------------------------------------------|

----

----

|                                 |   | 12/31/10 |   |   | 12/31/09 |   |
|--------------------------------------|--------|----------|--------|--------|----------|--------|
| Return on average assets             |   |     | 1.57   | %      |     |   | 1.47 | % |
| Return on average equity             |   |     | 12.07  | %      |     |   | 12.23 | % |
| Basic net earnings per share         |   | $        | 2.25   |   |     | $      | 2.07 |   |
| Fully diluted net earnings per share |   | $        | 2.24   |   |     | $      | 2.06 |   |
| Net interest margin (1)              |   |     | 4.52   | %      |     |   | 4.23 | % |
| Noninterest margin (2)               |   |     | 1.49   | %      |     |   | 1.55 | % |

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

|   | (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-date assets. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|         |   | 12/31/10 |      |   | 12/31/09 |   |
|--------------|--------|----------|-----------|--------|----------|--------|
| Securities   |   | $        | 315,907   |   |     | $      | 297,417 |   |
| Loans, net   |   |     | 568,779   |   |     |   | 583,021 |   |
| Deposits     |   |     | 884,583   |   |     |   | 852,112 |   |
| Total assets |   |     | 1,022,238 |   |     |   | 982,367 |   |

|                               |   | 12/31/10 |   |   | 12/31/09 |   |
|------------------------------------|--------|----------|--------|--------|----------|--------|
| Nonperforming loans                |   | $        | 8,421  |   |     | $      | 6,750 |   |
| Loans past due 90 days or more     |   |     | 1,336  |   |     |   | 1,697 |   |
| Other real estate owned            |   |     | 1,723  |   |     |   | 2,126 |   |
| Allowance for loan losses to loans |   |     | 1.33   | %      |     |   | 1.17 | % |
| Net charge-off ratio               |   |     | 0.46   | %      |     |   | 0.10 | % |

----

|                                         |   | December 31, 2010 |    |   | December 31, 2009 |   |   | December 31, 2008 |   |
|----------------------------------------------|--------|-------------------|---------|--------|-------------------|--------|--------|-------------------|--------|
|                                         |   | AverageBalance    |    |   |  Interest    |   |   | AverageYield/Rate |   |   | AverageBalance |   |   |  Interest |   |   | AverageYield/Rate |   |   | AverageBalance |   |   |  Interest |   |   | AverageYield/Rate |   |
| Interest-earning assets:                     |   |              |    |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans, net (1)(2)(3)                         |   | $                 | 585,933 |   |              | $      | 37,282 |              |   |   | 6.36 | % |   | $ | 579,581 |   |   | $ | 37,903 |   |   |   | 6.54 | % |   | $ | 538,868 |   |   | $ | 37,356 |   |   |   | 6.93 | % |
| Taxable securities                           |   |              | 123,920 |   |              |   | 5,588  |              |   |   | 4.51 | % |   |   | 134,607 |   |   |   | 6,273 |   |   |   | 4.66 | % |   |   | 137,497 |   |   |   | 6,817 |   |   |   | 4.96 | % |
| Nontaxable securities (1)(4)                 |   |              | 161,571 |   |              |   | 10,074 |              |   |   | 6.24 | % |   |   | 162,889 |   |   |   | 10,154 |   |   |   | 6.23 | % |   |   | 144,137 |   |   |   | 8,911 |   |   |   | 6.18 | % |
| Interest-bearing deposits                    |   |              | 55,477  |   |              |   | 128    |              |   |   | 0.23 | % |   |   | 35,841 |   |   |   | 90 |   |   |   | 0.25 | % |   |   | 21,440 |   |   |   | 449 |   |   |   | 2.09 | % |
| Total interest-earning assets                |   | $                 | 926,901 |   |              | $      | 53,072 |              |   |   | 5.73 | % |   | $ | 912,918 |   |   | $ | 54,420 |   |   |   | 5.96 | % |   | $ | 841,942 |   |   | $ | 53,533 |   |   |   | 6.36 | % |
| Interest-bearing liabilities:                |   |              |    |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits             |   | $                 | 322,705 |   |              | $      | 3,332  |              |   |   | 1.03 | % |   | $ | 282,532 |   |   | $ | 3,076 |   |   |   | 1.09 | % |   | $ | 243,409 |   |   | $ | 3,486 |   |   |   | 1.43 | % |
| Savings deposits                             |   |              | 54,543  |   |              |   | 51     |              |   |   | 0.09 | % |   |   | 48,992 |   |   |   | 52 |   |   |   | 0.11 | % |   |   | 45,796 |   |   |   | 132 |   |   |   | 0.29 | % |
| Time deposits                                |   |              | 352,887 |   |              |   | 7,775  |              |   |   | 2.20 | % |   |   | 399,873 |   |   |   | 12,694 |   |   |   | 3.17 | % |   |   | 381,961 |   |   |   | 15,188 |   |   |   | 3.98 | % |
| Short-term borrowings                        |   |              | ---     |   |              |   | ---    |              |   |   | --- | % |   |   | 49 |   |   |   | 3 |   |   |   | 6.12 | % |   |   | 297 |   |   |   | 12 |   |   |   | 4.04 | % |
| Total interest-bearing liabilities           |   | $                 | 730,135 |   |              | $      | 11,158 |              |   |   | 1.53 | % |   | $ | 731,446 |   |   | $ | 15,825 |   |   |   | 2.16 | % |   | $ | 671,463 |   |   | $ | 18,818 |   |   |   | 2.80 | % |
| Net interest income and interest rate spread |   |              |    |   |              | $      | 41,914 |              |   |   | 4.20 | % |   |   |   |   |   | $ | 38,595 |   |   |   | 3.80 | % |   |   |   |   |   | $ | 34,715 |   |   |   | 3.56 | % |
| Net yield on average interest-earning assets |   |              |    |   |              |   |   |              |   |   | 4.52 | % |   |   |   |   |   |   |   |   |   |   | 4.23 | % |   |   |   |   |   |   |   |   |   |   | 4.12 | % |

| (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 $863 in 2010, $956 in 2009 and $859 in 2008 are included in total interest income. |
|-----|-------------------------------------------------------------------------------------------------|

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

| (4) | Daily averages are shown at amortized cost. |
|-----|---------------------------------------------|

----

|                                                           |   | 2010 Over 2009 |   |   | 2009 Over 2008 |   |
|----------------------------------------------------------------|--------|----------------|--------|--------|----------------|--------|
|                                                           |   | Changes Due To |   |   |           |   |   | Changes Due To |   |   |   |   |
|                                                           |   | Rates(2)       |   |   | Volume(2)      |   |   | Net DollarChange |   |   | Rates(2) |   |   | Volume(2) |   |   | Net Dollar Change |   |
| Interest income: (1)                                           |   |           |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                          |   | $              | (1,033 | )      |           | $      | 412 |   |   | $ | (621 | ) |   | $ | (2,184 | ) |   | $ | 2,731 |   |   | $ | 547 |   |
| Taxable securities                                             |   |           | (198   | )      |           |   | (487 | ) |   |   | (685 | ) |   |   | (403 | ) |   |   | (141 | ) |   |   | (544 | ) |
| Nontaxable securities                                          |   |           | 2      |   |           |   | (82 | ) |   |   | (80 | ) |   |   | 75 |   |   |   | 1,168 |   |   |   | 1,243 |   |
| Interest-bearing deposits                                      |   |           | (8     | )      |           |   | 46 |   |   |   | 38 |   |   |   | (651 | ) |   |   | 292 |   |   |   | (359 | ) |
| Increase (decrease) in income on interest-earning assets       |   | $              | (1,237 | )      |           | $      | (111 | ) |   | $ | (1,348 | ) |   | $ | (3,163 | ) |   | $ | 4,050 |   |   | $ | 887 |   |
| Interest expense:                                              |   |           |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits                               |   | $              | (165   | )      |           | $      | 421 |   |   | $ | 256 |   |   | $ | (916 | ) |   | $ | 506 |   |   | $ | (410 | ) |
| Savings deposits                                               |   |           | (7     | )      |           |   | 6 |   |   |   | (1 | ) |   |   | (89 | ) |   |   | 9 |   |   |   | (80 | ) |
| Time deposits                                                  |   |           | (3,553 | )      |           |   | (1,366 | ) |   |   | (4,919 | ) |   |   | (3,179 | ) |   |   | 685 |   |   |   | (2,494 | ) |
| Short-term borrowings                                          |   |           | ---    |   |           |   | (3 | ) |   |   | (3 | ) |   |   | 4 |   |   |   | (13 | ) |   |   | (9 | ) |
| Increase (decrease) in expense of interest-bearing liabilities |   | $              | (3,725 | )      |           | $      | (942 | ) |   | $ | (4,667 | ) |   | $ | (4,180 | ) |   | $ | 1,187 |   |   | $ | (2,993 | ) |
| Increase in net interest income                                |   | $              | 2,488  |   |           | $      | 831 |   |   | $ | 3,319 |   |   | $ | 1,017 |   |   | $ | 2,863 |   |   | $ | 3,880 |   |

|   | (1)   Taxable equivalent basis using a Federal income tax rate of 35% in 2010, 2009 and 2008. |
|--------|--------------------------------------------------------------------------------------------------------------|

| (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 |   |
|-----------------|--------|--------------------------|--------|--------------------------|--------|
|            |   | 2010                     |   | 2009                     |   | 2010 |   | 2009 |   |
| 300             |   | 1.04                     | %      | 0.87                     | %      | 7.93 | % | 8.60 | % |
| 200             |   | 1.22                     | %      | 1.11                     | %      | 9.28 | % | 10.84 | % |
| 100             |   | 1.40                     | %      | 1.33                     | %      | 10.54 | % | 12.92 | % |
| (-)100          |   | 1.70                     | %      | 1.79                     | %      | 12.68 | % | 17.08 | % |
| (-)200          |   | 1.62                     | %      | 1.72                     | %      | 12.12 | % | 16.40 | % |
| (-)300          |   | 1.50                     | %      | 1.59                     | %      | 11.27 | % | 15.26 | % |

|                               |   | Year Ended        |   |
|------------------------------------|--------|-------------------|--------|
|                               |   | December 31, 2010 |   |   | December 31, 2009 |   |   | December 31, 2008 |   |
| Service charges on deposits        |   | $                 | 2,858  |   |   | $ | 3,314 |   |   | $ | 3,425 |   |
| Other service charges and fees     |   |              | 317    |   |   |   | 343 |   |   |   | 326 |   |
| Credit card fees                   |   |              | 2,954  |   |   |   | 2,803 |   |   |   | 2,808 |   |
| Trust fees                         |   |              | 1,118  |   |   |   | 1,053 |   |   |   | 1,231 |   |
| Bank-owned life insurance income   |   |              | 760    |   |   |   | 756 |   |   |   | 684 |   |
| Other income                       |   |              | 354    |   |   |   | 491 |   |   |   | 438 |   |
| Realized securities gains (losses) |   |              | (14    | ) |   |   | 44 |   |   |   | 175 |   |
| Total noninterest income           |   | $                 | 8,347  |   |   | $ | 8,804 |   |   | $ | 9,087 |   |

----

|                                 |   | Year Ended        |   |
|--------------------------------------|--------|-------------------|--------|
|                                 |   | December 31, 2010 |   |   | December 31, 2009 |   |   | December 31, 2008 |   |
| Salaries and employee benefits       |   | $                 | 10,963 |   |   | $ | 11,336 |   |   | $ | 11,168 |   |
| Occupancy, furniture and fixtures    |   |              | 1,875  |   |   |   | 1,792 |   |   |   | 1,751 |   |
| Data processing and ATM              |   |              | 1,499  |   |   |   | 1,371 |   |   |   | 1,381 |   |
| FDIC assessment                      |   |              | 1,080  |   |   |   | 1,727 |   |   |   | 209 |   |
| Credit card processing               |   |              | 2,300  |   |   |   | 2,121 |   |   |   | 2,105 |   |
| Intangibles amortization             |   |              | 1,083  |   |   |   | 1,093 |   |   |   | 1,119 |   |
| Net costs of other real estate owned |   |              | 214    |   |   |   | 393 |   |   |   | 100 |   |
| Franchise taxes                      |   |              | 963    |   |   |   | 885 |   |   |   | 823 |   |
| Other operating expenses             |   |              | 3,150  |   |   |   | 3,135 |   |   |   | 3,367 |   |
| Total noninterest expense            |   | $                 | 23,127 |   |   | $ | 23,853 |   |   | $ | 22,023 |   |

----

----

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

|                                             |   | December 31, |    |
|--------------------------------------------------|--------|--------------|---------|
|                                             |   | 2010         |    |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Average net loans outstanding                    |   | $            | 586,133 |   |   | $ | 579,581 |   |   | $ | 538,868 |   |   | $ | 505,070 |   |   | $ | 488,624 |   |
| Balance at beginning of year                     |   |         | 6,926   |   |   |   | 5,858 |   |   |   | 5,219 |   |   |   | 5,157 |   |   |   | 5,449 |   |
| Charge-offs:                                     |   |         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial loans                  |   |         | 1,969   |   |   |   | 83 |   |   |   | 146 |   |   |   | --- |   |   |   | 101 |   |
| Real estate mortgage loans                       |   |         | 53      |   |   |   | 181 |   |   |   | 24 |   |   |   | 66 |   |   |   | 6 |   |
| Real estate construction loans                   |   |         | 415     |   |   |   | --- |   |   |   | --- |   |   |   | 64 |   |   |   | --- |   |
| Loans to individuals                             |   |         | 373     |   |   |   | 383 |   |   |   | 441 |   |   |   | 341 |   |   |   | 352 |   |
| Total loans charged off                          |   |         | 2,810   |   |   |   | 647 |   |   |   | 611 |   |   |   | 471 |   |   |   | 459 |   |
| Recoveries:                                      |   |         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial loans                  |   |         | 63      |   |   |   | 3 |   |   |   | 37 |   |   |   | 18 |   |   |   | 29 |   |
| Real estate mortgage loans                       |   |         | 9       |   |   |   | 16 |   |   |   | --- |   |   |   | 2 |   |   |   | 1 |   |
| Real estate construction loans                   |   |         | ---     |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Loans to individuals                             |   |         | 67      |   |   |   | 62 |   |   |   | 94 |   |   |   | 90 |   |   |   | 88 |   |
| Total recoveries                                 |   |         | 139     |   |   |   | 81 |   |   |   | 131 |   |   |   | 110 |   |   |   | 118 |   |
| Net loans charged off                            |   |         | 2,671   |   |   |   | 566 |   |   |   | 480 |   |   |   | 361 |   |   |   | 341 |   |
| Additions charged to operations                  |   |         | 3,409   |   |   |   | 1,634 |   |   |   | 1,119 |   |   |   | 423 |   |   |   | 49 |   |
| Balance at end of year                           |   | $            | 7,664   |   |   | $ | 6,926 |   |   | $ | 5,858 |   |   | $ | 5,219 |   |   | $ | 5,157 |   |
| Net charge-offs to average net loans outstanding |   |         | 0.46    | % |   |   | 0.10 | % |   |   | 0.09 | % |   |   | 0.07 | % |   |   | 0.07 | % |

