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| UNITED      STATES                                                                                                |
|-------------------------------------------------------------------------------------------------------------------|
| SECURITIES      AND EXCHANGE COMMISSION                                                                           |
| Washington,      D.C.  20549                                                                            |
| FORM      10-K                                                                                                    |
|                                                                                                              |
| [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE      ACT OF 1934                |
|                                                                                                              |
| For      the fiscal year ended December 31, 2007                                                                  |
|                                                                                                              |
| [  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES      EXCHANGE ACT OF 1934 |
|                                                                                                              |
| Commission      File Number:  0-22606                                                              |
|                                                                                                    |
| Britton      & Koontz Capital Corporation                                                                     |
| (Exact      name of registrant as specified in its charter)                                                       |
|                                                                                                                   |

|                                                                |                                      |
|---------------------------------------------------------------------|-------------------------------------------|
| Mississippi                                                         | 64-0665423                                |
| (State      or other jurisdiction of incorporation or organization) | (I.R.S.      Employer Identification No.) |
|                                                                |                                      |

| 500      Main Street                                           |
|----------------------------------------------------------------|
| Natchez,      Mississippi 39120                                |
| (Address      of principal executive offices) (Zip Code)       |
|                                                           |
| (601)      445-5576                                            |
| (Registrant’s      Telephone Number, Including AreaCode) |

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

| Title      of each class                       | Common      Stock, $2.50 Par Value |
|------------------------------------------------|------------------------------------|
| Name      of each exchange on which registered | The      NASDAQ Capital Market     |

|                                                                       |
|----------------------------------------------------------------------------|
| Securities      registered pursuant to Section 12(g) of the Exchange  Act: |
| None                                                                       |

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| Large      accelerated      filer                     [        ]                                                         |                       Accelerated      filer    [   ] |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Non-accelerated      filer                            [        ] (Do      not check if a smaller reporting company) | Smaller      reporting company [X]                                                                                                                                                           |

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C

|                | PART I                                                                                              |   |
|---------------------|-----------------------------------------------------------------------------------------------------|--------|
| ITEM  1.  | BUSINESS                                                                                            | *      |
| ITEM 1A.            | RISK FACTORS                                                                                        | *      |
| ITEM 1B.            | UNRESOLVED STAFF COMMENTS                                                                           | *      |
| ITEM  2.  | PROPERTIES                                                                                          | *      |
| ITEM  3.  | LEGAL PROCEEDINGS                                                                                   | *      |
| ITEM  4.  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY      HOLDERS                                            | *      |
|                |                                                                                                |   |
|                | PART II                                                                                             |   |
| ITEM  5.  | MARKET FOR REGISTRANT’S COMMON EQUITY,      RELATED                                           |        |
|                | STOCKHOLDER MATTERS AND ISSUER PURCHASES OF      EQUITY                                             |   |
|                | SECURITIES                                                                                          | *      |
| ITEM  6.  | SELECTED FINANCIAL DATA                                                                             | *      |
| ITEM  7.  | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION      AND RESULTS OF OPERATIONS    | *      |
| ITEM  7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET      RISK                                     | *      |
| ITEM  8.  | FINANCIAL STATEMENTS AND SUPPLEMENTARY    DATA                                                      | *      |
| ITEM  9.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING      AND FINANCIAL DISCLOSURE           | *      |
| ITEM 9A.            | CONTROLS AND PROCEDURES.                                                                            | *      |
| ITEM 9B.            | OTHER INFORMATION                                                                                   | *      |
|                |                                                                                                |   |
|                | PART III                                                                                            |   |
| ITEM 10.            | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE      GOVERNANCE                                         | **     |
| ITEM 11.            | EXECUTIVE COMPENSATION                                                                              | **     |
| ITEM 12             | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND      MANAGEMENT AND RELATED STOCKHOLDER MATTERS | **     |
| ITEM 13             | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND      DIRECTOR INDEPENDENCE                      | **     |
| ITEM 14.            | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                              | **     |
|                |                                                                                                |   |
|                | PART IV                                                                                             |   |
| ITEM 15             | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                             | *      |

SIGNATURES

EXHIBITS

| ** | Incorporated      by reference from Britton & Koontz Capital Corporation’s Definitive      Proxy Statement for its 2008 Annual Meeting of Shareholders in accordance      with Instruction G(3) of Form 10-K. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  Location                                                                                                                              |  Own/Lease   |  Use                      |   | Approximate      OfficeSpace (square feet) |         |
|---------------------------------------------------------------------------------------------------------------------------------------------|-------------------|--------------------------------|--------|--------------------------------------------|--------------|
|  Natchez                      |              |                           |   |                                       |         |
| 500      Main StreetNatchez,      Mississippi                                                                                               |  Owned       |  Main      Office         |   |                                       | 33,790       |   |
| 411      Highway 61 N.Natchez,      Mississippi                                                                                             |  Owned       |  Branch      Office       |   |                                       | 1,671        |   |
| 55A      Sgt. Prentiss DriveNatchez,      Mississippi                                                                                       |  Owned       |  Branch      Office       |   |                                       | 10,720       |   |
| Vicksburg                                                   |              |                           |   |                                       |         |   |
| 2059      Highway 61 N.Vicksburg,      Mississippi                                                                                          |  Owned       |  Branch      Office       |   |                                       | 3,050        |   |
| 2150      S. Frontage RoadVicksburg,      Mississippi                                                                                       |  Owned       |  Branch      Office       |   |                                       | 4,570        |   |
| Baton      Rouge                                                                |              |                           |   |                                       |         |   |
| 8810      BluebonnetSuites      A & BBaton      Rouge, Louisiana                                                                        |   Lease |   Branch      Office |   |                                       |   5,112 |   |

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|             |   | DividendsPer      Share |   |   | High   |   |   | Low    |   |
|------------------|--------|-------------------------|--------|--------|--------|--------|--------|--------|--------|
| 2007             |   |                    |   |   |   |   |   |   |   |
| 4th      Quarter |   | $                       | .18    |   |   | $      | 17.69  |   |   | $ | 15.55 |   |
| 3rd      Quarter |   |                    | .18    |   |   |   | 17.99  |   |   |   | 15.90 |   |
| 2nd      Quarter |   |                    | .18    |   |   |   | 19.67  |   |   |   | 17.75 |   |
| 1st      Quarter |   |                    | .18    |   |   |   | 20.50  |   |   |   | 18.56 |   |
|             |   |                    |   |   |   |   |   |   |   |   |   |   |
| 2006             |   |                    |   |   |   |   |   |   |   |   |   |   |
| 4th      Quarter |   | $                       | .18    |   |   | $      | 20.95  |   |   | $ | 19.16 |   |
| 3rd      Quarter |   |                    | .18    |   |   |   | 21.50  |   |   |   | 18.85 |   |
| 2nd      Quarter |   |                    | .18    |   |   |   | 23.04  |   |   |   | 18.25 |   |
| 1st      Quarter |   |                    | .18    |   |   |   | 24.00  |   |   |   | 19.89 |   |
|             |   |                    |   |   |   |   |   |   |   |   |   |   |

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|                                      |   |     |        |   | Amortized      Cost |   |        |     |   |
|-------------------------------------------|--------|----------|-------------|--------|---------------------|--------|-------------|----------|--------|
|                                      |   |     |        |   |                |   |        |     |   |
|                                      |   | 12/31/07 |        |   | 12/31/06            |   |        | 12/31/05 |   |
|                                      |   |     |        |   |                |   |        |     |   |
| Obligations      of other U.S. Government |   |     |        |   |                |   |        |     |   |
| Agencies      and Corporations            |   | $        | 84,741,030  |   |                | $      | 68,015,850  |     |   | $ | 82,864,118 |   |
| Obligations      of State and             |   |     |        |   |                |   |        |     |   |   |   |   |
| Political      Subdivisions               |   |     | 38,004,634  |   |                |   | 36,175,580  |     |   |   | 34,904,765 |   |
| Privately      Issued Collateralized      |   |     |        |   |                |   |        |     |   |   |   |   |
| Mortgage      Obligations                 |   |     | -           |   |                |   | -           |     |   |   | 127,770 |   |
|                                      |   |     |        |   |                |   |        |     |   |   |   |   |
|                                      |   | $        | 122,745,664 |   |                | $      | 104,191,430 |     |   | $ | 117,896,653 |   |