----

|                         |   | December 31,    |   |
|------------------------------|--------|-----------------|--------|
|                         |   | 2010            |   | 2009 |   | 2008 |   | 2007 |   | 2006 |   |
|                         |   | 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 |   | $               | 4,790  |   | 46.73 | % | $ | 2,670 | 48.05 | % | $ | 2,861 | 42.70 | % | $ | 1,894 | 41.32 | % | $ | 1,651 |  42.90 | % |
| Real estatemortgageloans     |   |            | 1,014  |   | 30.05 | % |   | 980 | 28.01 | % |   | 1,213 | 28.22 | % |   | 951 | 27.73 | % |   | 935 | 25.17 | % |
| Real estateconstructionloans |   |            | 1,151  |   | 8.00 | % |   | 1,941 | 7.72 | % |   | 614 | 10.54 | % |   | 396 | 8.90 | % |   | 342 | 6.75 | % |
| Loans toindividuals          |   |            | 580    |   | 15.22 | % |   | 1,049 | 16.22 | % |   | 1,048 | 18.54 | % |   | 1,830 | 22.05 | % |   | 1,867 | 25.18 | % |
| Unallocated                  |   |            | 129    |   |   |   |   | 286 |   |   |   | 122 |   |   |   | 148 |   |   |   | 362 |   |   |
|                         |   | $               | 7,664  |   | 100.00 | % | $ | 6,926 | 100.00 | % | $ | 5,858 | 100.00 | % | $ | 5,219 | 100.00 | % | $ | 5,157 | 100.00 | % |

|                                                  |   | December 31, |    |
|-------------------------------------------------------|--------|--------------|---------|
|                                                  |   | 2010         |    |   | 2009 |   |   | 2008 |   |
| Impaired loans                                        |   | $            | 8,791   |   |   | $ | 7,680 |   |   | $ | 3,576 |   |
| Allowance related to impaired loans                   |   |         | 1,200   |   |   |   | 2,495 |   |   |   | 679 |   |
| Allowance to impaired loans                           |   |         | 13.65   | % |   |   | 32.49 | % |   |   | 18.99 | % |
|                                                  |   |         |    |   |   |   |   |   |   |   |   |   |
| Nonimpaired loans                                     |   |         | 567,652 |   |   |   | 582,267 |   |   |   | 571,981 |   |
| Allowance related to nonimpaired loans                |   |         | 6,464   |   |   |   | 4,431 |   |   |   | 5,179 |   |
| Allowance to nonimpaired loans                        |   |         | 1.14    | % |   |   | 0.76 | % |   |   | 0.91 | % |
|                                                  |   |         |    |   |   |   |   |   |   |   |   |   |
| Total loans, net of unearned income and deferred fees |   |         | 576,443 |   |   |   | 589,947 |   |   |   | 575,557 |   |
| Total allowance for loan losses                       |   |         | 7,664   |   |   |   | 6,926 |   |   |   | 5,858 |   |
| Total allowance for total loans                       |   |         | 1.33    | % |   |   | 1.17 | % |   |   | 1.02 | % |

----

|                                   |   | December 31, |    |
|----------------------------------------|--------|--------------|---------|
|                                   |   | 2010         |    |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Commercial and industrial loans        |   | $            | 269,818 |   |   | $ | 283,998 |   |   | $ | 246,218 |   |   | $ | 216,830 |   |   | $ | 215,244 |   |
| Real estate mortgage loans             |   |         | 173,533 |   |   |   | 165,542 |   |   |   | 162,757 |   |   |   | 145,542 |   |   |   | 126,302 |   |
| Real estate construction loans         |   |         | 46,169  |   |   |   | 45,625 |   |   |   | 60,798 |   |   |   | 46,697 |   |   |   | 33,840 |   |
| Loans to individuals                   |   |         | 87,868  |   |   |   | 95,844 |   |   |   | 106,907 |   |   |   | 115,704 |   |   |   | 126,316 |   |
| Total loans                            |   | $            | 577,388 |   |   | $ | 591,009 |   |   | $ | 576,680 |   |   | $ | 524,773 |   |   | $ | 501,702 |   |
| Less unearned income and deferred fees |   |         | (945    | ) |   |   | (1,062 | ) |   |   | (1,123 | ) |   |   | (1,119 | ) |   |   | (1,059 | ) |
| Total loans, net of unearned income    |   | $            | 576,443 |   |   | $ | 589,947 |   |   | $ | 575,557 |   |   | $ | 523,654 |   |   | $ | 500,643 |   |
| Less allowance for loans losses        |   |         | (7,664  | ) |   |   | (6,926 | ) |   |   | (5,858 | ) |   |   | (5,219 | ) |   |   | (5,157 | ) |
| Total loans, net                       |   | $            | 568,779 |   |   | $ | 583,021 |   |   | $ | 569,699 |   |   | $ | 518,435 |   |   | $ | 495,486 |   |

|                                         |   | December 31, 2010 |   |
|----------------------------------------------|--------|-------------------|--------|
|                                         |   | < 1 Year       |   |   | 1 – 5 Years |   |   | After 5 Years |   |   | Total |   |
| Commercial and industrial                    |   | $                 | 59,744 |   |   | $ | 52,872 |   |   | $ | 157,202 |   |   | $ | 269,818 |   |
| Real estate construction                     |   |              | 28,575 |   |   |   | 17,594 |   |   |   | --- |   |   |   | 46,169 |   |
| Total                                        |   |              | 88,319 |   |   |   | 70,466 |   |   |   | 157,202 |   |   |   | 315,987 |   |
| Less loans with predetermined interest rates |   |              | 25,740 |   |   |   | 10,049 |   |   |   | 21,733 |   |   |   | 57,522 |   |
| Loans with adjustable rates                  |   | $                 | 62,579 |   |   | $ | 60,417 |   |   | $ | 135,469 |   |   | $ | 258,465 |   |

----

|                                     |   | December31, |   |
|------------------------------------------|--------|-------------|--------|
|                                     |   | 2010        |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Nonaccrual loans:                        |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial                |   | $           | 974    |   |   | $ | 1,455 |   |   | $ | 1,333 |   |   | $ | 1,144 |   |   | $ | --- |   |
| Real estate mortgage                     |   |        | 964    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Real estate construction                 |   |        | ---    |   |   |   | 2,643 |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Loans to individuals                     |   |        | ---    |   |   |   | --- |   |   |   | --- |   |   |   | 6 |   |   |   | --- |   |
| Total nonaccrual loans                   |   | $           | 1,938  |   |   | $ | 4,098 |   |   | $ | 1,333 |   |   | $ | 1,150 |   |   | $ | --- |   |
| Restructured loans: (TDR Loans)          |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial                |   | $           | 4,011  |   |   | $ | 2,652 |   |   | $ | --- |   |   | $ | --- |   |   | $ | --- |   |
| Real estate mortgage                     |   |        | 287    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Real estate construction                 |   |        | 2,185  |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Loans to individuals                     |   |        | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Total restructured loans                 |   |        | 6,483  |   |   |   | 2,652 |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Total nonperforming loans                |   | $           | 8,421  |   |   | $ | 6,750 |   |   | $ | 1,333 |   |   | $ | 1,150 |   |   | $ | --- |   |
| Other real estate owned, net             |   |        | 1,723  |   |   |   | 2,126 |   |   |   | 1,984 |   |   |   | 263 |   |   |   | 390 |   |
| Total nonperforming assets               |   | $           | 10,144 |   |   | $ | 8,876 |   |   | $ | 3,317 |   |   | $ | 1,413 |   |   | $ | 390 |   |
| Accruing loans past due 90 days or more: |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial                |   | $           | 658    |   |   | $ | 762 |   |   | $ | 663 |   |   | $ | 984 |   |   | $ | 338 |   |
| Real estate mortgage                     |   |        | 612    |   |   |   | 864 |   |   |   | 394 |   |   |   | 55 |   |   |   | 274 |   |
| Real estate construction                 |   |        | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Loans to individuals                     |   |        | 66     |   |   |   | 71 |   |   |   | 70 |   |   |   | 142 |   |   |   | 69 |   |
|                                     |   | $           | 1,336  |   |   | $ | 1,697 |   |   | $ | 1,127 |   |   | $ | 1,181 |   |   | $ | 681 |   |

|                                                                                                 |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Provision for loan losses                                                                            |   | $      | 3,409  |   |   | $      | 1,634  |   |   | $ | 1,119 |   |
| Net charge-offs to average net loans                                                                 |   |   | 0.46   | %      |   |   | 0.10   | %      |   |   | 0.09 | % |
| Allowance for loan losses to loans, net of unearnedincome and deferred fees                          |   |   | 1.33   | %      |   |   | 1.17   | %      |   |   | 1.02 | % |
| Allowance for loan losses to nonperforming loans                                                     |   |   | 91.01  | %      |   |   | 102.61 | %      |   |   | 439.46 | % |
| Allowance for loan losses to nonperforming assets                                                    |   |   | 75.55  | %      |   |   | 78.03  | %      |   |   | 176.61 | % |
| Nonperforming assets to loans, net of unearned incomeand deferred fees, plus other real estate owned |   |   | 1.75   | %      |   |   | 1.50   | %      |   |   | 0.23 | % |
| Nonaccrual loans                                                                                     |   | $      | 1,938  |   |   | $      | 4,098  |   |   | $ | 1,333 |   |
| Restructured loans                                                                                   |   |   | 6,483  |   |   |   | 2,652  |   |   |   | --- |   |
| Other real estate owned, net                                                                         |   |   | 1,723  |   |   |   | 2,126  |   |   |   | 1,984 |   |
| Total nonperforming assets                                                                           |   | $      | 10,144 |   |   | $      | 8,876  |   |   | $ | 3,317 |   |
| Accruing loans past due 90 days or more                                                              |   | $      | 1,336  |   |   | $      | 1,697  |   |   | $ | 1,127 |   |

----

----

|                        |   |            |   |   | Accruing |   |   |                |   |
|-----------------------------|--------|-----------------|--------|--------|----------|--------|--------|---------------------|--------|
|                        |   | Total TDR Loans |   |   | Current  |   |   | 30-89 Days Past Due |   |   | 90+ Days Past Due |   |   | Nonaccrual |   |
| Commercial & Industrial |   | $               | 4,011  |   |     | $      | 350    |                |   | $ | --- |   |   | $ | --- |   |   | $ | 3,661 |   |
| Real Estate Mortgage        |   |            | 287    |   |     |   | ---    |                |   |   | --- |   |   |   | --- |   |   |   | 287 |   |
| Construction Real Estate    |   |            | 2,185  |   |     |   | ---    |                |   |   | --- |   |   |   | --- |   |   |   | 2,185 |   |
| Total TDR Loans             |   | $               | 6,483  |   |     | $      | 350    |                |   | $ | --- |   |   | $ | --- |   |   | $ | 6,133 |   |

----

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

|                                                    |   | Maturities and Yields |   |
|---------------------------------------------------------|--------|-----------------------|--------|
| $ in thousands, except percent data                     |   | December 31, 2010     |   |
|                                                    |   | < 1 Year           |   |   | 1-5 Years |   |   | 5-10 Years |   |   | > 10 Years |   |   | None |   |   | Total |   |
| Available for Sale:                                     |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury                                           |   | $                     | ---    |   |   | $ | 2,183 |   |   | $ | --- |   |   | $ | --- |   |   | $ | --- |   |   | $ | 2,183 |   |
|                                                    |   |                  | ---    |   |   |   | 3.97 | % |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 3.97 | % |
| U.S. Government agencies                                |   |                  | 1,004  |   |   |   | 4,250 |   |   |   | 5,955 |   |   |   | 76,943 |   |   |   | --- |   |   |   | 88,152 |   |
|                                                    |   |                  | 4.50   | % |   |   | 4.16 | % |   |   | 3.97 | % |   |   | 4.15 | % |   |   | --- |   |   |   | 4.14 | % |
| Mortgage-backed securities                              |   |                  | 292    |   |   |   | 3,937 |   |   |   | 2,747 |   |   |   | 4,403 |   |   |   | --- |   |   |   | 11,379 |   |
|                                                    |   |                  | 4.03   | % |   |   | 4.81 | % |   |   | 5.07 | % |   |   | 5.33 | % |   |   | --- |   |   |   | 5.05 | % |
| States and political subdivision – taxable        |   |                  | 981    |   |   |   | 1,777 |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 2,758 |   |
|                                                    |   |                  | 4.20   | % |   |   | 4.83 | % |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 4.61 | % |
| States and political subdivision – nontaxable (1) |   |                  | 7,247  |   |   |   | 26,412 |   |   |   | 13,267 |   |   |   | 11,998 |   |   |   | --- |   |   |   | 58,924 |   |
|                                                    |   |                  | 5.56   | % |   |   | 5.74 | % |   |   | 5.73 | % |   |   | 5.80 | % |   |   | --- |   |   |   | 5.73 | % |
| Corporate                                               |   |                  | 1,037  |   |   |   | 16,643 |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 17,680 |   |
|                                                    |   |                  | 5.03   | % |   |   | 4.85 | % |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 4.86 | % |
| Federal Home Loan Bank stock                            |   |                  | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 1,677 |   |   |   | 1,677 |   |
|                                                    |   |                  | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 0.01 | % |   |   | 0.01 | % |
| Federal Reserve Bank stock                              |   |                  | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 92 |   |   |   | 92 |   |
|                                                    |   |                  | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 6.0 | % |   |   | 6.0 | % |
| Other securities                                        |   |                  | 492    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 1,570 |   |   |   | 2,062 |   |
|                                                    |   |                  | 0.16   | % |   |   | --- |   |   |   | --- |   |   |   | --- |   |   |   | 2.65 | % |   |   | 2.05 | % |
| Total                                                   |   | $                     | 11,053 |   |   | $ | 55,202 |   |   | $ | 21,969 |   |   | $ | 93,344 |   |   | $ | 3,339 |   |   | $ | 184,907 |   |
|                                                    |   |                  | 5.02   | % |   |   | 5.18 | % |   |   | 5.17 | % |   |   | 4.42 | % |   |   | 1.41 | % |   |   | 4.72 | % |
| Held to Maturity:                                       |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agencies                                |   | $                     | 1,999  |   |   | $ | 1,000 |   |   | $ | 2,008 |   |   | $ | 8,067 |   |   | $ | --- |   |   | $ | 13,074 |   |
|                                                    |   |                  | 4.36   | % |   |   | 5.00 | % |   |   | 4.39 | % |   |   | 4.30 | % |   |   | --- |   |   |   | 4.38 | % |
| Mortgage-backed securities                              |   |                  | ---    |   |   |   | --- |   |   |   | --- |   |   |   | 1,142 |   |   |   | --- |   |   |   | 1,142 |   |
|                                                    |   |                  | ---    |   |   |   | --- |   |   |   | --- |   |   |   | 5.63 | % |   |   | --- |   |   |   | 5.63 | % |
| States and political subdivision – taxable        |   |                  | ---    |   |   |   | 2,000 |   |   |   | 1,021 |   |   |   | 1,012 |   |   |   | --- |   |   |   | 4,033 |   |
|                                                    |   |                  | ---    |   |   |   | 5.32 | % |   |   | 4.47 | % |   |   | 5.52 | % |   |   | --- |   |   |   | 5.15 | % |
| States and political subdivision – nontaxable (1) |   |                  | 1,674  |   |   |   | 17,958 |   |   |   | 12,755 |   |   |   | 76,205 |   |   |   | --- |   |   |   | 108,592 |   |
|                                                    |   |                  | 5.91   | % |   |   | 6.15 | % |   |   | 5.71 | % |   |   | 6.11 | % |   |   | --- |   |   |   | 6.07 | % |
| Corporate                                               |   |                  | 500    |   |   |   | 1,659 |   |   |   | 2,000 |   |   |   | --- |   |   |   | --- |   |   |   | 4,159 |   |
|                                                    |   |                  | 6.50   | % |   |   | 4.01 | % |   |   | 5.03 | % |   |   | --- |   |   |   | --- |   |   |   | 4.80 | % |
| Total                                                   |   | $                     | 4,173  |   |   | $ | 22,617 |   |   | $ | 17,784 |   |   | $ | 86,426 |   |   | $ | --- |   |   | $ | 131,000 |   |
|                                                    |   |                  | 5.24   | % |   |   | 5.87 | % |   |   | 5.41 | % |   |   | 5.93 | % |   |   | --- |   |   |   | 5.83 | % |

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

----

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

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

|                                |   | Year Ended December31, |    |
|-------------------------------------|--------|------------------------|---------|
|                                |   | 2010                   |    | 2009 |   | 2008 |   |
|                                |   | AverageAmounts         |    | AverageRatesPaid |   |  AverageAmounts | AverageRatesPaid |   |  AverageAmounts | AverageRatesPaid |   |
| Noninterest-bearing demand deposits |   | $                      | 122,817 |   | --- |   | $ | 115,241 | --- |   | $ | 112,608 | --- |   |
| Interest-bearing demand deposits    |   |                   | 322,705 |   | 1.03 | % |   | 282,532 | 1.09 | % |   | 243,409 | 1.43 | % |
| Savings deposits                    |   |                   | 54,543  |   | 0.09 | % |   | 48,992 | 0.11 | % |   | 45,796 | 0.29 | % |
| Time deposits                       |   |                   | 352,888 |   | 2.20 | % |   | 399,872 | 3.17 | % |   | 381,961 | 3.98 | % |
| Average total deposits              |   | $                      | 852,953 |   | 1.53 | % | $ | 846,637 | 2.16 | % | $ | 783,774 | 2.80 | % |

|                                    |   | December31,2010  |   |
|-----------------------------------------|--------|------------------|--------|
|                                    |   | 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 |   | $                | 30,185 |   |   | $ | 19,242 |   |   | $ | 45,393 |   |   | $ | 44,661 |   |   | $ | 139,481 |   |

----

----

|                                   |   | PaymentsDuebyPeriod |    |
|----------------------------------------|--------|---------------------|---------|
|                                   |   | Total               |    |   | Less Than 1 Year |   |   | 1-3 Years |   |   | 3-5 Years |   |   | More Than 5 Years |   |
| Commitments to extend credit           |   | $                   | 149,106 |   |   | $ | 149,106 |   |   | $ | --- |   |   | $ | --- |   |   | $ | --- |   |
| Standby letters of credit              |   |                | 13,540  |   |   |   | 13,540 |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Mortgage loans with potential recourse |   |                | 19,595  |   |   |   | 19,595 |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Operating leases                       |   |                | 950     |   |   |   | 228 |   |   |   | 449 |   |   |   | 249 |   |   |   | 24 |   |
| Total                                  |   | $                   | 183,191 |   |   | $ | 182,469 |   |   | $ | 449 |   |   | $ | 249 |   |   | $ | 24 |   |

----

|                                                                                                                          |   | December31, |      |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-----------|
| $ in thousands, except share data                                                                                             |   | 2010        |      |   | 2009 |   |
| Assets                                                                                                                        |   |        |      |   |   |   |
| Cash and due from banks                                                                                                       |   | $           | 9,858     |   |   | $ | 12,894 |   |
| Interest-bearing deposits                                                                                                     |   |        | 69,400    |   |   |   | 32,730 |   |
| Securities available for sale, at fair value                                                                                  |   |        | 184,907   |   |   |   | 168,041 |   |
| Securities held to maturity (fair value approximates $129,913 at December 31, 2010 and $129,892 atDecember 31, 2009)          |   |        | 131,000   |   |   |   | 129,376 |   |
| Mortgage loans held for sale                                                                                                  |   |        | 2,460     |   |   |   | 126 |   |
| Loans:                                                                                                                        |   |        |      |   |   |   |   |   |
| Real estate construction loans                                                                                                |   |        | 46,169    |   |   |   | 45,625 |   |
| Real estate mortgage loans                                                                                                    |   |        | 173,533   |   |   |   | 165,542 |   |
| Commercial and industrial loans                                                                                               |   |        | 269,818   |   |   |   | 283,998 |   |
| Loans to individuals                                                                                                          |   |        | 87,868    |   |   |   | 95,844 |   |
| Total loans                                                                                                                   |   |        | 577,388   |   |   |   | 591,009 |   |
| Less unearned income and deferred fees                                                                                        |   |        | (945      | ) |   |   | (1,062 | ) |
| Loans, net of unearned income and deferred fees                                                                               |   |        | 576,443   |   |   |   | 589,947 |   |
| Less allowance for loan losses                                                                                                |   |        | (7,664    | ) |   |   | (6,926 | ) |
| Loans, net                                                                                                                    |   |        | 568,779   |   |   |   | 583,021 |   |
| Premises and equipment, net                                                                                                   |   |        | 10,470    |   |   |   | 10,628 |   |
| Accrued interest receivable                                                                                                   |   |        | 6,016     |   |   |   | 6,250 |   |
| Other real estate owned, net                                                                                                  |   |        | 1,723     |   |   |   | 2,126 |   |
| Intangible assets and goodwill                                                                                                |   |        | 11,543    |   |   |   | 12,626 |   |
| Other assets                                                                                                                  |   |        | 26,082    |   |   |   | 24,549 |   |
| Total assets                                                                                                                  |   | $           | 1,022,238 |   |   | $ | 982,367 |   |
|                                                                                                                          |   |        |      |   |   |   |   |   |
| Liabilities and Stockholders’ Equity                                                                                    |   |        |      |   |   |   |   |   |
| Noninterest-bearing demand deposits                                                                                           |   | $           | 131,540   |   |   | $ | 122,549 |   |
| Interest-bearing demand deposits                                                                                              |   |        | 365,040   |   |   |   | 310,629 |   |
| Saving deposits                                                                                                               |   |        | 55,800    |   |   |   | 51,622 |   |
| Time deposits                                                                                                                 |   |        | 332,203   |   |   |   | 367,312 |   |
| Total deposits                                                                                                                |   |        | 884,583   |   |   |   | 852,112 |   |
| Accrued interest payable                                                                                                      |   |        | 257       |   |   |   | 336 |   |
| Other liabilities                                                                                                             |   |        | 8,211     |   |   |   | 7,843 |   |
| Total liabilities                                                                                                             |   |        | 893,051   |   |   |   | 860,291 |   |
| 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 – 2010 and 2009 |   |        | 8,667     |   |   |   | 8,667 |   |
| Retained earnings                                                                                                             |   |        | 123,161   |   |   |   | 113,901 |   |
| Accumulated other comprehensive (loss), net                                                                                   |   |        | (2,641    | ) |   |   | (492 | ) |
| Total stockholders’ equity                                                                                              |   |        | 129,187   |   |   |   | 122,076 |   |
| Total liabilities and stockholders’ equity                                                                              |   | $           | 1,022,238 |   |   | $ | 982,367 |   |

----

|                                                |   | YearsendedDecember31, |   |
|-----------------------------------------------------|--------|-----------------------|--------|
| $ in thousands, except per share data               |   | 2010                  |   |   | 2009 |   |   | 2008 |   |
| Interest Income                                     |   |                  |   |   |   |   |   |   |   |
| Interest and fees on loans                          |   | $                     | 36,919 |   |   | $ | 37,578 |   |   | $ | 37,108 |   |
| Interest on interest-bearing deposits               |   |                  | 128    |   |   |   | 90 |   |   |   | 449 |   |
| Interest on securities – taxable              |   |                  | 5,588  |   |   |   | 6,273 |   |   |   | 6,816 |   |
| Interest on securities – nontaxable           |   |                  | 6,504  |   |   |   | 6,546 |   |   |   | 5,738 |   |
| Total interest income                               |   |                  | 49,139 |   |   |   | 50,487 |   |   |   | 50,111 |   |
|                                                |   |                  |   |   |   |   |   |   |   |   |   |   |
| Interest Expense                                    |   |                  |   |   |   |   |   |   |   |   |   |   |
| Interest on time deposits of $100,000 or more       |   |                  | 3,439  |   |   |   | 5,417 |   |   |   | 6,004 |   |
| Interest on other deposits                          |   |                  | 7,719  |   |   |   | 10,405 |   |   |   | 12,802 |   |
| Interest on borrowed funds                          |   |                  | ---    |   |   |   | 3 |   |   |   | 12 |   |
| Total interest expense                              |   |                  | 11,158 |   |   |   | 15,825 |   |   |   | 18,818 |   |
| Net interest income                                 |   |                  | 37,981 |   |   |   | 34,662 |   |   |   | 31,293 |   |
| Provision for loan losses                           |   |                  | 3,409  |   |   |   | 1,634 |   |   |   | 1,119 |   |
| Net interest income after provision for loan losses |   |                  | 34,572 |   |   |   | 33,028 |   |   |   | 30,174 |   |
|                                                |   |                  |   |   |   |   |   |   |   |   |   |   |
| Noninterest Income                                  |   |                  |   |   |   |   |   |   |   |   |   |   |
| Service charges on deposit accounts                 |   |                  | 2,858  |   |   |   | 3,314 |   |   |   | 3,425 |   |
| Other service charges and fees                      |   |                  | 317    |   |   |   | 343 |   |   |   | 326 |   |
| Credit card fees                                    |   |                  | 2,954  |   |   |   | 2,803 |   |   |   | 2,808 |   |
| Trust income                                        |   |                  | 1,118  |   |   |   | 1,053 |   |   |   | 1,231 |   |
| BOLI income                                         |   |                  | 760    |   |   |   | 756 |   |   |   | 684 |   |
| Other income                                        |   |                  | 354    |   |   |   | 491 |   |   |   | 438 |   |
| Realized securities gains (losses), net             |   |                  | (14    | ) |   |   | 44 |   |   |   | 175 |   |
| Total noninterest income                            |   |                  | 8,347  |   |   |   | 8,804 |   |   |   | 9,087 |   |
|                                                |   |                  |   |   |   |   |   |   |   |   |   |   |
| Noninterest Expense                                 |   |                  |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                      |   |                  | 10,963 |   |   |   | 11,336 |   |   |   | 11,168 |   |
| Occupancy and furniture and fixtures                |   |                  | 1,875  |   |   |   | 1,792 |   |   |   | 1,751 |   |
| Data processing and ATM                             |   |                  | 1,499  |   |   |   | 1,371 |   |   |   | 1,381 |   |
| FDIC assessment                                     |   |                  | 1,080  |   |   |   | 1,727 |   |   |   | 209 |   |
| Credit card processing                              |   |                  | 2,300  |   |   |   | 2,121 |   |   |   | 2,105 |   |
| Intangible assets amortization                      |   |                  | 1,083  |   |   |   | 1,093 |   |   |   | 1,119 |   |
| Net costs of other real estate owned                |   |                  | 214    |   |   |   | 393 |   |   |   | 100 |   |
| Franchise taxes                                     |   |                  | 963    |   |   |   | 885 |   |   |   | 823 |   |
| Other operating expenses                            |   |                  | 3,150  |   |   |   | 3,135 |   |   |   | 3,367 |   |
| Total noninterest expense                           |   |                  | 23,127 |   |   |   | 23,853 |   |   |   | 22,023 |   |
| Income before income taxes                          |   |                  | 19,792 |   |   |   | 17,979 |   |   |   | 17,238 |   |
| Income tax expense                                  |   |                  | 4,223  |   |   |   | 3,660 |   |   |   | 3,645 |   |
| Net income                                          |   | $                     | 15,569 |   |   | $ | 14,319 |   |   | $ | 13,593 |   |
|                                                |   |                  |   |   |   |   |   |   |   |   |   |   |
| Basic net income per share                          |   | $                     | 2.25   |   |   | $ | 2.07 |   |   | $ | 1.96 |   |
| Fully diluted net income per share                  |   | $                     | 2.24   |   |   | $ | 2.06 |   |   | $ | 1.96 |   |