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|                                                               |   | 12/31/07 |        |   | 12/31/06 |   |        | 12/31/05 |   |   | 12/31/04    |   |   | 12/31/03 |        |
|--------------------------------------------------------------------|--------|----------|-------------|--------|----------|--------|-------------|----------|--------|--------|-------------|--------|--------|----------|-------------|
| Commercial,      financial and    agricultural |   | $        | 25,884,000  |   |     | $      | 28,385,000  |     |   | $      | 32,868,000  |   |   | $        | 31,589,000  |   |   | $ | 31,853,000 |   |
| Real      estate-construction                                      |   |     | 45,097,000  |   |     |   | 44,592,000  |     |   |   | 30,069,000  |   |   |     | 18,360,000  |   |   |   | 14,690,000 |   |
| Real      estate-residential                                       |   |     | 72,123,000  |   |     |   | 83,256,000  |     |   |   | 98,488,000  |   |   |     | 92,889,000  |   |   |   | 91,031,000 |   |
| Real      Estate-other                                             |   |     | 72,438,000  |   |     |   | 76,473,000  |     |   |   | 70,875,000  |   |   |     | 63,685,000  |   |   |   | 57,826,000 |   |
| Installment                                                        |   |     | 7,550,000   |   |     |   | 10,680,000  |     |   |   | 12,478,000  |   |   |     | 14,229,000  |   |   |   | 14,195,000 |   |
| Other                                                              |   |     | 261,000     |   |     |   | 203,000     |     |   |   | 306,000     |   |   |     | 249,000     |   |   |   | 102,000 |   |
|                                                               |   |     |        |   |     |   |        |     |   |   |        |   |   |     |        |   |   |   |   |   |
| Total      loans                                                   |   | $        | 223,353,000 |   |     | $      | 243,589,000 |     |   | $      | 245,084,000 |   |   | $        | 221,001,000 |   |   | $ | 209,697,000 |   |

|                                        |   |          |       |   | Due      after  |   |       |            |   |   |      |   |
|---------------------------------------------|--------|---------------|------------|--------|-----------------|--------|------------|-----------------|--------|--------|-----------|--------|
|                                        |   | Due      in   |       |   | one      year   |   |       |            |   |   |      |   |
|                                        |   | one      year |       |   | through         |   |       | Due      after  |   |   |      |   |
|                                        |   | or      less  |       |   | five      years |   |       | five      years |   |   | Total     |   |
|                                        |   |          |       |   |            |   |       |            |   |   |      |   |
| Commercial,      financial and agricultural |   | $             | 13,024,000 |   |            | $      | 12,269,000 |            |   | $      | 591,000   |   |   | $ | 25,884,000 |   |
| Real      estate-construction               |   |          | 35,665,000 |   |            |   | 8,216,000  |            |   |   | 1,215,000 |   |   |   | 45,097,000 |   |
|                                        |   |          |       |   |            |   |       |            |   |   |      |   |   |   |   |   |
| Total                                       |   | $             | 48,689,000 |   |            | $      | 20,486,000 |            |   | $      | 1,806,000 |   |   | $ | 70,981,000 |   |
|                                        |   |          |       |   |            |   |       |            |   |   |      |   |   |   |   |   |
|                                        |   |          |       |   |            |   |       |            |   |   |      |   |   |   |   |   |
| Predetermined      interest rates           |   |          |       |   |            | $      | 13,701,000 |            |   | $      | 811,000   |   |   |   |   |   |
|                                        |   |          |       |   |            |   |       |            |   |   |      |   |   |   |   |   |
| Floating      or adjustable interest rates  |   |          |       |   |            | $      | 6,785,000  |            |   | $      | 995,000   |   |   |   |   |   |
|                                        |   |          |       |   |            |   |       |            |   |   |      |   |   |   |   |   |

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|                                     |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |
|------------------------------------------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|
| (Dollars      in thousands)              |   | 12/31/07 |   |   | 12/31/06 |   |   | 12/31/05 |   |   | 12/31/04 |   |   | 12/31/03 |   |
|                                     |   |     |   |   |     |   |   |     |   |
| Non-accrual      loans by type           |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |
| Real      estate                         |   | $        | 992    |   |     | $      | 829    |     |   | $      | 413      |   |   | $        | 532    |   |   | $ | 584 |   |
| Installment                              |   |     | 87     |   |     |   | 13     |     |   |   | 72       |   |   |     | 26     |   |   |   | 20 |   |
| Commercial      and all other loans      |   |     | 223    |   |     |   | 351    |     |   |   | 574      |   |   |     | 214    |   |   |   | 580 |   |
| Total      non-accrual loans             |   |     | 1,302  |   |     |   | 1,193  |     |   |   | 1,059    |   |   |     | 772    |   |   |   | 1,184 |   |
| Loans      past due 90 days or more      |   |     | 12     |   |     |   | 232    |     |   |   | 201      |   |   |     | 129    |   |   |   | 337 |   |
| Total      nonperforming loans           |   |     | 1,314  |   |     |   | 1,425  |     |   |   | 1,260    |   |   |     | 901    |   |   |   | 1,521 |   |
| Other      real estate owned (net)       |   |     | 747    |   |     |   | 1,257  |     |   |   | 1,471    |   |   |     | 1,320  |   |   |   | 1,741 |   |
| Total      nonperforming assets          |   | $        | 2,061  |   |     | $      | 2,682  |     |   | $      | 2,731    |   |   | $        | 2,221  |   |   | $ | 3,262 |   |
| Nonperforming      loans as a percent    |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |   |   |   |   |
| of      loans, net of unearned interest  |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |   |   |   |   |
| and      loans held for sale             |   |     | .59    | %      |     |   | .59    | %        |   |   | .51      | %      |   |     | .41    | % |   |   | .74 | % |
| Additional      interest income foregone |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |   |   |   |   |
|  on      non-accrual loans          |   | $        | 36     |   |     | $      | 31     |     |   | $      | 24       |   |   | $        | 38     |   |   | $ | 28 |   |

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|  (Dollars      in thousands)                  |   | 12/31/07 |   |   | 12/31/06 |   |   | 12/31/05 |   |   | 12/31/04 |   |   | 12/31/03 |   |
|----------------------------------------------------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|
|  Balance      at beginning of year            |   | $        | 2,344  |   |     | $      | 2,378  |     |   | $      | 2,237    |   |   | $        | 2,070  |   |   | $ | 2,129 |   |
|                                               |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |   |   |   |   |
| Charge-offs:                                       |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |   |   |   |   |
| Commercial,      financial & agricultural      |   |     | (87    | )      |     |   | (571   | )        |   |   | (54      | )      |   |     | (108   | ) |   |   | (285 | ) |
| Real      Estate-construction                      |   |     | (25    | )      |     |   | (3     | )        |   |   | (0       | )      |   |     | (22    | ) |   |   | (0 | ) |
| Real      Estate-residential                       |   |     | (257   | )      |     |   | (5     | )        |   |   | (40      | )      |   |     | (29    | ) |   |   | (37 | ) |
| Real      Estate-other                             |   |     | (2     | )      |     |   | 0      |     |   |   | (109     | )      |   |     | (62    | ) |   |   | (419 | ) |
| Installment      and other                         |   |     | (136   | )      |     |   | (64    | )        |   |   | (48      | )      |   |     | (47    | ) |   |   | (91 | ) |
| Recoveries:                                        |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |   |   |   |   |
| Commercial,      financial & agricultural      |   |     | 110    |   |     |   | 26     |     |   |   | 22       |   |   |     | 23     |   |   |   | 60 |   |
| Real      Estate-residential                       |   |     | 5      |   |     |   | 26     |     |   |   | 22       |   |   |     | 0      |   |   |   | 0 |   |
| Real      Estate-other                             |   |     | -      |   |     |   | 51     |     |   |   | 14       |   |   |     | 5      |   |   |   | 25 |   |
| Installment      and other                         |   |     | 39     |   |     |   | 31     |     |   |   | 34       |   |   |     | 17     |   |   |   | 18 |   |
| Net      (charge-offs) / recoveries                |   |     | (353   | )      |     |   | (509   | )        |   |   | (159     | )      |   |     | (223   | ) |   |   | (729 | ) |
| Provision      charged to operations               |   |     | 440    |   |     |   | 475    |     |   |   | 300      |   |   |     | 390    |   |   |   | 670 |   |
|                                               |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |   |   |   |   |
| Balance      at end of year                        |   | $        | 2,431  |   |     | $      | 2,344  |     |   | $      | 2,378    |   |   | $        | 2,237  |   |   | $ | 2,070 |   |
|                                               |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |   |   |   |   |
| Allowance      for loan losses as a percent        |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |   |   |   |   |
| of      loans, net of unearned interest            |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |   |   |   |   |
| and      loans held for sale                       |   |     | 1.09   | %      |     |   | .96    | %        |   |   | .97      | %      |   |     | 1.02   | % |   |   | 1.00 | % |
|                                               |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |   |   |   |   |
| Net      charge-offs as a percent of average loans |   |     | .15    | %      |     |   | .21    | %        |   |   | .07      | %      |   |     | .10    | % |   |   | .36 | % |