----

| $ in thousands, except per share data                                                      |   | Common Stock |   |   | Retained Earnings |   |    | Accumulated Other Comprehensive Income (Loss) |   |   | Comprehensive Income |   |   | Total  |   |
|--------------------------------------------------------------------------------------------|--------|--------------|--------|--------|-------------------|--------|---------|-----------------------------------------------|--------|--------|----------------------|--------|--------|--------|--------|
| 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 ASC 715, 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 |   |
| Net income                                                                                 |   |         | ---    |   |              |   | 15,569  |                                          |   |   | ---                  |   |   | $      | 15,569 |   |   |   | 15,569 |   |
| Other comprehensive loss:                                                                  |   |         |   |   |              |   |    |                                          |   |   |                 |   |   |   |   |   |   |   |   |   |
| Unrealized holding losses on available for sale securities net of deferred taxes of ($923) |   |         | ---    |   |              |   | ---     |                                          |   |   | ---                  |   |   |   | (1,716 | ) |   |   | --- |   |
| Reclassification adjustment, net of income taxes of $7                                     |   |         | ---    |   |              |   | ---     |                                          |   |   | ---                  |   |   |   | (12    | ) |   |   | --- |   |
| Minimum pension liability adjustment, net of deferred taxes of ($227)                      |   |         | ---    |   |              |   | ---     |                                          |   |   | ---                  |   |   |   | (421   | ) |   |   | --- |   |
| Other comprehensive loss, net of tax of ($1,157)                                           |   |         | ---    |   |              |   | ---     |                                          |   |   | (2,149               | )      |   |   | (2,149 | ) |   |   | (2,149 | ) |
| Total comprehensive income                                                                 |   |         | ---    |   |              |   | ---     |                                          |   |   | ---                  |   |   | $      | 13,420 |   |   |   | --- |   |
| Cash dividend ($0.91 per share)                                                            |   |         | ---    |   |              |   | (6,309  | )                                             |   |   | ---                  |   |   |   |   |   |   |   | (6,309 | ) |
| Balance at December 31, 2010                                                               |   | $            | 8,667  |   |              | $      | 123,161 |                                          |   | $      | (2,641               | )      |   |   |   |   |   | $ | 129,187 |   |

----

|                                                                             |   | YearsEndedDecember31, |    |
|----------------------------------------------------------------------------------|--------|-----------------------|---------|
| $ in thousands                                                                   |   | 2010                  |    |   | 2009 |   |   | 2008 |   |
| Cash Flows from Operating Activities                                             |   |                  |    |   |   |   |   |   |   |
| Net income                                                                       |   | $                     | 15,569  |   |   | $ | 14,319 |   |   | $ | 13,593 |   |
| Adjustment to reconcile net income to net cash provided by operating activities: |   |                  |    |   |   |   |   |   |   |   |   |   |
| Provision for loan losses                                                        |   |                  | 3,409   |   |   |   | 1,634 |   |   |   | 1,119 |   |
| Deferred income tax benefit                                                      |   |                  | (312    | ) |   |   | (1,057 | ) |   |   | (310 | ) |
| Depreciation of premises and equipment                                           |   |                  | 886     |   |   |   | 906 |   |   |   | 965 |   |
| Amortization of intangibles                                                      |   |                  | 1,083   |   |   |   | 1,093 |   |   |   | 1,119 |   |
| Amortization of premiums and accretion of discounts, net                         |   |                  | 300     |   |   |   | 357 |   |   |   | 250 |   |
| (Gains) losses on disposal of fixed assets                                       |   |                  | (5      | ) |   |   | --- |   |   |   | 32 |   |
| (Gains) on sale and calls of securities available for sale, net                  |   |                  | (19     | ) |   |   | (29 | ) |   |   | (147 | ) |
| (Gains) losses on calls of securities held to maturity, net                      |   |                  | 33      |   |   |   | (15 | ) |   |   | (28 | ) |
| Losses and writedowns on other real estate owned                                 |   |                  | 63      |   |   |   | 309 |   |   |   | 6 |   |
| Originations of mortgage loans held for sale                                     |   |                  | (21,929 | ) |   |   | (25,265 | ) |   |   | (13,594 | ) |
| Sales of mortgage loans held for sale                                            |   |                  | 19,595  |   |   |   | 25,487 |   |   |   | 13,466 |   |
| Net change in:                                                                   |   |                  |    |   |   |   |   |   |   |   |   |   |
| Accrued interest receivable                                                      |   |                  | 234     |   |   |   | (490 | ) |   |   | (49 | ) |
| Other assets                                                                     |   |                  | 17      |   |   |   | (3,564 | ) |   |   | (1,414 | ) |
| Accrued interest payable                                                         |   |                  | (79     | ) |   |   | (319 | ) |   |   | (137 | ) |
| Other liabilities                                                                |   |                  | (280    | ) |   |   | 1,508 |   |   |   | 993 |   |
| Net cash provided by operating activities                                        |   |                  | 18,565  |   |   |   | 14,874 |   |   |   | 15,864 |   |
|                                                                             |   |                  |    |   |   |   |   |   |   |   |   |   |
| Cash Flows from Investing Activities                                             |   |                  |    |   |   |   |   |   |   |   |   |   |
| Net change in interest-bearing deposits                                          |   |                  | (36,670 | ) |   |   | (3,074 | ) |   |   | 31 |   |
| Proceeds from repayments of mortgage-backed securities                           |   |                  | 5,817   |   |   |   | 7,119 |   |   |   | 5,394 |   |
| Proceeds from sales of securities available for sale                             |   |                  | ---     |   |   |   | --- |   |   |   | 290 |   |
| Proceeds from calls and maturities of securities available for sale              |   |                  | 68,565  |   |   |   | 22,446 |   |   |   | 19,636 |   |
| Proceeds from calls and maturities of securities held to maturity                |   |                  | 39,234  |   |   |   | 36,951 |   |   |   | 29,003 |   |
| Purchases of securities available for sale                                       |   |                  | (93,862 | ) |   |   | (45,439 | ) |   |   | (16,800 | ) |
| Purchases of securities held to maturity                                         |   |                  | (41,297 | ) |   |   | (49,003 | ) |   |   | (32,350 | ) |
| Purchases of loan participations                                                 |   |                  | (55     | ) |   |   | (13 | ) |   |   | (1,614 | ) |
| Collections of loan participations                                               |   |                  | 876     |   |   |   | 727 |   |   |   | 1,021 |   |
| Loan originations and principal collections, net                                 |   |                  | 7,820   |   |   |   | (16,662 | ) |   |   | (53,715 | ) |
| Purchase of bank-owned life insurance                                            |   |                  | ---     |   |   |   | --- |   |   |   | (2,250 | ) |
| Proceeds from disposal of other real estate owned                                |   |                  | 2,393   |   |   |   | 460 |   |   |   | 67 |   |
| Recoveries on loans charged off                                                  |   |                  | 139     |   |   |   | 81 |   |   |   | 131 |   |
| Additions to premises and equipment                                              |   |                  | (728    | ) |   |   | (330 | ) |   |   | (351 | ) |
| Proceeds from sale of premises and equipment                                     |   |                  | 5       |   |   |   | --- |   |   |   | 166 |   |
| Net cash used in investing activities                                            |   |                  | (47,763 | ) |   |   | (46,737 | ) |   |   | (51,341 | ) |
|                                                                             |   |                  |    |   |   |   |   |   |   |   |   |   |
| Cash Flows from Financing Activities                                             |   |                  |    |   |   |   |   |   |   |   |   |   |
| Net change in time deposits                                                      |   |                  | (35,109 | ) |   |   | (39,161 | ) |   |   | 25,616 |   |
| Net change in other deposits                                                     |   |                  | 67,580  |   |   |   | 73,425 |   |   |   | 15,893 |   |
| Net change in other borrowed funds                                               |   |                  | ---     |   |   |   | (54 | ) |   |   | (10 | ) |
|                                                                             |   |                  |    |   |   |   |   |   |   | (continued) |   |

----

|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Cash dividends paid                                         |   |   | (6,309 | )      |   |   | (5,823 | )      |   |   | (5,543 | )      |
| Common stock repurchased                                    |   |   | ---    |   |   |   | ---    |   |   |   | (562   | )      |
| Stock options exercised                                     |   |   | ---    |   |   |   | 54     |   |   |   | 75     |   |
| Net cash provided by financing activities                   |   |   | 26,162 |   |   |   | 28,441 |   |   |   | 35,469 |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net change in cash and due from banks                       |   |   | (3,036 | )      |   |   | (3,422 | )      |   |   | (8     | )      |
| Cash and due from banks at beginning of year                |   |   | 12,894 |   |   |   | 16,316 |   |   |   | 16,324 |   |
| Cash and due from banks at end of year                      |   | $      | 9,858  |   |   | $      | 12,894 |   |   | $      | 16,316 |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental Disclosures of Cash Flow Information           |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest paid on deposits and borrowed funds                |   | $      | 11,237 |   |   | $      | 16,144 |   |   | $      | 18,955 |   |
| Income taxes paid                                           |   |   | 5,478  |   |   |   | 3,914  |   |   |   | 4,231  |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental Disclosures of Noncash Activities              |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans charged against the allowance for loan losses         |   | $      | 2,810  |   |   | $      | 647    |   |   | $      | 611    |   |
| Loans transferred to other real estate owned                |   |   | 2,053  |   |   |   | 911    |   |   |   | 1,794  |   |
| Unrealized gains (losses) on securities available for sale  |   |   | (2,658 | )      |   |   | 4,884  |   |   |   | (2,742 | )      |
| Minimum pension liability adjustment                        |   |   | (648   | )      |   |   | 375    |   |   |   | (657   | )      |
| Capital reduction due to change in pension measurement date |   |   | ---    |   |   |   | ---    |   |   |   | (66    | )      |

----

----

----

----

|                                                                                     |   | 2010      |   | 2009      |   | 2008      |   |
|------------------------------------------------------------------------------------------|--------|-----------|--------|-----------|--------|-----------|--------|
| Average number of common shares outstanding                                              |   | 6,933,474 |   | 6,932,126 |   | 6,929,755 |   |
| Effect of dilutive options                                                               |   | 16,462    |   | 13,404    |   | 6,195     |   |
| Average number of common shares outstanding used to calculate diluted earnings per share |   | 6,949,936 |   | 6,945,530 |   | 6,935,950 |   |

----

----

|                                            |   | December 31, 2010 |    |
|-------------------------------------------------|--------|-------------------|---------|
| Available for sale:                             |   | AmortizedCost     |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | Fair Value |   |
| U.S. Treasury                                   |   | $                 | 2,015   |   |   | $ | 168 |   |   | $ | --- |   |   | $ | 2,183 |   |
| U.S. Government agencies and corporations       |   |              | 90,641  |   |   |   | 424 |   |   |   | 2,913 |   |   |   | 88,152 |   |
| States and political subdivisions               |   |              | 60,676  |   |   |   | 1,417 |   |   |   | 411 |   |   |   | 61,682 |   |
| Mortgage-backed securities                      |   |              | 10,744  |   |   |   | 635 |   |   |   | --- |   |   |   | 11,379 |   |
| Corporate debt securities                       |   |              | 16,902  |   |   |   | 778 |   |   |   | --- |   |   |   | 17,680 |   |
| Federal Home Loan Bank stock – restricted |   |              | 1,677   |   |   |   | --- |   |   |   | --- |   |   |   | 1,677 |   |
| Federal Reserve Bank stock – restricted   |   |              | 92      |   |   |   | --- |   |   |   | --- |   |   |   | 92 |   |
| Other securities                                |   |              | 2,308   |   |   |   | --- |   |   |   | 246 |   |   |   | 2,062 |   |
| Total securities available for sale             |   | $                 | 185,055 |   |   | $ | 3,422 |   |   | $ | 3,570 |   |   | $ | 184,907 |   |

|                                            |   | 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, 2010 |    |
|----------------------------------------|--------|-------------------|---------|
|                                   |   | Amortized Cost    |    |   | Fair Value |   |
| Due in one year or less                |   | $                 | 10,906  |   |   | $ | 11,053 |   |
| Due after one year through five years  |   |              | 52,989  |   |   |   | 55,202 |   |
| Due after five years through ten years |   |              | 21,407  |   |   |   | 21,969 |   |
| Due after ten years                    |   |              | 96,167  |   |   |   | 93,344 |   |
| No maturity                            |   |              | 3,586   |   |   |   | 3,339 |   |
|                                   |   | $                 | 185,055 |   |   | $ | 184,907 |   |

|                                      |   | December 31, 2010 |    |
|-------------------------------------------|--------|-------------------|---------|
| Held to maturity:                         |   | AmortizedCost     |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | Fair Value |   |
| U.S. Government agencies and corporations |   | $                 | 13,074  |   |   | $ | 310 |   |   | $ | 214 |   |   | $ | 13,170 |   |
| States and political subdivisions         |   |              | 112,625 |   |   |   | 1,174 |   |   |   | 2,452 |   |   |   | 111,347 |   |
| Mortgage-backed securities                |   |              | 1,142   |   |   |   | 97 |   |   |   | --- |   |   |   | 1,239 |   |
| Corporate debt securities                 |   |              | 4,159   |   |   |   | 29 |   |   |   | 31 |   |   |   | 4,157 |   |
| Total securities held to maturity         |   | $                 | 131,000 |   |   | $ | 1,610 |   |   | $ | 2,697 |   |   | $ | 129,913 |   |

|                                      |   | 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, 2010   |    |
|----------------------------------------|--------|---------------------|---------|
|                                   |   | Amortized Cost |    |   | FairValue |   |
| Due in one year or less                |   | $                   | 4,173   |   |   | $ | 4,224 |   |
| Due after one year through five years  |   |                | 22,617  |   |   |   | 23,315 |   |
| Due after five years through ten years |   |                | 17,784  |   |   |   | 18,169 |   |
| Due after ten years                    |   |                | 86,426  |   |   |   | 84,205 |   |
|                                   |   | $                   | 131,000 |   |   | $ | 129,913 |   |