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|                           |   | Amounts      as of December 31, |   |
|--------------------------------|--------|---------------------------------|--------|
|                           |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   | 2007                            |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |   | 2003 |   |
|                           |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial,      financial and |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   agricultural       |   | $                               | 473    |   |   | $ | 426 |   |   | $ | 502 |   |   | $ | 452 |   |   | $ | 350 |   |
| Real      estate-construction  |   |                            | 265    |   |   |   | 187 |   |   |   | 77 |   |   |   | 60 |   |   |   | 36 |   |
| Real      estate-residential   |   |                            | 353    |   |   |   | 248 |   |   |   | 162 |   |   |   | 149 |   |   |   | 136 |   |
| Real      Estate-other         |   |                            | 735    |   |   |   | 663 |   |   |   | 787 |   |   |   | 764 |   |   |   | 811 |   |
| Installment                    |   |                            | 335    |   |   |   | 331 |   |   |   | 354 |   |   |   | 361 |   |   |   | 151 |   |
| Other                          |   |                            | 270    |   |   |   | 489 |   |   |   | 496 |   |   |   | 451 |   |   |   | 586 |   |
|                           |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      loans               |   | $                               | 2,431  |   |   | $ | 2,344 |   |   | $ | 2,378 |   |   | $ | 2,237 |   |   | $ | 2,070 |   |
|                           |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                           |   | Percent      of loans in each category to total loans |   |
|--------------------------------|--------|-------------------------------------------------------|--------|
|                           |   | 2007                                                  |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |   | 2003 |   |
| Commercial,      financial and |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  agricultural             |   |                                                  | 11.59  | % |   |   | 11.65 | % |   |   | 13.41 | % |   |   | 14.29 | % |   |   | 15.19 | % |
| Real      estate-construction  |   |                                                  | 20.19  |   |   |   | 18.31 |   |   |   | 12.27 |   |   |   | 8.31 |   |   |   | 7.01 |   |
| Real      estate-residential   |   |                                                  | 32.29  |   |   |   | 34.18 |   |   |   | 40.18 |   |   |   | 42.03 |   |   |   | 43.41 |   |
| Real      Estate-other         |   |                                                  | 32.43  |   |   |   | 31.40 |   |   |   | 28.92 |   |   |   | 28.82 |   |   |   | 27.58 |   |
| Installment                    |   |                                                  | 3.38   |   |   |   | 4.38 |   |   |   | 5.09 |   |   |   | 6.44 |   |   |   | 6.77 |   |
| Other                          |   |                                                  | .12    |   |   |   | .08 |   |   |   | .13 |   |   |   | .11 |   |   |   | .04 |   |
|                           |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      loans               |   |                                                  | 100.00 | % |   |   | 100.00 | % |   |   | 100.00 | % |   |   | 100.00 | % |   |   | 100.00 | % |
|                           |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| Balance      at December 31, 2006                 |   |   |   |   | $      | 1,257  |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Write-downs/Reserves                              |   |   | (326   | )      |   |   |   |   |
| Proceeds      from sales, net of gains and losses |   |   | (703   | )      |   |   |   |   |
| Foreclosures                                      |   |   | 519    |   |   |   | (510   | ) |
| Balance      at December 31, 2007                 |   |   |   |   |   | $      | 747    |   |

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Table of Contents

|                                |   | 12/31/07 |       |   | 12/31/06 |   |
|-------------------------------------|--------|----------|------------|--------|----------|--------|
|                                |   |     |       |   |     |   |
| Time      remaining until maturity: |   |     |       |   |     |   |
| Three      months or less           |   | $        | 13,693,963 |   |     | $      | 11,261,017 |   |
| Over      three through six months  |   |     | 16,183,305 |   |     |   | 15,290,171 |   |
| Over      six through twelve months |   |     | 18,119,579 |   |     |   | 26,185,733 |   |
| Over      twelve months             |   |     | 4,210,503  |   |     |   | 9,647,050 |   |
|                                |   |     |       |   |     |   |   |   |
|                                |   | $        | 52,207,350 |   |     | $      | 62,383,971 |   |
|                                |   |     |       |   |     |   |   |   |

|                                      |   | 12/31/07 |        |   | 12/31/06 |   |        | 12/31/05 |   |
|-------------------------------------------|--------|----------|-------------|--------|----------|--------|-------------|----------|--------|
|                                      |   |     |        |   |     |   |        |     |   |
| Non-interest      bearing demand deposits |   | $        | 47,305,927  |   |     | $      | 50,345,279  |     |   | $ | 51,466,230 |   |
| Now      accounts                         |   |     | 24,056,081  |   |     |   | 24,555,009  |     |   |   | 23,016,487 |   |
| Money      market deposit accounts        |   |     | 34,449,399  |   |     |   | 37,101,457  |     |   |   | 36,516,395 |   |
| Savings      accounts                     |   |     | 17,310,284  |   |     |   | 18,082,839  |     |   |   | 23,032,910 |   |
| Certificates      of deposit              |   |     | 123,272,459 |   |     |   | 123,672,691 |     |   |   | 123,344,888 |   |
|                                      |   |     |        |   |     |   |        |     |   |   |   |   |
|                                      |   | $        | 246,394,150 |   |     | $      | 253,757,275 |     |   | $ | 257,376,910 |   |
|                                      |   |     |        |   |     |   |        |     |   |   |   |   |

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Table of Contents

|                              |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|-----------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                              |   |   |       |   |   |   |       |   |   |
| Year-end      balance             |   | $      | 40,119,330 |   |   | $      | 39,393,000 |   |   | $ | 44,343,000 |   |
| Weighted      average rate        |   |   | 4.78       | %      |   |   | 4.73       | %      |   |   | 3.07 | % |
| Maximum      month-end balance    |   | $      | 58,606,000 |   |   | $      | 49,510,000 |   |   | $ | 59,455,000 |   |
|                              |   |   |       |   |   |   |       |   |   |   |   |   |
| Year      to date average balance |   | $      | 50,488,000 |   |   | $      | 38,091,000 |   |   | $ | 47,696,000 |   |
| Weighted      average rate        |   |   | 5.07       | %      |   |   | 4.26       | %      |   |   | 3.24 | % |