----

|                                       | December 31, 2010   |   |
|--------------------------------------------|---------------------|--------|
|                                       | Less Than 12 Months |   | 12 Months or More |   |
|                                       | FairValue           |   |   | UnrealizedLoss |   | FairValue |   |   | UnrealizedLoss |   |
| U. S. Government agencies and corporations |                | $      | 64,850 |   |   | $ | 3,127 |   |   | $ | --- |   |   | $ | --- |   |
| State and political subdivisions           |                |   | 65,640 |   |   |   | 2,605 |   |   |   | 2,528 |   |   |   | 258 |   |
| Corporate debt securities                  |                |   | 969 |   |   |   | 31 |   |   |   | --- |   |   |   | --- |   |
| Other                                      |                |   | --- |   |   |   | --- |   |   |   | 247 |   |   |   | 246 |   |
| Total temporarily impaired securities      |                | $      | 131,459 |   |   | $ | 5,763 |   |   | $ | 2,775 |   |   | $ | 504 |   |

|                                       | 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 |   |

----

| Consumer Real Estate        Equity lines        Closed-end consumer real estate        Consumer construction Consumer, Non-Real Estate        Credit cards        Consumer, general        Consumer overdraft Commercial & Industrial        Commercial & industrial Construction, Development and Land        Residential        Commercial | Commercial Real Estate        College housing        Office/Retail space        Nursing homes        Hotel        Municipalities        Medical professionals        Religious organizations        Convenience stores        Entertainment and sports        Nonprofit        Restaurants        General contractors        Other commercial real estate |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                       |   | Years ended December 31, |   |
|--------------------------------------------|--------|--------------------------|--------|
|                                       |   | 2010                     |   |   | 2009 |   |   | 2008 |   |
| Balance at beginning of year               |   | $                        | 6,926  |   |   | $ | 5,858 |   |   | $ | 5,219 |   |
| Provision for loan losses                  |   |                     | 3,409  |   |   |   | 1,634 |   |   |   | 1,119 |   |
| Loans charged off                          |   |                     | (2,810 | ) |   |   | (647 | ) |   |   | (611 | ) |
| Recoveries of loans previously charged off |   |                     | 139    |   |   |   | 81 |   |   |   | 131 |   |
| Balance at end of year                     |   | $                        | 7,664  |   |   | $ | 6,926 |   |   | $ | 5,858 |   |

|                      |   | Consumer Real Estate |   |   | Consumer Non-Real Estate |   |   | Commercial Real Estate |   |   | Commercial & Industrial |   |   | Construction, Development & Land |   |   |  Unallocated |   |   | Total  |   |
|---------------------------|--------|----------------------|--------|--------|--------------------------|--------|--------|------------------------|--------|--------|-----------------------------|--------|--------|--------------------------------------|--------|--------|-------------------|--------|--------|--------|--------|
| Allowance for Loan Losses |   |
| Beginning Balance         |   | $                    | 249    |   |                     | $      | 1,049  |                   |   | $      | 4,321                       |   |   | $                                    | 459    |   |              | $      | 562    |   |   | $ | 286 |   |   | $ | 6,926 |   |
| Charge-offs               |   |                 | (89    | )      |                     |   | (358   | )                      |   |   | (1,021                      | )      |   |                                 | (927   | )      |              |   | (415   | )      |   |   | --- |   |   |   | (2,810 | ) |
| Recoveries                |   |                 | 10     |   |                     |   | 67     |                   |   |   | 61                          |   |   |                                 | 1      |   |              |   | ---    |   |   |   | --- |   |   |   | 139 |   |
| Provision for loan losses |   |                 | 889    |   |                     |   | (172   | )                      |   |   | 672                         |   |   |                                 | 1,575  |   |              |   | 602    |   |   |   | (157 | ) |   |   | 3,409 |   |
| Ending Balance            |   | $                    | 1,059  |   |                     | $      | 586    |                   |   | $      | 4,033                       |   |   | $                                    | 1,108  |   |              | $      | 749    |   |   | $ | 129 |   |   | $ | 7,664 |   |

|                                                      |   | Consumer Real Estate |   |   | Consumer Non-Real Estate |   |   | Commercial Real Estate |   |   | Commercial & Industrial |   |   | Construction, Development & Other Land |   |   |  Unallocated |   |   | Total  |   |
|-----------------------------------------------------------|--------|----------------------|--------|--------|--------------------------|--------|--------|------------------------|--------|--------|-----------------------------|--------|--------|--------------------------------------------|--------|--------|-------------------|--------|--------|--------|--------|
| Allowance for loans individually evaluated for impairment |   | $                    | 27     |   |                     | $      | ---    |                   |   | $      | 565                         |   |   | $                                          | 508    |   |              | $      | 100    |   |   | $ | --- |   |   | $ | 1,200 |   |
| Allowance for loans collectively evaluated for impairment |   | $                    | 1,032  |   |                     | $      | 586    |                   |   | $      | 3,468                       |   |   | $                                          | 600    |   |              | $      | 649    |   |   | $ | 129 |   |   | $ | 6,464 |   |

|                                        |   | Consumer Real Estate |    |   | Consumer Non-Real Estate |   |   | Commercial Real Estate |   |   | Commercial & Industrial |   |   | Construction, Development & Other Land |   |   |  Unallocated |   |   | Total  |   |
|---------------------------------------------|--------|----------------------|---------|--------|--------------------------|--------|--------|------------------------|--------|--------|-----------------------------|--------|--------|--------------------------------------------|--------|--------|-------------------|--------|--------|--------|--------|
| Loans individually evaluated for impairment |   | $                    | 505     |   |                     | $      | ---    |                   |   | $      | 5,151                       |   |   | $                                          | 698    |   |              | $      | 2,437  |   |   | $ | --- |   |   | $ | 8,791 |   |
| Loans collectively evaluated for impairment |   | $                    | 108,855 |   |                     | $      | 35,679 |                   |   | $      | 343,780                     |   |   | $                                          | 36,374 |   |              | $      | 42,964 |   |   | $ | --- |   |   | $ | 567,652 |   |

----

|                                          |   | December 31, |   |
|-----------------------------------------------|--------|--------------|--------|
|                                          |   | 2010         |   |   | 2009 |   |   | 2008 |   |
| Impaired loans without a valuation allowance  |   | $            | 1,115  |   |   | $ | 50 |   |   | $ | 1,028 |   |
| Impaired loans with a valuation allowance     |   |         | 7,676  |   |   |   | 7,630 |   |   |   | 2,548 |   |
| Total impaired loans                          |   | $            | 8,791  |   |   | $ | 7,680 |   |   | $ | 3,576 |   |
| Valuation allowance related to impaired loans |   | $            | 1,200  |   |   | $ | 2,495 |   |   | $ | 679 |   |

|                                                         | Years ended December 31, |   |
|--------------------------------------------------------------|--------------------------|--------|
|                                                         | 2010                     |   | 2009 |   | 2008 |   |
| Average investment in impaired loans                         |                     | $      | 7,526 |   |   | $ | 7,851 |   |   | $ | 3,790 |   |
| Interest income recognized on impaired loans                 |                     |   | 17 |   |   |   | 169 |   |   |   | 140 |   |
| Interest income recognized on a cash basis on impaired loans |                     |   | --- |   |   |   | --- |   |   |   | --- |   |

|                               |   | Average Recorded Investment in ImpairedLoans |   |   | Unpaid Principal Balance of Impaired Loans |   |   | (A)Total Recorded Investment in Impaired Loan |   |   | Recorded Investment in (A) for Which There is No Related Allowance |   |   | Recorded Investment in (A) for Which There is a Related Allowance |   |   | Related Allowance for Impaired Loans |   |   |  Interest Income Recognized |   |
|------------------------------------|--------|----------------------------------------------|--------|--------|--------------------------------------------|--------|--------|-----------------------------------------------|--------|--------|--------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------|--------|--------|--------------------------------------|--------|--------|----------------------------------|--------|
| Consumer Real Estate               |   |                                         |   |   |                                       |   |   |                                          |   |   |                                                               |   |   |                                                              |   |   |                                 |   |   |                             |   |
| Closed-end Consumer Real Estate    |   | $                                            | 337    |   |                                       | $      | 505    |                                          |   |   | 505                                                                |   |   | $                                                                 | ---    |   |                                 | $      | 505    |                             |   | $ | 26 |   |   | $ | --- |   |
|                               |   |                                         |   |   |                                       |   |   |                                          |   |   |                                                               |   |   |                                                              |   |   |                                 |   |   |                             |   |   |   |   |   |   |   |   |
| Commercial Real Estate             |   |                                         |   |   |                                       |   |   |                                          |   |   |                                                               |   |   |                                                              |   |   |                                 |   |   |                             |   |   |   |   |   |   |   |   |
| Office & Retail                |   |                                         | 253    |   |                                       |   | ---    |                                          |   |   | ---                                                                |   |   |                                                              | ---    |   |                                 |   | ---    |                             |   |   | --- |   |   |   | --- |   |
| Hotel                              |   |                                         | 2,767  |   |                                       |   | 3,509  |                                          |   |   | 3,509                                                              |   |   |                                                              | 287    |   |                                 |   | 3,222  |                             |   |   | 267 |   |   |   | --- |   |
| Convenience stores                 |   |                                         | 49     |   |                                       |   | 577    |                                          |   |   | 592                                                                |   |   |                                                              | 592    |   |                                 |   | ---    |                             |   |   | --- |   |   |   | 15 |   |
| Other commercial real estate       |   |                                         | 337    |   |                                       |   | 1,065  |                                          |   |   | 1,066                                                              |   |   |                                                              | ---    |   |                                 |   | 1,066  |                             |   |   | 299 |   |   |   | 1 |   |
|                               |   |                                         |   |   |                                       |   |   |                                          |   |   |                                                               |   |   |                                                              |   |   |                                 |   |   |                             |   |   |   |   |   |   |   |   |
| Commercial & Industrial        |   |                                         |   |   |                                       |   |   |                                          |   |   |                                                               |   |   |                                                              |   |   |                                 |   |   |                             |   |   |   |   |   |   |   |   |
| Commercial & Industrial        |   |                                         | 1,183  |   |                                       |   | 698    |                                          |   |   | 698                                                                |   |   |                                                              | ---    |   |                                 |   | 698    |                             |   |   | 508 |   |   |   | --- |   |
|                               |   |                                         |   |   |                                       |   |   |                                          |   |   |                                                               |   |   |                                                              |   |   |                                 |   |   |                             |   |   |   |   |   |   |   |   |
| Construction, Development and Land |   |                                         |   |   |                                       |   |   |                                          |   |   |                                                               |   |   |                                                              |   |   |                                 |   |   |                             |   |   |   |   |   |   |   |   |
| Residential                        |   |                                         | 2,579  |   |                                       |   | 2,185  |                                          |   |   | 2,185                                                              |   |   |                                                              | ---    |   |                                 |   | 2,185  |                             |   |   | 100 |   |   |   | --- |   |
| Commercial                         |   |                                         | 21     |   |                                       |   | 252    |                                          |   |   | 253                                                                |   |   |                                                              | 253    |   |                                 |   | ---    |                             |   |   | --- |   |   |   | 1 |   |
|                               |   |                                         |   |   |                                       |   |   |                                          |   |   |                                                               |   |   |                                                              |   |   |                                 |   |   |                             |   |   |   |   |   |   |   |   |
| Total                              |   | $                                            | 7,526  |   |                                       | $      | 8,791  |                                          |   | $      | 8,808                                                              |   |   | $                                                                 | 1,132  |   |                                 | $      | 7,676  |                             |   | $ | 1,200 |   |   | $ | 17 |   |

----

| For the year ended December 31, 2010 |   |                        |   |   |                     |   |   |                                |   |   |                                         |   |
|--------------------------------------|--------|-----------------------------|--------|--------|--------------------------|--------|--------|-------------------------------------|--------|--------|----------------------------------------------|--------|
|                                 |   | 30 – 89 Days Past Due |   |   | 90 or More Days Past Due |   |   | 90 Days Past Due and Still Accruing |   |   | Nonaccruals (Including Impaired Nonaccruals) |   |
| Consumer Real Estate                 |   |                        |   |   |                     |   |   |                                |   |   |                                         |   |
| Equity Lines                         |   | $                           | 69     |   |                     | $      | ---    |                                |   | $      | ---                                          |   |   | $ | --- |   |
| Closed-ended Consumer Real Estate    |   |                        | 1,868  |   |                     |   | 1,178  |                                |   |   | 612                                          |   |   |   | 783 |   |
| Consumer Construction                |   |                        | ---    |   |                     |   | ---    |                                |   |   | ---                                          |   |   |   | --- |   |
|                                 |   |                        |   |   |                     |   |   |                                |   |   |                                         |   |   |   |   |   |
| Consumer, Non-Real Estate            |   |                        |   |   |                     |   |   |                                |   |   |                                         |   |   |   |   |   |
| Credit Cards                         |   |                        | 67     |   |                     |   | 42     |                                |   |   | 29                                           |   |   |   | --- |   |
| Consumer General                     |   |                        | 518    |   |                     |   | 45     |                                |   |   | 37                                           |   |   |   | --- |   |
| Consumer Overdraft                   |   |                        | ---    |   |                     |   | ---    |                                |   |   | ---                                          |   |   |   | --- |   |
|                                 |   |                        |   |   |                     |   |   |                                |   |   |                                         |   |   |   |   |   |
| Commercial Real Estate               |   |                        |   |   |                     |   |   |                                |   |   |                                         |   |   |   |   |   |
| College Housing                      |   |                        | 224    |   |                     |   | 262    |                                |   |   | ---                                          |   |   |   | --- |   |
| Office/Retail                        |   |                        | ---    |   |                     |   | ---    |                                |   |   | ---                                          |   |   |   | --- |   |
| Nursing Homes                        |   |                        | ---    |   |                     |   | ---    |                                |   |   | ---                                          |   |   |   | --- |   |
| Hotel                                |   |                        | ---    |   |                     |   | 802    |                                |   |   | ---                                          |   |   |   | 3,509 |   |
| Municipalities                       |   |                        | ---    |   |                     |   | ---    |                                |   |   | ---                                          |   |   |   | --- |   |
| Medical Professionals                |   |                        | ---    |   |                     |   | 181    |                                |   |   | ---                                          |   |   |   | --- |   |
| Religious Organizations              |   |                        | ---    |   |                     |   | ---    |                                |   |   | ---                                          |   |   |   | --- |   |
| Convenience Stores                   |   |                        | 9      |   |                     |   | 577    |                                |   |   | 577                                          |   |   |   | --- |   |
| Entertainment and Sports             |   |                        | ---    |   |                     |   | ---    |                                |   |   | ---                                          |   |   |   | --- |   |
| Nonprofit                            |   |                        | ---    |   |                     |   | ---    |                                |   |   | ---                                          |   |   |   | --- |   |
| Restaurants                          |   |                        | ---    |   |                     |   | ---    |                                |   |   | ---                                          |   |   |   | --- |   |
| General Contractors                  |   |                        | ---    |   |                     |   | 85     |                                |   |   | ---                                          |   |   |   | --- |   |
| Other Commercial Real Estate         |   |                        | 792    |   |                     |   | 136    |                                |   |   | ---                                          |   |   |   | 715 |   |
|                                 |   |                        |   |   |                     |   |   |                                |   |   |                                         |   |   |   |   |   |
| Commercial and Industrial            |   |                        |   |   |                     |   |   |                                |   |   |                                         |   |   |   |   |   |
| Commercial and Industrial            |   |                        | 740    |   |                     |   | 609    |                                |   |   | 81                                           |   |   |   | 879 |   |
|                                 |   |                        |   |   |                     |   |   |                                |   |   |                                         |   |   |   |   |   |
| Construction, Development and Land   |   |                        |   |   |                     |   |   |                                |   |   |                                         |   |   |   |   |   |
| Residential                          |   |                        | ---    |   |                     |   | 2,185  |                                |   |   | ---                                          |   |   |   | 2,185 |   |
| Commercial                           |   |                        | 25     |   |                     |   | ---    |                                |   |   | ---                                          |   |   |   | --- |   |
|                                 |   |                        |   |   |                     |   |   |                                |   |   |                                         |   |   |   |   |   |
| Total                                |   | $                           | 4,312  |   |                     | $      | 6,102  |                                |   | $      | 1,336                                        |   |   | $ | 8,071 |   |

----

|                               |   | Pass   |    |   | Special Mention |   |   | Classified(Excluding Impaired) |   |
|------------------------------------|--------|--------|---------|--------|-----------------|--------|--------|--------------------------------|--------|
| Consumer Real Estate               |   |   |    |   |            |   |   |                           |   |
| Equity Lines                       |   | $      | 15,735  |   |            | $      | ---    |                           |   | $ | 119 |   |
| Closed-ended Consumer Real Estate  |   |   | 85,313  |   |            |   | 731    |                           |   |   | 2,969 |   |
| Consumer Construction              |   |   | 3,988   |   |            |   | ---    |                           |   |   | --- |   |
|                               |   |   |    |   |            |   |   |                           |   |   |   |   |
| Consumer, Non-Real Estate          |   |   |    |   |            |   |   |                           |   |   |   |   |
| Credit Cards                       |   |   | 6,446   |   |            |   | ---    |                           |   |   | 14 |   |
| Consumer General                   |   |   | 28,730  |   |            |   | 392    |                           |   |   | 94 |   |
| Consumer Overdraft                 |   |   | 3       |   |            |   | ---    |                           |   |   | --- |   |
|                               |   |   |    |   |            |   |   |                           |   |   |   |   |
| Commercial Real Estate             |   |   |    |   |            |   |   |                           |   |   |   |   |
| College Housing                    |   |   | 88,110  |   |            |   | 461    |                           |   |   | 1,016 |   |
| Office/Retail                      |   |   | 60,540  |   |            |   | 3,500  |                           |   |   | 848 |   |
| Nursing Homes                      |   |   | 28,018  |   |            |   | ---    |                           |   |   | --- |   |
| Hotel                              |   |   | 10,689  |   |            |   | 1,878  |                           |   |   | 625 |   |
| Municipalities                     |   |   | 16,979  |   |            |   | ---    |                           |   |   | --- |   |
| Medical Professionals              |   |   | 17,111  |   |            |   | ---    |                           |   |   | 181 |   |
| Religious Organizations            |   |   | 12,643  |   |            |   | ---    |                           |   |   | --- |   |
| Convenience Stores                 |   |   | 9,010   |   |            |   | 9      |                           |   |   | --- |   |
| Entertainment and Sports           |   |   | 7,694   |   |            |   | ---    |                           |   |   | --- |   |
| Nonprofit                          |   |   | 6,421   |   |            |   | ---    |                           |   |   | --- |   |
| Restaurants                        |   |   | 6,740   |   |            |   | ---    |                           |   |   | 153 |   |
| General Contractors                |   |   | 6,175   |   |            |   | ---    |                           |   |   | 240 |   |
| Other Commercial Real Estate       |   |   | 63,679  |   |            |   | 111    |                           |   |   | 951 |   |
|                               |   |   |    |   |            |   |   |                           |   |   |   |   |
| Commercial and Industrial          |   |   |    |   |            |   |   |                           |   |   |   |   |
| Commercial and Industrial          |   |   | 34,826  |   |            |   | 129    |                           |   |   | 1,419 |   |
|                               |   |   |    |   |            |   |   |                           |   |   |   |   |
| Construction, Development and Land |   |   |    |   |            |   |   |                           |   |   |   |   |
| Residential                        |   |   | 25,760  |   |            |   | ---    |                           |   |   | 2,633 |   |
| Commercial                         |   |   | 14,405  |   |            |   | ---    |                           |   |   | 164 |   |
|                               |   |   |    |   |            |   |   |                           |   |   |   |   |
| Total                              |   | $      | 549,015 |   |            | $      | 7,211  |                           |   | $ | 11,426 |   |

----

|                        |   | December 31, |    |
|-----------------------------|--------|--------------|---------|
|                        |   | 2010         |    |   | 2009 |   |
| Premises                    |   | $            | 14,348  |   |   | $ | 14,225 |   |
| Furniture and equipment     |   |         | 12,656  |   |   |   | 11,918 |   |
| Construction-in-progress    |   |         | 9       |   |   |   | 195 |   |
| Premises and equipment      |   | $            | 27,013  |   |   | $ | 26,338 |   |
| Accumulated depreciation    |   |         | (16,543 | ) |   |   | (15,710 | ) |
| Premises and equipment, net |   | $            | 10,470  |   |   | $ | 10,628 |   |

| 2011       |   | $      | 224,121 |   |
|------------|--------|--------|---------|--------|
| 2012       |   |   | 85,880  |   |
| 2013       |   |   | 10,623  |   |
| 2014       |   |   | 1,473   |   |
| 2015       |   |   | 10,010  |   |
| Thereafter |   |   | 96      |   |
|       |   | $      | 332,203 |   |

----

|                                                                     |   | December 31, |   |
|--------------------------------------------------------------------------|--------|--------------|--------|
|                                                                     |   | 2010         |   |   | 2009 |   |   | 2008 |   |
| Change in benefit obligation                                             |   |         |   |   |   |   |   |   |   |
| Projected benefit obligation at beginning of year                        |   | $            | 11,598 |   |   | $ | 10,703 |   |   | $ | 11,859 |   |
| Service cost                                                             |   |         | 400    |   |   |   | 353 |   |   |   | 500 |   |
| Interest cost                                                            |   |         | 687    |   |   |   | 661 |   |   |   | 719 |   |
| Actuarial (gain) loss                                                    |   |         | 958    |   |   |   | 362 |   |   |   | (613 | ) |
| Benefits paid                                                            |   |         | (672   | ) |   |   | (481 | ) |   |   | (336 | ) |
| Prior cost due  to amendment                                   |   |         | ---    |   |   |   | --- |   |   |   | (1,426 | ) |
| Projected benefit obligation at end of year                              |   |         | 12,971 |   |   |   | 11,598 |   |   |   | 10,703 |   |
|                                                                     |   |         |   |   |   |   |   |   |   |   |   |   |
| Change in plan assets                                                    |   |         |   |   |   |   |   |   |   |   |   |   |
| Fair value of plan assets at beginning of year                           |   |         | 7,461  |   |   |   | 6,337 |   |   |   | 8,242 |   |
| Actual return on plan assets                                             |   |         | 782    |   |   |   | 1,249 |   |   |   | (1,964 | ) |
| Employer contribution                                                    |   |         | 585    |   |   |   | 356 |   |   |   | 395 |   |
| Benefits paid                                                            |   |         | (672   | ) |   |   | (481 | ) |   |   | (336 | ) |
| Fair value of plan assets at end of year                                 |   |         | 8,156  |   |   |   | 7,461 |   |   |   | 6,337 |   |
|                                                                     |   |         |   |   |   |   |   |   |   |   |   |   |
| Funded status at the end of the year                                     |   | $            | (4,815 | ) |   | $ | (4,137 | ) |   | $ | (4,366 | ) |
|                                                                     |   |         |   |   |   |   |   |   |   |   |   |   |
| Amounts recognized in the Balance Sheet                                  |   |         |   |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                        |   | $            | (4,815 | ) |   | $ | (4,137 | ) |   | $ | (4,366 | ) |
|                                                                     |   |         |   |   |   |   |   |   |   |   |   |   |
| Amounts recognized in accumulated other comprehensive income (loss), net |   |         |   |   |   |   |   |   |   |   |   |   |
| Net (loss)                                                               |   | $            | (4,957 | ) |   | $ | (4,420 | ) |   | $ | (5,114 | ) |
| Prior service cost                                                       |   |         | 1,080  |   |   |   | 1,180 |   |   |   | 1,281 |   |
| Deferred tax asset                                                       |   |         | 1,357  |   |   |   | 1,130 |   |   |   | 1,335 |   |
| Net obligation at transition                                             |   |         | ---    |   |   |   | 11 |   |   |   | 23 |   |
| Amount recognized                                                        |   | $            | (2,520 | ) |   | $ | (2,099 | ) |   | $ | (2,475 | ) |
|                                                                     |   |         |   |   |   |   |   |   |   |   |   |   |

----

| Components of net periodic benefit cost                                                                                  |   |   |   |   |   |   |   |   |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Service cost                                                                                                             |   | $      | 400    |   |   | $      | 353    |   |   | $ | 429 |   |
| Interest cost                                                                                                            |   |   | 687    |   |   |   | 661    |   |   |   | 616 |   |
| Expected return on plan assets                                                                                           |   |   | (607   | )      |   |   | (527   | )      |   |   | (667 | ) |
| Amortization of prior service cost                                                                                       |   |   | (101   | )      |   |   | (101   | )      |   |   | (101 | ) |
| Amortization of net obligation at transition                                                                             |   |   | (11    | )      |   |   | (13    | )      |   |   | (13 | ) |
| Recognized net actuarial loss                                                                                            |   |   | 246    |   |   |   | 335    |   |   |   | 154 |   |
| Net periodic benefit cost                                                                                                |   | $      | 614    |   |   | $      | 708    |   |   | $ | 418 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive (income) loss         |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (gain) loss                                                                                                          |   | $      | 536    |   |   | $      | (489   | )      |   | $ | 1,951 |   |
| Prior service cost                                                                                                       |   |   | ---    |   |   |   | ---    |   |   |   | (1,426 | ) |
| Amortization of prior service cost                                                                                       |   |   | 101    |   |   |   | 101    |   |   |   | 117 |   |
| Amortization of net obligation at transition                                                                             |   |   | 11     |   |   |   | 13     |   |   |   | 15 |   |
| Deferred income tax (benefit) expense                                                                                    |   |   | (227   | )      |   |   | 131    |   |   |   | (230 | ) |
| Total recognized                                                                                                         |   | $      | 421    |   |   | $      | (244   | )      |   | $ | 427 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Total recognized in net periodic benefit cost and other comprehensive (income) loss, net of income tax (benefit) expense |   | $      | 1,035  |   |   | $      | 464    |   |   | $ | 845 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjustments to retained earnings due to change in measurement date                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service cost                                                                                                             |   | $      | ---    |   |   | $      | ---    |   |   | $ | 71 |   |
| Interest cost                                                                                                            |   |   | ---    |   |   |   | ---    |   |   |   | 102 |   |
| 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                                                                                        |   |   | 5.50   | %      |   |   | 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, 2010 |
|----------------------------------------------------|--------|----------------------------------------------|
|    Asset Category                   |   | Total                                        | Quoted Prices in Active Markets for Identical Assets (Level 1) |   | Significant  Observable Inputs (Level 2) |   | Significant Unobservable Inputs (Level 3) |   |
| Cash                                               | $      | 183                                          | $ | 183 | $ | --- |   | $ | --- |   |
| Equity securities:                                 |   |                                         |   |   |   |   |   |   |   |   |
| U. S. companies                                    |   | 3,375                                        |   | 3,375 |   | --- |   |   | --- |   |
| International companies                            |   | 134                                          |   | 134 |   | --- |   |   | --- |   |
| Equities mutual funds (a)                          |   | 1,403                                        |   | 1,403 |   | --- |   |   | --- |   |
| U. S. government agencies and corporations         |   | 425                                          |   | --- |   | 425 |   |   | --- |   |
| State and political subdivisions                   |   | 268                                          |   | --- |   | 268 |   |   | --- |   |
| Corporate bonds – investment grade (b)       |   | 2,176                                        |   | --- |   | 2,176 |   |   | --- |   |
| Corporate bonds – below investment grade (c) |   | 192                                          |   | --- |   | 192 |   |   | --- |   |
| Total pension plan assets                          | $      | 8,156                                        | $ | 5,095 | $ | 3,061 |   | $ | --- |   |

| (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. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2011        |   | $ | 237       |   |
|-------------|--------|---|-----------|--------|
| 2012        |   | $ | 278       |   |
| 2013        |   | $ | 328       |   |
| 2014        |   | $ | 456       |   |
| 2015        |   | $ |  509 |   |
| 2016 - 2020 |   | $ | 3,827     |   |