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Table of Contents

|                                                                                                                                   |                                                                                  Average Balances and Yield Analysis                                                                                                                                                                                                |                                                                                                          |                                                                                                                |        |                                                                        |
|----------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|-------------|-----------------------------------------------------------------------------|
|                                                                                                                                   |                                                                                                                    (dollars in thousands) |                                                                                                          |                                                                                                                |        |                                                                        |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |           Twelve      Months Ended December 31,        |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          | 2007                                                                                                                |        |                                                                        |   | 2006 |   |   |   | 2005 |   |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          | Interest                                                                                                            | Average     |                                                                        | Interest | Average |   | Interest | Average |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Average                                                                                                       | Income/                                                                                                             | %           |                                                                        | Average | Income/ | % |   | Average | Income/ | % |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Balance                                                                                                       | Expense                                                                                                             | Yield/Rate  | Balance                                                                     | Expense | Yield/Rate | Balance | Expense | Yield/Rate |
| ASSETS                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| Loans                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  $      237,512                                                                                          |  $    19,010                                                                               | 8.00%       |                                                                        |  $      242,910 |  $   18,443 | 7.59% |   |  $      236,796 |  $      16,101 | 6.80% |
| Investment      securities:                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |
| U.S.      Government                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                   - |                    - | 0.00%       |                                                                        |                   - |                   - | 0.00% |   |                   - |                 - | 0.00% |
| Mortgage      Backed Securities                                                                                                        |        67,345                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |           3,514                                             | 5.22%                                                                                                               |        |        66,425                            |          3,045 | 4.58% |   |        86,062 |        3,776 | 4.39% |
| State      & municipal                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        36,367                                                              |           1,654                                                   | 4.55%       |                                                                        |        35,146 |          1,641 | 4.67% |   |        34,914 |        1,634 | 4.68% |
| Other                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |          4,959                                                   |              271                                   | 5.47%       |                                                                        |        10,887 |             479 | 4.40% |   |        11,867 |           459 | 3.86% |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| Total      investment securities                                                                                                       |     108,671                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |           5,439                                             | 5.01%                                                                                                               |        |     112,458                                             |          5,166 | 4.59% |   |     132,843 |        5,869 | 4.42% |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| Interest      bearing bank balances                                                                                                    |          3,045                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              140                             | 4.61%                                                                                                               |        |          1,435                 |                69 | 4.83% |   |             735 |              22 | 2.95% |
| Federal      funds sold                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |             306                                   |                15                        | 4.86%       |                                                                        |             604 |                30 | 4.91% |   |             235 |                8 | 3.35% |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| Total      earning assets                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |     349,534                                                                               |        24,605                                                                    | 7.04%       |                                                                        |     357,407 |        23,708 | 6.63% |   |     370,609 |      22,000 | 5.94% |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| Allowance      for loan losses                                                                                                         |        (2,440)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                          |                                                                                                                |        |        (2,444)                           |   |   |   |        (2,379) |   |   |
| Cash      & due from banks, non-interest bearing                                                                                   |          6,435                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                          |                                                                                                                |        |          7,419                 |   |   |   |          7,548 |   |   |
| Bank      premises & equipment                                                                                                     |          7,565                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                          |                                                                                                                |        |          7,901                 |   |   |   |          8,221 |   |   |
| Cash      Value Life Insurance and other                                                                                               |             997                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                          |                                                                                                                |        |             957 |   |   |   |             929 |   |   |
| Other      assets                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |          4,675                                                   |                                                                                                                |        |                                                                        |          5,386 |   |   |   |          5,389 |   |   |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| TOTAL      ASSETS                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  $      366,765                                                                                          |                                                                                                                |        |                                                                        |  $      376,626 |   |   |   |  $      390,317 |   |   |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| LIABILITIES      AND STOCKHOLDERS'EQUITY                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| Interest      bearing deposits:                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |
| Savings                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  $   18,207                                                                               |  $          186                                              | 1.02%       |                                                                        |  $   20,623 |  $         249 | 1.21% |   |  $   20,289 |  $       215 | 1.06% |
| Interest      bearing checking                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        25,028                                                              |              408                                   | 1.63%       |                                                                        |        23,711 |             334 | 1.41% |   |        27,961 |           216 | 0.77% |
| Money      rate savings                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        36,380                                                              |           1,049                                                   | 2.88%       |                                                                        |        38,709 |             968 | 2.50% |   |        27,318 |           392 | 1.44% |
| Certificates      of deposit and other      time                  deposits |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |     129,857                                                                               |           6,066                                                   |  4.67% |                                                                        |     123,198 |          4,918 |  3.99% |   |     118,297 |        3,463 |  2.93% |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| Total      interest bearing deposits                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |     209,472                                                                               |           7,708                                                   | 3.68%       |                                                                        |     206,241 |          6,469 | 3.14% |   |     193,865 |        4,286 | 2.21% |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| Short      term borrowed funds                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        50,488                                                              |           2,560                                                   | 5.07%       |                                                                        |        38,091 |          1,623 | 4.26% |   |        47,696 |        1,546 | 3.24% |
| Long      term debt                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        22,865                                                              |              997                                   | 4.36%       |                                                                        |        46,241 |          2,114 | 4.57% |   |        70,760 |        2,613 | 3.69% |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| Total      interest bearing liabilities                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |     282,825                                                                               |        11,265                                                                    | 3.98%       |                                                                        |     290,542 |        10,206 | 3.51% |   |     312,321 |        8,445 | 2.70% |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| Non-interest      bearing deposits                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        45,598                                                              |                                                                                                                |        |                                                                        |        49,472 |   |   |   |        42,575 |   |   |
| Other      liabilities                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |          4,188                                                   |                                                                                                                |        |                                                                        |          4,364 |   |   |   |          4,074 |   |   |
| Shareholders'      equity                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        34,153                                                              |                                                                                                                |        |                                                                        |        32,248 |   |   |   |        31,347 |   |   |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| TOTAL      LIABILITIES & STOCKHOLDERS' EQUITY                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   $      366,765                                                                                    |  $    11,265                                                                               |        |                                                                        |   $      376,626 |   $   10,206 |   |   |  $      390,317 |   $          8,445 |   |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| Interest      income and rate earned                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |  $    24,605                                                                               | 7.04%       |                                                                        |   |  $   23,708 | 6.63% |   |   |  $        22,000 | 5.94% |
| Interest      expense and rate paid                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |        11,265                                                                    | 3.98%       |                                                                        |   |        10,206 | 3.51% |   |   |        8,445 | 2.70% |
| Interest      rate spread                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                | 3.06%       |                                                                        |   |   | 3.12% |   |   |   | 3.23% |
|  NET      INTEREST INCOME & NET YIELD                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |
| ON      AVERAGE EARNING ASSETS                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |  $    13,340                                                                               | 3.82%       |                                                                        |   |  $   13,502 | 3.78% |   |   |  $       13,555 | 3.66% |
|                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                          |                                                                                                                |        |                                                                        |   |   |   |   |   |   |   |

----

Table of Contents

|                              |   | December      31, 2007 |    |   | December      31, 2006 |   |
|-----------------------------------|--------|------------------------|---------|--------|------------------------|--------|
|                              |   |                   |    |   |                   |   |   |   |   |   |   |   |
|                              |   | Company                |    |   | Bank                   |   |   | Company |   |   | Bank |   |
|                              |   |                   |    |   |                   |   |   |   |   |   |   |   |
| Risk-based      capital:          |   |                   |    |   |                   |   |   |   |   |   |   |   |
| Total                             |   | $                      | 42,217  |   |                   | $      | 38,285 |   |   | $ | 40,943 |   |   | $ | 37,961 |   |
| Tier      1                       |   |                   | 39,786  |   |                   |   | 35,854 |   |   |   | 38,599 |   |   |   | 35,617 |   |
| Leverage                          |   |                   | 39,786  |   |                   |   | 35,854 |   |   |   | 38,599 |   |   |   | 35,617 |   |
| Assets:                           |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Quarterly      average assets (1) |   |                   | 362,493 |   |                   |   | 364,418 |   |   |   | 369,411 |   |   |   | 372,266 |   |
| Risk-weighted      assets         |   |                   | 258,194 |   |                   |   | 257,968 |   |   |   | 268,095 |   |   |   | 267,944 |   |
| Ratios:                           |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Total      risk-based capital     |   |                   | 16.36   | %      |                   |   | 14.84 | % |   |   | 15.27 | % |   |   | 14.17 | % |
| Tier      1 risk-based capital    |   |                   | 15.42   | %      |                   |   | 13.90 | % |   |   | 14.40 | % |   |   | 13.29 | % |
| Leverage                          |   |                   | 10.98   | %      |                   |   | 9.84 | % |   |   | 10.45 | % |   |   | 9.57 | % |
|                              |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

|                                  |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|---------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                  |   |   |   |   |   |   |   |   |   |
| Return      on average assets         |   |   | .82    | %      |   |   | .95    | %      |   |   | .83 | % |
| Return      on average equity         |   |   | 8.80   | %      |   |   | 11.09  | %      |   |   | 10.30 | % |
| Dividend      payout ratio            |   |   | 50.70  | %      |   |   | 42.60  | %      |   |   | 45.10 | % |
| Average      equity to average assets |   |   | 9.31   | %      |   |   | 8.56   | %      |   |   | 8.03 | % |
| Net      interest margin              |   |   | 3.82   | %      |   |   | 3.78   | %      |   |   | 3.66 | % |
| Basic      income per share           |   | $      | 1.42   |   |   | $      | 1.69   |   |   | $ | 1.53 |   |
| Diluted      income per share         |   | $      | 1.42   |   |   | $      | 1.69   |   |   | $ | 1.52 |   |

----

Table of Contents

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Table of Contents

|                                                 | Volume/Rate      Analysis(dollars      in thousands)                                         |
|------------------------------------------------------|---------------------------------------------------------------------------------------------------|
|                                                 | 2007      change from 2006                                                                        |   | 2006      change from 2005 |
|                                                 | Total                                                                                             | Volume | Rate |   | Total | Volume | Rate |
| Interest      earning assets:                        |                                                                                                   |  |
| Loans                                                |  $         567                                  |  $        (416) |  $       983 |   |  $      2,343 |  $         426 |  $     1,917 |
| Investment      securities:                          |                                                                                              |   |   |   |   |   |   |
| U.S.      Government                                 |                 - |                 - |               - |   |                 - |                 - |               - |
| Mortgage      Backed Securities                      |            469                             |               43 |           426 |   |           (731) |           (894) |           163 |
| State      & municipal                           |              13                  |               56 |            (43) |   |                7 |              11 |              (4) |
| Other                                                |           (208)                                 |            (305) |             97 |   |              20 |             (41) |             61 |
|                                                 |                                                                                              |   |   |   |   |   |   |
| Total      investment securities                     |            274                             |            (206) |           480 |   |           (704) |           (924) |           220 |
|                                                 |                                                                                              |   |   |   |   |   |   |
| Interest      bearing bank balances                  |              71                  |               74 |              (3) |   |              47 |              29 |             18 |
| Federal      funds sold                              |             (15)                      |              (15) |               - |   |              22 |              17 |               5 |
|                                                 |                                                                                              |   |   |   |   |   |   |
| Total      earning assets                            |  $         897                                  |  $        (563) |  $     1,460 |   |  $      1,708 |  $        (452) |  $     2,160 |
|                                                 |                                                                                              |   |   |   |   |   |   |
| Interest      bearing deposits:                      |                                                                                              |   |   |   |   |   |
| Savings                                              |             (64)                      |              (27) |            (37) |   |              34 |                3 |             31 |
| Interest      bearing checking                       |              74                  |               19 |             55 |   |            118 |             (36) |           154 |
| Money      rate savings                              |              80                  |              (61) |           141 |   |            576 |            207 |           369 |
| Certificates      of deposit and other time deposits |          1,149                                       |             277 |           872 |   |          1,456 |            150 |        1,306 |
|                                                 |                                                                                              |   |   |   |   |   |   |
| Total      interest bearing deposits                 |          1,239                                       |             208 |        1,031 |   |          2,184 |            324 |        1,860 |
|                                                 |                                                                                              |   |   |   |   |   |   |
| Short      term borrowed funds                       |            937                             |             592 |           345 |   |              77 |           (350) |           427 |
| Long      term debt                                  |         (1,117)                                           |         (1,023) |            (94) |   |           (500) |         (1,034) |           534 |
|                                                 |                                                                                              |   |   |   |   |   |   |
| Total      interest bearing liabilities              |  $      1,059                                                  |  $        (223) |  $     1,282 |   |  $      1,761 |  $     (1,060) |  $     2,821 |
|                                                 |                                                                                              |   |   |   |   |   |   |
| Change      in Interest Earning Assets               |            897                             |            (563) |        1,460 |   |          1,708 |           (452) |        2,160 |
| Change      in Interest Bearing Liabilities          |          1,059                                       |            (223) |        1,282 |   |          1,761 |         (1,060) |        2,821 |
| Change      in Net Interest Income                   |  $        (162)                                      |  $        (340) |  $       178 |   |  $         (53) |  $         608 |  $      (661) |
|                                                 |                                                                                              |   |   |   |   |   |   |

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Table of Contents

I

I

|                                                                                                                       |
|----------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                       |
|                                                                                                                       |
| Audited      Financial Statements:                                                                                         |
|                                                                                                                       |
| Management’s Annual Report on Internal Control over      Financial Reporting                                         |
|                                                                                                                       |
| Report of Independent Registered Public Accounting      Firm                                                               |
|                                                                                                                       |
| Consolidated Balance Sheets as of December 31, 2007 and      2006                                                          |
|                                                                                                                       |
| Consolidated Statements of Income for the years ended December      31, 2007, 2006 and 2005                                |
|                                                                                                                       |
| Consolidated Statements of Changes in Stockholders’ Equity for      the years ended December 31, 2007, 2006 and 2005 |
|                                                                                                                       |
| Consolidated Statements of Cash Flows for the years ended      December 31, 2007, 2006 and 2005                            |
|                                                                                                                       |
| Notes to the Consolidated Financial      Statements                                                                        |
|                                                                                                                       |
|                                                                                                                       |
|                                                                                                                       |

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Table of Contents

B

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Table of Contents

R

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Table of Contents

B

|                                                                                                                       |   | 2007   |        |   | 2006   |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                                                                       |   |   |        |   |   |   |
| ASSETS:                                                                                                                    |   |   |        |   |   |   |
| Cash      and Due from Banks:                                                                                              |   |   |        |   |   |   |
| Non-interest      bearing                                                                                                  |   | $      | 6,102,837   |   |   | $      | 6,254,364 |   |
| Interest      bearing                                                                                                      |   |   | 2,629,470   |   |   |   | 317,799 |   |
|                                                                                                                       |   |   |        |   |   |   |   |   |
| Total      Cash and Due from Banks                                                                                         |   |   | 8,732,307   |   |   |   | 6,572,163 |   |
|                                                                                                                       |   |   |        |   |   |   |   |   |
| Federal      funds sold                                                                                                    |   |   | 245,192     |   |   |   | 304,569 |   |
| Investment      Securities:                                                                                                |   |   |        |   |   |   |   |   |
| Trading      (amortized cost, in 2007 and 2006, of   $19,144,678      and $0, respectively)                 |   |   | 19,199,207  |   |   |   | - |   |
| Available-for-sale      (amortized cost, in 2007 and 2006, of $63,612,681 and $65,580,510,      respectively)              |   |   | 63,983,146  |   |   |   | 64,419,428 |   |
| Held-to-maturity      (market value, in 2007 and 2006, of   $40,639,894 and      $39,525,495, respectively) |   |   | 39,988,305  |   |   |   | 38,610,920 |   |
| Equity      securities                                                                                                     |   |   | 2,521,000   |   |   |   | 4,339,700 |   |
|     Loans,      less allowance for loan losses of $2,430,936 in 2007 and $2,344,434 in      2006       |   |   | 220,921,727 |   |   |   | 241,190,049 |   |
| Loans      held-for-sale                                                                                                   |   |   | -           |   |   |   | 54,810 |   |
| Bank      premises and equipment, net                                                                                      |   |   | 7,357,785   |   |   |   | 7,719,278 |   |
| Other      real estate, net of reserves of $58,350                                                                         |   |   | 746,796     |   |   |   | 1,256,611 |   |
| Accrued      interest receivable                                                                                           |   |   | 2,294,235   |   |   |   | 2,437,387 |   |
| Cash      surrender value of life insurance                                                                                |   |   | 1,013,683   |   |   |   | 973,212 |   |
| Core      deposits, net                                                                                                    |   |   | 665,658     |   |   |   | 773,275 |   |
| Other      assets                                                                                                          |   |   | 676,231     |   |   |   | 666,839 |   |
|                                                                                                                       |   |   |        |   |   |   |   |   |
| TOTAL      ASSETS                                                                                                          |   | $      | 368,345,272 |   |   | $      | 369,318,241 |   |
|                                                                                                                       |   |   |        |   |   |   |   |   |