----

|    Options        |    Shares |   | Weighted-AverageExercisePrice |   | Weighted-AverageRemainingContractualTerm |   | AggregateIntrinsicValue |   |
|----------------------------------|--------------------------|--------|-------------------------------|--------|------------------------------------------|--------|-------------------------|--------|
| Outstanding at January 1, 2010   | 109,500                  |   | $                             | 22.14  |                                     |   |                    |   |   |   |
| Granted                          | ---                      |   |                          | ---    |                                     |   |                    |   |   |   |
| Exercised                        | ---                      |   |                          | ---    |                                     |   |                    |   |   |   |
| Forfeited or expired             | ---                      |   |                          | ---    |                                     |   |                    |   |   |   |
| Outstanding at December 31, 2010 | 109,500                  |   | $                             | 22.14  |                                     | 4.49   |                    | $      | 1,024 |   |
| Exercisable at December 31, 2010 | 109,500                  |   | $                             | 22.14  |                                     | 4.49   |                    | $      | 1,024 |   |

|                     | Years ended December 31, |   |
|--------------------------|--------------------------|--------|
|                     | 2010                     |   | 2009 |   | 2008 |   |
| Current                  |                     | $      | 4,535 |   |   | $ | 4,717 |   |   | $ | 3,955 |   |
| Deferred                 |                     |   | (312 | ) |   |   | (1,057 | ) |   |   | (310 | ) |
| Total income tax expense |                     | $      | 4,223 |   |   | $ | 3,660 |   |   | $ | 3,645 |   |

|                                               |   | Years ended December 31, |   |
|----------------------------------------------------|--------|--------------------------|--------|
|                                               |   | 2010                     |   |   | 2009 |   |   | 2008 |   |
| Computed “expected” income tax expense |   | $                        | 6,927  |   |   | $ | 6,293 |   |   | $ | 6,033 |   |
| Tax-exempt interest income                         |   |                     | (2,556 | ) |   |   | (2,556 | ) |   |   | (2,224 | ) |
| Nondeductible interest expense                     |   |                     | 195    |   |   |   | 267 |   |   |   | 291 |   |
| Other, net                                         |   |                     | (343   | ) |   |   | (344 | ) |   |   | (455 | ) |
| Reported income tax expense                        |   | $                        | 4,223  |   |   | $ | 3,660 |   |   | $ | 3,645 |   |

----

|                                                   |   | December 31, |   |
|--------------------------------------------------------|--------|--------------|--------|
|                                                   |   | 2010         |   |   | 2009 |   |
| Deferred tax assets:                                   |   |         |   |   |   |   |
| Allowance for loan losses and unearned fee income      |   | $            | 2,857  |   |   | $ | 2,365 |   |
| Valuation allowance on other real estate owned         |   |         | 123    |   |   |   | 159 |   |
| Deferred compensation and other liabilities            |   |         | 2,609  |   |   |   | 2,483 |   |
| Net unrealized losses on securities available for sale |   |         | 90     |   |   |   | --- |   |
| Total deferred tax assets                              |   | $            | 5,679  |   |   | $ | 5,007 |   |
|                                                   |   |         |   |   |   |   |   |   |
| Deferred tax liabilities:                              |   |         |   |   |   |   |   |   |
| Fixed assets                                           |   | $            | (72    | ) |   | $ | (77 | ) |
| Discount accretion on securities                       |   |         | (44    | ) |   |   | (77 | ) |
| Deposit intangibles and goodwill                       |   |         | (798   | ) |   |   | (677 | ) |
| Other                                                  |   |         | (142   | ) |   |   | (182 | ) |
| Net unrealized gains on securities available for sale  |   |         | ---    |   |   |   | (875 | ) |
| Total deferred tax liabilities                         |   |         | (1,056 | ) |   |   | (1,888 | ) |
| Net deferred tax assets                                |   | $            | 4,623  |   |   | $ | 3,119 |   |

----

|                                     |   | Actual |    | Minimum CapitalRequirement |   | Minimum To Be WellCapitalized UnderPrompt CorrectiveAction Provisions       |   |
|------------------------------------------|--------|--------|---------|----------------------------|--------|-----------------------------------------------------------------------------|--------|
|                                     |   | Amount |    | Ratio                      |   | Amount                                                                      | Ratio  |   | Amount | Ratio |   |
| December 31, 2010                        |   |   |    |                       |   |                                                                        |   |   |   |   |   |   |   |   |
| Total capital (to risk weighted assets)  |   |   |    |                       |   |                                                                        |   |   |   |   |   |   |   |   |
| NBI consolidated                         |   | $      | 127,958 |                       | 19.4   | %                                                                           | $      | 52,883 | 8.0 | % |   | N/A | N/A |   |
| NBB                                      |   |   | 124,758 |                       | 19.0   | %                                                                           |   | 52,594 | 8.0 | % | $ | 65,742 | 10.0 | % |
| Tier 1 capital (to risk weighted assets) |   |   |    |                       |   |                                                                        |   |   |   |   |   |   |   |   |
| NBI consolidated                         |   | $      | 120,294 |                       | 18.2   | %                                                                           | $      | 26,441 | 4.0 | % |   | N/A |  N/A |   |
| NBB                                      |   |   | 117,094 |                       | 17.8   | %                                                                           |   | 26,297 | 4.0 | % | $ | 39,445 | 6.0 | % |
| Tier 1 capital (to average assets)       |   |   |    |                       |   |                                                                        |   |   |   |   |   |   |   |   |
| NBI consolidated                         |   | $      | 120,294 |                       | 12.1   | %                                                                           | $      | 39,848 | 4.0 | % |   | N/A | N/A |   |
| NBB                                      |   |   | 117,094 |                       | 11.9   | %                                                                           |   | 39,516 | 4.0 | % | $ | 49,395 | 5.0 | % |
|                                     |   | Actual |    | Minimum CapitalRequirement |   | Minimum To Be Well Capitalized 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 | % |

|                                             |   | December 31, |    |
|--------------------------------------------------|--------|--------------|---------|
|                                             |   | 2010         |    |   | 2009 |   |
| Assets                                           |   |         |    |   |   |   |
| Cash due from subsidiaries                       |   | $            | 2       |   |   | $ | 13 |   |
| Securities available for sale                    |   |         | 2,331   |   |   |   | 2,445 |   |
| Investments in subsidiaries, at equity           |   |         | 127,019 |   |   |   | 119,472 |   |
| Refundable income taxes due from subsidiaries    |   |         | ---     |   |   |   | 56 |   |
| Other assets                                     |   |         | 691     |   |   |   | 645 |   |
| Total assets                                     |   | $            | 130,043 |   |   | $ | 122,631 |   |
|                                             |   |         |    |   |   |   |   |   |
| Liabilities and Stockholders’ Equity       |   |         |    |   |   |   |   |   |
| Other liabilities                                |   | $            | 856     |   |   | $ | 555 |   |
| Stockholders’ equity                       |   |         | 129,187 |   |   |   | 122,076 |   |
| Total liabilities and stockholders’ equity |   | $            | 130,043 |   |   | $ | 122,631 |   |

----

|                                      |   | Years Ended December 31, |   |
|-------------------------------------------|--------|--------------------------|--------|
|                                      |   | 2010                     |   |   | 2009 |   |   | 2008 |   |
| Income                                    |   |                     |   |   |   |   |   |   |   |
| Dividends from Subsidiaries               |   | $                        | 6,309  |   |   | $ | 5,884 |   |   | $ | 5,591 |   |
| Interest on securities – taxable    |   |                     | 23     |   |   |   | 7 |   |   |   | 41 |   |
| Interest on securities – nontaxable |   |                     | 44     |   |   |   | 61 |   |   |   | 62 |   |
| Other income                              |   |                     | 1,157  |   |   |   | 1,129 |   |   |   | 1,147 |   |
| Securities gains (losses)                 |   |                     | ---    |   |   |   | 2 |   |   |   | (62 | ) |
|                                      |   |                     | 7,533  |   |   |   | 7,083 |   |   |   | 6,779 |   |

|                                                                                    |   |   |   |   |   |   |   |   |   |
|-----------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Expenses                                                                                |   |   |   |   |   |   |   |   |   |
| Other expenses                                                                          |   |   | 1,756  |   |   |   | 1,590  |   |   |   | 1,720 |   |
| Income before income tax benefit and equity in undistributed net income of subsidiaries |   |   | 5,777  |   |   |   | 5,493  |   |   |   | 5,059 |   |
| Applicable income tax benefit                                                           |   |   | 152    |   |   |   | 120    |   |   |   | 182 |   |
| Income before equity in undistributed net income of subsidiaries                        |   |   | 5,929  |   |   |   | 5,613  |   |   |   | 5,241 |   |
| Equity in undistributed net income of subsidiaries                                      |   |   | 9,640  |   |   |   | 8,706  |   |   |   | 8,352 |   |
| Net income                                                                              |   | $      | 15,569 |   |   | $      | 14,319 |   |   | $ | 13,593 |   |

|                                                                              |   | Years ended December 31, |   |
|-----------------------------------------------------------------------------------|--------|--------------------------|--------|
|                                                                              |   | 2010                     |   |   | 2009 |   |   | 2008 |   |
| Cash Flows from Operating Expenses                                                |   |                     |   |   |   |   |   |   |   |
| Net income                                                                        |   | $                        | 15,569 |   |   | $ | 14,319 |   |   | $ | 13,593 |   |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |                     |   |   |   |   |   |   |   |   |   |   |
| Equity in undistributed net income of subsidiaries                                |   |                     | (9,640 | ) |   |   | (8,706 | ) |   |   | (8,352 | ) |
| Amortization of premiums and accretion of discounts, net                          |   |                     | 2      |   |   |   | 1 |   |   |   | 1 |   |
| Depreciation expense                                                              |   |                     | 9      |   |   |   | 9 |   |   |   | 9 |   |
| Securities (gains) losses                                                         |   |                     | ---    |   |   |   | (2 | ) |   |   | 62 |   |
| Net change in refundable income taxes due from subsidiaries                       |   |                     | 56     |   |   |   | (31 | ) |   |   | 59 |   |
| Net change in other assets                                                        |   |                     | (24    | ) |   |   | (56 | ) |   |   | (28 | ) |
| Net change in other liabilities                                                   |   |                     | 244    |   |   |   | 66 |   |   |   | 4 |   |
| Net cash provided by operating activities                                         |   |                     | 6,216  |   |   |   | 5,600 |   |   |   | 5,348 |   |
|                                                                              |   |                     |   |   |   |   |   |   |   |   |   |   |
| Cash Flows from Investing Activities                                              |   |                     |   |   |   |   |   |   |   |   |   |   |
| Purchases of securities available for sale                                        |   |                     | (1,868 | ) |   |   | (327 | ) |   |   | (930 | ) |
| Maturities and calls of securities available for sale                             |   |                     | 1,950  |   |   |   | 524 |   |   |   | 1,615 |   |
| Net cash provided by investing activities                                         |   |                     | 82     |   |   |   | 197 |   |   |   | 685 |   |
|                                                                              |   |                     |   |   |   |   |   |   |   |   |   |   |
| Cash Flows from Financing Activities                                              |   |                     |   |   |   |   |   |   |   |   |   |   |
| Cash dividends paid                                                               |   |                     | (6,309 | ) |   |   | (5,823 | ) |   |   | (5,543 | ) |
| Common stock repurchased                                                          |   |                     | ---    |   |   |   | --- |   |   |   | (562 | ) |
| Exercise of stock options                                                         |   |                     | ---    |   |   |   | 54 |   |   |   | 75 |   |
| Note payable                                                                      |   |                     | ---    |   |   |   | (54 | ) |   |   | --- |   |
| Net cash used in financing activities                                             |   |                     | (6,309 | ) |   |   | (5,823 | ) |   |   | (6,030 | ) |
| Net change in cash                                                                |   |                     | (11    | ) |   |   | (26 | ) |   |   | 3 |   |
| Cash due from subsidiaries at beginning of year                                   |   |                     | 13     |   |   |   | 39 |   |   |   | 36 |   |
| Cash due from subsidiaries at end of year                                         |   | $                        | 2      |   |   | $ | 13 |   |   | $ | 39 |   |

----

|                                                                |   | December 31, |    |
|---------------------------------------------------------------------|--------|--------------|---------|
|                                                                |   | 2010         |    |   | 2009 |   |
| Financial instruments whose contract amounts represent credit risk: |   |         |    |   |   |   |
| Commitments to extend credit                                        |   | $            | 149,106 |   |   | $ | 133,816 |   |
| Standby letters of credit                                           |   |         | 13,540  |   |   |   | 11,953 |   |
| Mortgage loans sold with potential recourse                         |   |         | 19,595  |   |   |   | 25,487 |   |

----

|   | 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, 2010 Using         |   |
|-------------------------------------------|--------|-------------------------------------|---------|--------|------------------------------------------------------------|--------|
| Description                               |   | Balance as of December 31,2010 |    |   | Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1) |   |   | SignificantOtherObservableInputs(Level 2) |   |   | SignificantUnobservable Inputs(Level 3) |   |
| U.S. Treasury                             |   | $                                   | 2,183   |   |                                                       | $      | --- |   |   | $ | 2,183 |   |   | $ | --- |   |
| U.S. Government agencies and corporations |   |                                | 88,152  |   |                                                       |   | --- |   |   |   | 88,152 |   |   |   | --- |   |
| States and political subdivisions         |   |                                | 61,682  |   |                                                       |   | --- |   |   |   | 61,682 |   |   |   | --- |   |
| Mortgage-backed securities                |   |                                | 11,379  |   |                                                       |   | --- |   |   |   | 11,379 |   |   |   | --- |   |
| Corporate debt securities                 |   |                                | 17,680  |   |                                                       |   | --- |   |   |   | 17,680 |   |   |   | --- |   |
| Other securities                          |   |                                | 2,062   |   |                                                       |   | --- |   |   |   | 2,062 |   |   |   | --- |   |
| Total securities available for sale       |   | $                                   | 183,138 |   |                                                       | $      | --- |   |   | $ | 183,138 |   |   | $ | --- |   |