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Table of Contents

|                                                                                                                                                                                |   | 2007   |        |   | 2006   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                                                                                                                                |   |   |        |   |   |   |
| LIABILITIES:                                                                                                                                                                        |   |   |        |   |   |   |
| Deposits:                                                                                                                                                                           |   |   |        |   |   |   |
| Non-interest      bearing                                                                                                                                                           |   | $      | 47,305,927  |   |   | $      | 50,345,279 |   |
| Interest      bearing                                                                                                                                                               |   |   | 199,088,223 |   |   |   | 203,411,996 |   |
| Total      Deposits                                                                                                                                                                 |   |   | 246,394,150 |   |   |   | 253,757,275 |   |
|                                                                                                                                                                                |   |   |        |   |   |   |   |   |
| Securities      sold under repurchase agreements                                                                                                                                    |   |   | 48,229,299  |   |   |   | 8,149,016 |   |
| Federal      Home Loan Bank advances                                                                                                                                                |   |   | 29,160,730  |   |   |   | 65,667,972 |   |
| Junior      subordinated debentures                                                                                                                                                 |   |   | 5,155,000   |   |   |   | 5,155,000 |   |
| Accrued      interest payable (Includes $259,565 on Securities sold under repurchase      agreements at December 31, 2007)                                                          |   |   | 2,070,075   |   |   |   | 1,786,288 |   |
| Advances      from borrowers for taxes and insurance                                                                                                                                |   |   | 359,501     |   |   |   | 401,678 |   |
| Accrued      taxes and other liabilities                                                                                                                                            |   |   | 1,175,652   |   |   |   | 804,124 |   |
| Total      Liabilities                                                                                                                                                              |   |   | 332,544,407 |   |   |   | 335,721,353 |   |
|                                                                                                                                                                                |   |   |        |   |   |   |   |   |
|                                                                                                                                                                                |   |   |        |   |   |   |   |   |
| STOCKHOLDERS'      EQUITY:                                                                                                                                                          |   |   |        |   |   |   |   |   |
| Common      stock, $2.50 par value per share; 12,000,000 shares authorized; 2,132,466      issued and 2,117,966 outstanding, for December 31, 2007, and December      31, 2006 |   |   | 5,331,165   |   |   |   | 5,331,165 |   |
| Additional      paid-in capital                                                                                                                                                     |   |   | 7,305,970   |   |   |   | 7,295,235 |   |
| Retained      earnings                                                                                                                                                              |   |   | 23,071,921  |   |   |   | 22,003,063 |   |
| Accumulated      other comprehensive income/(loss)                                                                                                                                  |   |   | 349,184     |   |   |   | (775,200 | ) |
|                                                                                                                                                                                |   |   | 36,058,240  |   |   |   | 33,854,263 |   |
| Less:  Treasury      stock, 14,500 shares, at cost                                                                                                                        |   |   | (257,375    | )      |   |   | (257,375 | ) |
| Total      Stockholders' Equity                                                                                                                                                     |   |   | 35,800,865  |   |   |   | 33,596,888 |   |
|                                                                                                                                                                                |   |   |        |   |   |   |   |   |
| TOTAL      LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                     |   | $      | 368,345,272 |   |   | $      | 369,318,241 |   |

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Table of Contents

B

|                                                         |   | 2007   |          |   | 2006   |   |       | 2005   |   |
|--------------------------------------------------------------|--------|--------|---------------|--------|--------|--------|------------|--------|--------|
|                                                         |   |   |          |   |   |   |       |   |   |
| INTEREST      INCOME:                                        |   |   |          |   |   |   |       |   |   |
| Interest      and fees on loans                              |   | $      | 19,010,095    |   |   | $      | 18,443,069 |   |   | $ | 16,101,335 |   |
| Interest      on investment securities:                      |   |   |          |   |   |   |       |   |   |   |   |   |
| Taxable      interest income                                 |   |   | 3,927,411     |   |   |   | 3,593,781  |   |   |   | 4,256,926 |   |
| Exempt      from federal income taxes                        |   |   | 1,652,143     |   |   |   | 1,641,361  |   |   |   | 1,634,084 |   |
| Other      interest income                                   |   |   | 14,853        |   |   |   | 29,672     |   |   |   | 7,876 |   |
|                                                         |   |   |          |   |   |   |       |   |   |   |   |   |
| Total      Interest Income                                   |   |   | 24,604,502    |   |   |   | 23,707,883 |   |   |   | 22,000,221 |   |
|                                                         |   |   |          |   |   |   |       |   |   |   |   |   |
| INTEREST      EXPENSE:                                       |   |   |          |   |   |   |       |   |   |   |   |   |
| Interest      on deposits                                    |   |   | 7,707,969     |   |   |   | 6,468,890  |   |   |   | 4,285,526 |   |
| Interest      on Federal Home Loan Bank advances             |   |   | 2,181,459     |   |   |   | 2,915,388  |   |   |   | 3,422,399 |   |
| Interest      on federal funds purchased                     |   |   | -             |   |   |   | -          |   |   |   | 190,594 |   |
| Interest      on trust preferred securities                  |   |   | 432,118       |   |   |   | 417,930    |   |   |   | 327,120 |   |
| Interest      on securities sold under repurchase agreements |   |   |  943,146 |   |   |   | 403,863    |   |   |   | 219,422 |   |
|                                                         |   |   |          |   |   |   |       |   |   |   |   |   |
| Total      Interest Expense                                  |   |   | 11,264,692    |   |   |   | 10,206,071 |   |   |   | 8,445,061 |   |
|                                                         |   |   |          |   |   |   |       |   |   |   |   |   |
| NET      INTEREST INCOME                                     |   |   | 13,339,810    |   |   |   | 13,501,812 |   |   |   | 13,555,160 |   |
|                                                         |   |   |          |   |   |   |       |   |   |   |   |   |
| PROVISION      FOR LOAN LOSSES                               |   |   | 440,000       |   |   |   | 475,000    |   |   |   | 300,000 |   |
|                                                         |   |   |          |   |   |   |       |   |   |   |   |   |
| NET      INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES     |   |   | 12,899,810    |   |   |   | 13,026,812 |   |   |   | 13,255,160 |   |
|                                                         |   |   |          |   |   |   |       |   |   |   |   |   |
| OTHER      INCOME:                                           |   |   |          |   |   |   |       |   |   |   |   |   |
| Service      charges on deposit accounts                     |   |   | 1,633,181     |   |   |   | 1,430,164  |   |   |   | 1,388,327 |   |
| Income      from fiduciary activities                        |   |   | 3,996         |   |   |   | 38,202     |   |   |   | 41,038 |   |
| Income      from networking arrangements                     |   |   | 231,261       |   |   |   | 179,457    |   |   |   | 201,890 |   |
| Net      gain on sales of loans                              |   |   | 278,505       |   |   |   | 313,327    |   |   |   | 359,821 |   |
| Net      gain (loss) on sale of securities                   |   |   | (558,770      | )      |   |   | (30,481    | )      |   |   | - |   |
| Net      gain on trading securities                          |   |   | 144,892       |   |   |   | -          |   |   |   | - |   |
| Net      gain (loss) on sales of premises and equipment      |   |   | -             |   |   |   | -          |   |   |   | (36,612 | ) |
| Other                                                        |   |   | 495,227       |   |   |   | 520,092    |   |   |   | 463,151 |   |
|                                                         |   |   |          |   |   |   |       |   |   |   |   |   |
| Total      Other Income                                      |   |   | 2,228,292     |   |   |   | 2,450,761  |   |   |   | 2,417,615 |   |
| Income      before Other Expenses                            |   |   | 15,128,102    |   |   |   | 15,477,573 |   |   |   | 15,672,775 |   |
|                                                         |   |   |          |   |   |   |       |   |   |   |   |   |

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Table of Contents

|                                     |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                                     |   |   |       |   |   |   |       |   |   |
| OTHER      EXPENSES:                     |   |   |       |   |   |   |       |   |   |
| Salaries                                 |   |   | 5,157,330  |   |   |   | 5,003,831  |   |   |   | 5,863,029 |   |
| Employee      benefits                   |   |   | 760,415    |   |   |   | 747,685    |   |   |   | 872,998 |   |
| Director      fees                       |   |   | 203,425    |   |   |   | 198,012    |   |   |   | 208,087 |   |
| Net      occupancy expense               |   |   | 975,203    |   |   |   | 977,511    |   |   |   | 912,357 |   |
| Equipment      expense                   |   |   | 1,147,655  |   |   |   | 1,102,240  |   |   |   | 1,109,984 |   |
| Other      real estate, net              |   |   | 351,962    |   |   |   | 65,333     |   |   |   | 71,895 |   |
| FDIC      assessment                     |   |   | 30,787     |   |   |   | 32,526     |   |   |   | 31,160 |   |
| Advertising                              |   |   | 165,531    |   |   |   | 207,834    |   |   |   | 198,233 |   |
| Stationery      and supplies             |   |   | 184,719    |   |   |   | 188,057    |   |   |   | 182,497 |   |
| Amortization                             |   |   | 107,616    |   |   |   | 107,616    |   |   |   | 107,616 |   |
| Audit      expense                       |   |   | 183,333    |   |   |   | 186,485    |   |   |   | 192,996 |   |
| Other                                    |   |   | 1,998,097  |   |   |   | 1,887,878  |   |   |   | 1,879,189 |   |
|                                     |   |   |       |   |   |   |       |   |   |   |   |   |
| Total      Other Expenses                |   |   | 11,266,073 |   |   |   | 10,705,008 |   |   |   | 11,630,041 |   |
|                                     |   |   |       |   |   |   |       |   |   |   |   |   |
| INCOME      BEFORE INCOME TAX EXPENSE    |   |   | 3,862,029  |   |   |   | 4,772,565  |   |   |   | 4,042,734 |   |
|                                     |   |   |       |   |   |   |       |   |   |   |   |   |
| INCOME      TAX EXPENSE                  |   |   | 856,248    |   |   |   | 1,193,982  |   |   |   | 815,094 |   |
|                                     |   |   |       |   |   |   |       |   |   |   |   |   |
| NET      INCOME                          |   | $      | 3,005,781  |   |   | $      | 3,578,583  |   |   | $ | 3,227,640 |   |
|                                     |   |   |       |   |   |   |       |   |   |   |   |   |
| PER      SHARE DATA:                     |   |   |       |   |   |   |       |   |   |   |   |   |
| Basic      earnings per share            |   | $      | 1.42       |   |   | $      | 1.69       |   |   | $ | 1.53 |   |
|                                     |   |   |       |   |   |   |       |   |   |   |   |   |
| Basic      weighted shares outstanding   |   |   | 2,117,966  |   |   |   | 2,117,529  |   |   |   | 2,116,316 |   |
|                                     |   |   |       |   |   |   |       |   |   |   |   |   |
| Diluted      earnings per share          |   | $      | 1.42       |   |   | $      | 1.69       |   |   | $ | 1.52 |   |
|                                     |   |   |       |   |   |   |       |   |   |   |   |   |
| Diluted      weighted shares outstanding |   |   | 2,119,566  |   |   |   | 2,121,846  |   |   |   | 2,120,951 |   |
|                                     |   |   |       |   |   |   |       |   |   |   |   |   |
| Cash      dividends per share            |   | $      | 0.72       |   |   | $      | 0.72       |   |   | $ | 0.69 |   |
|                                     |   |   |       |   |   |   |       |   |   |   |   |   |

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Table of Contents

B

|                                                                                                                                                                       |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   | Accumulated                                                                                                                                                                                                                     |   |                                                                                                                                                                                  |   |                    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|
|                                                                                                                                                                       |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   | Additional                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   | Other                                                                                                                                                                                                                           |   |                                                                                                                                                                                  |   |                    |
|                                                                                                                                                                       | Common      Stock                                                                                                                                                                     |   | Paid-In                                                                                                                                                                                                                   |   | Retained                                                                                                                                                                              |   | Comprehensive                                                                                                                                                                                                                   |   | Treasury                                                                                                                                                                                                                        |   |                                                                                                                                                                                  |
|                                                                                                                                                                       | Shares                                                                                                                                                                                |   | Amount                                                                                                                                                                                                                    |   | Capital                                                                                                                                                                               |   | Earnings                                                                                                                                                                                                                        |   | Income/(loss)                                                                                                                                                                                                                   |   | Stock                                                                                                                                                                                 |   | Total                   |
| BALANCE,      December 31, 2004                                                                                                                                            | 2,116,316                                                                                                                                                                             |   | $        5,327,040                                                                                                                                                                                              |   | $        7,254,113                                                                                                                                                          |   | $       18,181,718                                                                                                                                                                                                         |   | $            646,272                                                                                                                                                                              |   | $        (257,375)                                                                                                                                                          |   | $       31,151,768 |
| Comprehensive      Income:                                                                                                                                                 |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
| Net      Income                                                                                                                                                            | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | 3,227,640                                                                                                                                                                                                                       |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                     |   | 3,227,640               |
| Other      Comprehensive Income                                                                                                                                            |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
| Change      in fair value of                                                                                                                                               |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|   available      for sale securities,                                                                                                                            |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|   net      of taxes of $ 930,312                                                                                                                                 | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                               |   |        (1,563,823)                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | (1,563,823)             |
| Change      in fair value of                                                                                                                                               |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|   derivatives,      net of taxes of                                                                                                                              |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|   $56,615                                                                                                                                                        | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                               |   | (95,169)                                                                                                                                                                                                                        |   | -                                                                                                                                                                                     |   | (95,169)                |
| Total      Comprehensive Income                                                                                                                                            | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                     |   | 1,568,648               |
| Cash      dividends ($0.69 per share)                                                                                                                                      | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | (1,460,258)                                                                                                                                                                                                                     |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                     |   | (1,460,258)             |
| BALANCE,      December 31, 2005                                                                                                                                            | 2,116,316                                                                                                                                                                             |   | 5,327,040                                                                                                                                                                                                                 |   | 7,254,113                                                                                                                                                                             |   | 19,949,100                                                                                                                                                                                                                      |   | (1,012,720)                                                                                                                                                                                                                     |   | (257,375)                                                                                                                                                                             |   | 31,260,158              |
| Comprehensive      Income:                                                                                                                                                 |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
| Net      Income                                                                                                                                                            | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | 3,578,583                                                                                                                                                                                                                       |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                     |   | 3,578,583               |
| Other      Comprehensive Income:                                                                                                                                           |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
| Change      in fair value of                                                                                                                                               |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|   available      for sale securities,                                                                                                                            |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|   net      of taxes of $169,535,                                                                                                                                 |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|   net      of reclassification                                                                                                                                   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|   adjustment      of $1,875                                                                                                                                      | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                               |   | 284,982                                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | 284,982                 |
| Change      in fair value of                                                                                                                                               |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|   derivatives,      net of taxes of                                                                                                                              |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|   $28,235,      net of reclassification                                                                                                                          |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|   adjustment      of $28,605                                                                                                                                     | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                               |   | (47,462)                                                                                                                                                                                                                        |   | -                                                                                                                                                                                     |   | (47,462)                |
| Total      Comprehensive Income                                                                                                                                            | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                     |   | 3,816,103               |
| Fair      value of unexercised stock options                                                                                                                               | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                         |   | 10,003                                                                                                                                                                                |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                     |   | 10,003                  |
| Issuance      of common stock                                                                                                                                              | 1,650                                                                                                                                                                                 |   | 4,125                                                                                                                                                                                                                     |   | 31,119                                                                                                                                                                                |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                     |   | 35,244                  |
| Cash      dividends ($0.72 per share)                                                                                                                                      | -                                                                                                                                                                                     |   | -                                                                                                                                                                                                                         |   | -                                                                                                                                                                                     |   | (1,524,619)                                                                                                                                                                                                                     |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                     |   | (1,524,619)             |
| BALANCE,      December 31, 2006                                                                                                                                            | 2,117,966                                                                                                                                                                             |   | $        5,331,165                                                                                                                                                                                              |   | $  7,295,235                                                                                                                                                                |   | $       22,003,063                                                                                                                                                                                                         |   | $         (775,200)                                                                                                                                                                                                   |   | $  (257,375)                                                                                                                                                                |   | $  33,596,888 |
| Adjustment      to opening balance, net of tax                                                                                                                             |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|         for      the adoption of SFAS No. 159                                                                                      |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   | (411,989)                                                                                                                                                                                                                       |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   | (411,989)               |
| Adjusted      opening balance, Jan. 1, 2007                                                                                                                                |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   | $       21,591,074                                                                                                                                                                                                         |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   | $       33,184,899 |
| Comprehensive      income:                                                                                                                                                 |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|        Net      Income                                                                                                                  | -                                                                                                                                                                                     |   |                                                                                                                                                                                                                      |   | -                                                                                                                                                                                     |   | 3,005,781                                                                                                                                                                                                                       |   | -                                                                                                                                                                                                                               |   | -                                                                                                                                                                                     |   | 3,005,781               |
| Other      comprehensive income, net of tax:                                                                                                                               |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|               Change      in fair value of                                                           |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|                      available      for sale securities,          |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|                      net      of taxes of $571,266                |                               - |   |                                     - |   |                                   -       |   |                                      - |   | 960,279                                                                                                                                                                                                                         |   |                                    - |   | 960,279                 |
|               Change      in fair value of                                                           |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|                      derivatives,      net of  taxes of |                                                                                                                                                                                  |   |                                                                                                                                                                                                                      |   |                                                                                                                                                                                  |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                            |   |                                                                                                                                                                                  |   |                    |
|                      $97,625                                      |                                   -       |   |                                          - |   |                                   -       |   |                                          -       |   | 164,105                                                                                                                                                                                                                         |   |                                    - |   | 164,105                 |
| Total      Comprehensive Income                                                                                                                                            |                                   -       |   |                                     - |   |                                   -       |   |                                          -       |   |                                           - |   |                                    - |   | 4,130,165               |
| Fair      value of unexercised stock options                                                                                                                               |                                   -       |   |                                     - |   | 10,735                                                                                                                                                                                |   |                                          -       |   |                                           - |   |                               - |   | 10,735                  |
| Cash      Dividends ($0.72 per share)                                                                                                                                      |                                   -       |   |                                          - |   |                                   -  |   | (1,524,936)                                                                                                                                                                                                                     |   |                                           - |   |                               - |   | (1,524,936)             |
| BALANCE      at December 31, 2007                                                                                                                                          | 2,117,966                                                                                                                                                                             |   | $        5,331,165                                                                                                                                                                                              |   | $        7,305,970                                                                                                                                                          |   | $       23,071,921                                                                                                                                                                                                         |   | $          349,184                                                                                                                                                                                          |   | $       (257,375)                                                                                                                                                                |   | $       35,800,865 |