----

|                                      |   |                                |    |   | 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) |   |
| U.S. Treasury                             |   | $                                   | 2,177   |   |                                                       | $      | --- |   |   | $ | 2,177 |   |   | $ | --- |   |
| U.S. Government agencies and corporations |   |                                | 47,587  |   |                                                       |   | --- |   |   |   | 47,587 |   |   |   | --- |   |
| States and political subdivisions         |   |                                | 74,405  |   |                                                       |   | --- |   |   |   | 74,405 |   |   |   | --- |   |
| Mortgage-backed securities                |   |                                | 17,016  |   |                                                       |   | --- |   |   |   | 17,016 |   |   |   | --- |   |
| Corporate debt securities                 |   |                                | 22,642  |   |                                                       |   | --- |   |   |   | 22,642 |   |   |   | --- |   |
| Other securities                          |   |                                | 2,445   |   |                                                       |   | --- |   |   |   | 2,445 |   |   |   | --- |   |
| Total securities available for sale       |   | $                                   | 166,272 |   |                                                       | $      | --- |   |   | $ | 166,272 |   |   | $ | --- |   |

----

|                                      |                                |   | Carrying value at December 31, 2010                        |   |
|-------------------------------------------|-------------------------------------|--------|------------------------------------------------------------|--------|
| Description                               | Balance as of December 31,2010 |   | Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |   | SignificantUnobservable Inputs(Level 3) |   |
| Assets:                                   |                                |   |                                                       |   |   |   |   |   |   |   |   |   |
| Impaired loans net of valuation allowance |                                | $      | 6,476                                                      |   |   | $ | --- |   |   | $ | --- |   |   | $ | 6,476 |   |

|                                      |                                 |   | Carrying value at December 31, 2009                            |   |
|-------------------------------------------|--------------------------------------|--------|----------------------------------------------------------------|--------|
| Description                               | Balance as of December 31, 2009 |   | Quoted Prices in Active Markets for Identical Assets (Level 1) |   | Significant Other Observable Inputs(Level 2) |   | Significant Unobservable Inputs(Level 3) |   |
| Assets:                                   |                                 |   |                                                           |   |   |   |   |   |   |   |   |   |
| Impaired loans net of valuation allowance |                                 | $      | 5,135                                                          |   |   | $ | --- |   |   | $ | --- |   |   | $ | 5,135 |   |

|                                               |                                |   | Carrying Value at December 31, 2010                        |   |
|----------------------------------------------------|-------------------------------------|--------|------------------------------------------------------------|--------|
| Description                                        | Balance as of December 31,2010 |   | Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |   | SignificantUnobservable Inputs(Level 3) |   |
| Assets:                                            |                                |   |                                                       |   |   |   |   |   |   |   |   |   |
| Other real estate owned net of valuation allowance |                                | $      | 535                                                        |   |   | $ | --- |   |   | $ | --- |   |   | $ | 535 |   |

|                                               |                                 |   | Carrying Value at December 31, 2009                            |   |
|----------------------------------------------------|--------------------------------------|--------|----------------------------------------------------------------|--------|
| Description                                        | Balance as of December 31, 2009 |   | Quoted Prices in Active Markets for Identical Assets (Level 1) |   | Significant Other Observable Inputs(Level 2) |   | Significant Unobservable Inputs(Level 3) |   |
| Assets:                                            |                                 |   |                                                           |   |   |   |   |   |   |   |   |   |
| Other real estate owned net of valuation allowance |                                 | $      | 1,868                                                          |   |   | $ | --- |   |   | $ | --- |   |   | $ | 1,868 |   |

----

|                         |   | December 31,   |    |
|------------------------------|--------|----------------|---------|
|                         |   | 2010           |    |   | 2009 |   |
|                         |   | CarryingAmount |    |   | Estimated Fair Value |   |   | CarryingAmount |   |   | Estimated FairValue |   |
| Financial assets:            |   |           |    |   |   |   |   |   |   |   |   |   |
| Cash and due from banks      |   | $              | 9,858   |   |   | $ | 9,858 |   |   | $ | 12,894 |   |   | $ | 12,894 |   |
| Interest-bearing deposits    |   |           | 69,400  |   |   |   | 69,400 |   |   |   | 32,730 |   |   |   | 32,730 |   |
| Securities                   |   |           | 315,907 |   |   |   | 314,820 |   |   |   | 297,417 |   |   |   | 297,933 |   |
| Mortgage loans held for sale |   |           | 2,460   |   |   |   | 2,460 |   |   |   | 126 |   |   |   | 126 |   |
| Loans, net                   |   |           | 568,779 |   |   |   | 539,152 |   |   |   | 583,021 |   |   |   | 588,201 |   |
| Accrued interest receivable  |   |           | 6,016   |   |   |   | 6,016 |   |   |   | 6,250 |   |   |   | 6,250 |   |
| Financial liabilities:       |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                     |   | $              | 884,583 |   |   | $ | 880,290 |   |   | $ | 852,112 |   |   | $ | 856,556 |   |
| Accrued interest payable     |   |           | 257     |   |   |   | 257 |   |   |   | 336 |   |   |   | 336 |   |

----

|                               |   | 2010         |   |
|------------------------------------|--------|--------------|--------|
|                               |   | FirstQuarter |   |   | SecondQuarter |   |   | ThirdQuarter |   |   | FourthQuarter |   |
| Income Statement Data:             |   |         |   |   |   |   |   |   |   |   |   |   |
| Interest income                    |   | $            | 12,240 |   |   | $ | 12,347 |   |   | $ | 12,287 |   |   | $ | 12,265 |   |
| Interest expense                   |   |         | 2,979  |   |   |   | 2,850 |   |   |   | 2,726 |   |   |   | 2,603 |   |
| Net interest income                |   |         | 9,261  |   |   |   | 9,497 |   |   |   | 9,561 |   |   |   | 9,662 |   |
| Provision for loan losses          |   |         | 647    |   |   |   | 852 |   |   |   | 710 |   |   |   | 1,200 |   |
| Noninterest income                 |   |         | 1,971  |   |   |   | 2,123 |   |   |   | 2,101 |   |   |   | 2,152 |   |
| Noninterest expense                |   |         | 5,784  |   |   |   | 5,697 |   |   |   | 5,826 |   |   |   | 5,820 |   |
| Income taxes                       |   |         | 1,032  |   |   |   | 1,075 |   |   |   | 1,129 |   |   |   | 987 |   |
| Net income                         |   | $            | 3,769  |   |   | $ | 3,996 |   |   | $ | 3,997 |   |   | $ | 3,807 |   |
| Per Share Data:                    |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic net income per share         |   | $            | 0.54   |   |   | $ | 0.58 |   |   | $ | 0.58 |   |   | $ | 0.55 |   |
| Fully diluted net income per share |   |         | 0.54   |   |   | $ | 0.58 |   |   | $ | 0.58 |   |   | $ | 0.55 |   |
| Cash dividends per share           |   |         | ---    |   |   |   | 0.44 |   |   |   | --- |   |   |   | 0.47 |   |
| Book value per share               |   |         | 18.25  |   |   |   | 18.44 |   |   |   | 19.13 |   |   |   | 18.63 |   |
|                               |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                               |   | 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 |   |

----

|                                 |   | Gross Carrying Value |   |   | Accumulated Amortization |   |   | Net Carrying Value |   |
|--------------------------------------|--------|----------------------|--------|--------|--------------------------|--------|--------|--------------------|--------|
| December 31, 2010                    |   |                 |   |   |                     |   |   |               |   |
| Amortizable core deposit intangibles |   | $                    | 16,257 |   |                     | $      | 10,562 |               |   | $ | 5,695 |   |
| Unamortizable goodwill               |   | $                    | 5,848  |   |                     | $      | ---    |               |   | $ | 5,848 |   |
|                                 |   |                 |   |   |                     |   |   |               |   |   |   |   |
| December 31, 2009                    |   |                 |   |   |                     |   |   |               |   |   |   |   |
| Amortizable core deposit intangibles |   | $                    | 16,257 |   |                     | $      | 9,479  |               |   | $ | 6,778 |   |
| Unamortizable goodwill               |   | $                    | 5,848  |   |                     | $      | ---    |               |   | $ | 5,848 |   |

| 2011       |   | $      | 1,083 |   |
|------------|--------|--------|-------|--------|
| 2012       |   |   | 1,083 |   |
| 2013       |   |   | 1,077 |   |
| 2014       |   |   | 1,075 |   |
| 2015       |   |   | 1,075 |   |
| Thereafter |   |   | 302   |   |
| Total      |   | $      | 5,695 |   |

----

----

----

----

| /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     | 66  | Chairman, President and Chief Executive Officer, National Bankshares, Inc.; President and Chief Executive Officer of 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    | 44  | 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    | 58  | 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 National Bank of Blacksburg since 2002.                                                                      | 1989                             |
| Marilyn B. Buhyoff | 62  | Secretary & Counsel, National Bankshares, Inc.; Counsel of 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 |

|               |   | 2010   |    | 2009       |   |
|--------------------|--------|--------|---------|------------|--------|
|               |   | Fees   |    | Percentage |   | Fees | Percentage |   |
| Audit fees         |   | $      | 105,500 |       | 79     | % | $ | 102,500 | 78 | % |
| Audit-related fees |   |   | 21,650  |       | 16     | % |   | 21,300 | 16 | % |
| Tax fees           |   |   | 7,200   |       | 5      | % |   | 8,492 | 6 | % |
|               |   | $      | 134,350 |       | 100    | % | $ | 132,292 | 100 | % |

----

|   | Reports of Independent Registered Public Accounting Firm |
|--------|----------------------------------------------------------|

|   | Consolidated Balance Sheets – As of December 31, 2010 and 2009 |
|--------|----------------------------------------------------------------------|

|   | Consolidated Statements of Income – Years ended December 31, 2010, 2009 and 2008 |
|--------|----------------------------------------------------------------------------------------|

|   | Consolidated Statements of Changes in Stockholders’ Equity – Years ended December 31, 2010, 2009 and 2008 |
|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | Consolidated Statements of Cash Flows – Years ended December 31, 2010, 2009 and 2008 |
|--------|--------------------------------------------------------------------------------------------|

|   | Notes to Consolidated Financial Statements |
|--------|--------------------------------------------|

|   | (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)                                           |

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| *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 64                                                                                                                                       |
| +31(i)       | Section 906 Certification of Chief Executive Officer                                                                                                                                                  | Page 72                                                                                                                                       |
| +31(ii)      | Section 906 Certification of Chief Financial Officer                                                                                                                                                  | Page 73                                                                                                                                       |
| +32(i)       | 18 U.S.C. Section 1350 Certification of Chief Executive Officer                                                                                                                                       | Page 75                                                                                                                                       |
| +32(ii)      | 18 U.S.C. Section 1350 Certification of Chief Financial Officer                                                                                                                                       | Page 75                                                                                                                                       |

| /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 11, 2011                                                                       |

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| 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 purposes in accordance with generally accepted accounting principles; and |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (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. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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; and |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (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. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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       | 03/11/2011 | Director                                                                                                                                                     |
| L. J. Ball                                         |       |                                                                                                                                                         |
|                                               |       |                                                                                                                                                         |
| /s/ J. W. BOWLING                   | 03/11/2011 | Director                                                                                                                                                     |
| J. W. Bowling                                      |       |                                                                                                                                                         |
|                                               |       |                                                                                                                                                         |
| /s/ J. H. HARRY           | 03/11/2011 | Director                                                                                                                                                     |
| J. H. Harry                                        |       |                                                                                                                                                         |
|                                               |       |                                                                                                                                                         |
| /s/ J. M. LEWIS           | 03/11/2011 | Director                                                                                                                                                     |
| J. M. Lewis                                        |       |                                                                                                                                                         |
|                                               |       |                                                                                                                                                         |
| /s/ M. G. MILLER               | 03/11/2011 | Director                                                                                                                                                     |
| M. G. Miller                                       |       |                                                                                                                                                         |
|                                               |       |                                                                                                                                                         |
| /s/ W. A. PEERY                | 03/11/2011 | Director                                                                                                                                                     |
| W. A. Peery                                        |       |                                                                                                                                                         |
|                                               |       |                                                                                                                                                         |
| /s/ J. G. RAKES           | 03/11/2011 | Chairman of the Board                                                                                                                                        |
| J. G. Rakes                                        |       | President and Chief Executive Officer –National Bankshares, Inc.Director                                                                               |
|                                               |       |                                                                                                                                                         |
| /s/ G. P. REYNOLDS                  | 03/11/2011 | Director                                                                                                                                                     |
| G. P. Reynolds                                     |       |                                                                                                                                                         |
|                                               |       |                                                                                                                                                         |
| /s/ J. M. SHULER               | 03/11/2011 | Director                                                                                                                                                     |
| J. M. Shuler                                       |       |                            |
|                                               |       |                                                                                                                                                         |

----

|   | (1) | such Form 10-K for the year ended December 31, 2010, 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, 2010, 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, 2010, 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, 2010, 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  64 |
| 31(i)       | Section 906 Certification of Chief Executive Officer                                                                                                                                                   | Page 72            |
| 31(ii)      | Section 906 Certification of Chief Financial Officer                                                                                                                                                   | Page 73            |
| 32(i)       | 18 U.S.C. Section 1350 Certification of Chief Executive Officer                                                                                                                                        | Page 75            |
| 32(ii)      | 18 U.S.C. Section 1350 Certification of Chief Financial Officer                                                                                                                                        | Page 75            |

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