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B

|                                                                                                                                                                                                                                                                                          |   | 2007   |        |   | 2006   |   |       | 2005   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|------------|--------|--------|
| CASH      FLOWS FROM OPERATING ACTIVITIES:                                                                                                                                                                                                                                                    |   |   |        |   |   |   |       |   |   |
| Net      income                                                                                                                                                                                                                                                                               |   | $      | 3,005,781   |   |   | $      | 3,578,583  |   |   | $ | 3,227,640 |   |
| Adjustments      to reconcile net income to                                                                                                                                                                                                                                                   |   |   |        |   |   |   |       |   |   |   |   |   |
| net      cash provided by operating activities:                                                                                                                                                                                                                                               |   |   |        |   |   |   |       |   |   |   |   |   |
| Deferred      taxes                                                                                                                                                                                                                                                                           |   |   | (131,765    | )      |   |   | (114,945   | )      |   |   | (264,520 | ) |
| Provision      for loan losses                                                                                                                                                                                                                                                                |   |   | 440,000     |   |   |   | 475,000    |   |   |   | 300,000 |   |
| Provision      for depreciation                                                                                                                                                                                                                                                               |   |   | 791,330     |   |   |   | 798,221    |   |   |   | 824,447 |   |
| Provision      for losses on foreclosed real estate                                                                                                                                                                                                                                           |   |   | 58,350      |   |   |   | -          |   |   |   | - |   |
| Stock      dividends received                                                                                                                                                                                                                                                                 |   |   | (167,300    | )      |   |   | (192,200   | )      |   |   | (181,600 | ) |
| Write-down      of other real estate                                                                                                                                                                                                                                                          |   |   | 312,859     |   |   |   | 22,178     |   |   |   | 34,255 |   |
| Write-down      of other repossessed assets                                                                                                                                                                                                                                                   |   |   | 15,000      |   |   |   | -          |   |   |   | - |   |
| (Gain)      on sale of loans                                                                                                                                                                                                                                                                  |   |   | (278,505    | )      |   |   | (313,327   | )      |   |   | (359,821 | ) |
| (Gain)      Loss on sale of other repossessed assets                                                                                                                                                                                                                                          |   |   | (1,000      | )      |   |   | -          |   |   |   | 1,500 |   |
| (Gain)      Loss on sale of premises and equipment                                                                                                                                                                                                                                            |   |   | -           |   |   |   | -          |   |   |   | 36,612 |   |
| (Gain)      Loss on valuation of trading securities                                                                                                                                                                                                                                           |   |   | (144,892    | )      |   |   | -          |   |   |   | - |   |
| (Gain)      Loss on sale of securities                                                                                                                                                                                                                                                        |   |   | 558,770     |   |   |   | 30,480     |   |   |   | - |   |
| (Gain)      Loss on sale of other real estate                                                                                                                                                                                                                                                 |   |   | 3,850       |   |   |   | (11,032    | )      |   |   | (3,161 | ) |
| Net      amortization (accretion) of securities                                                                                                                                                                                                                                               |   |   | (48,185     | )      |   |   | 139,519    |   |   |   | 307,126 |   |
| Amortization      of acquisition premium                                                                                                                                                                                                                                                      |   |   | 107,616     |   |   |   | 107,616    |   |   |   | 107,616 |   |
| Purchase      of investment securities held for trading                                                                                                                                                                                                                                       |   |   | (21,149,030 | )      |   |   | -          |   |   |   | - |   |
| Proceeds      from sales, principal paydowns and maturities    of      investment securities held for trading                                                                                                                                                             |   |   | 1,692,087   |   |   |   | -          |   |   |   | - |   |
| Net      change in:                                                                                                                                                                                                                                                                           |   |   |        |   |   |   |       |   |   |   |   |   |
| Loans      held for sale                                                                                                                                                                                                                                                                      |   |   | 54,810      |   |   |   | 116,390    |   |   |   | 1,517,138 |   |
| Accrued      interest receivable                                                                                                                                                                                                                                                              |   |   | 143,152     |   |   |   | (179,162   | )      |   |   | (131,146 | ) |
| Cash      surrender value of life insurance                                                                                                                                                                                                                                                   |   |   | (40,471     | )      |   |   | (36,834    | )      |   |   | 7,103 |   |
| Other      assets                                                                                                                                                                                                                                                                             |   |   | 80,663      |   |   |   | 198,704    |   |   |   | (169 | ) |
| Accrued      interest payable                                                                                                                                                                                                                                                                 |   |   | 283,786     |   |   |   | 347,452    |   |   |   | 453,977 |   |
| Accrued      taxes and other      liabilities                                         |   |   | (8,922      | )      |   |   | (558,993   | )      |   |   | 559,562 |   |
|                                                                                                                                                                                                                                                                                          |   |   |        |   |   |   |       |   |   |   |   |   |
| Net      Cash Provided by Operating      Activities                                                                                                                                                                |   |   | (14,422,014 | )      |   |   | 4,407,650  |   |   |   | 6,436,559 |   |
|                                                                                                                                                                                                                                                                                          |   |   |        |   |   |   |       |   |   |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES:                                                                                                                                                                                                                                                    |   |   |        |   |   |   |       |   |   |   |   |   |
| (Increase)      decrease in federal funds sold                                                                                                                                                                                                                                                |   |   | 59,376      |   |   |   | 96,570     |   |   |   | (292,107 | ) |
| Proceeds      from sales, principal paydowns and maturities                                                                                                                                                                                                                                   |   |   |        |   |   |   |       |   |   |   |   |   |
| of      investment securities held-to-maturity                                                                                                                                                                                                                                                |   |   | 6,036,959   |   |   |   | 1,149,236  |   |   |   | 1,759,528 |   |
| Proceeds      from sales, principal paydowns and maturities                                                                                                                                                                                                                                   |   |   |        |   |   |   |       |   |   |   |   |   |
| of      investment securities available-for-sale                                                                                                                                                                                                                                              |   |   | 59,245,635  |   |   |   | 19,446,947 |   |   |   | 24,938,759 |   |
| Proceeds      from redemption of Federal Home Loan                                                                                                                                                                                                                                            |   |   |        |   |   |   |       |   |   |   |   |   |
| Bank      stock                                                                                                                                                                                                                                                                               |   |   | 2,013,600   |   |   |   | 1,354,200  |   |   |   | 603,000 |   |
| Purchases      of investment securities held-to-maturity                                                                                                                                                                                                                                      |   |   | (7,418,525  | )      |   |   | (1,774,002 | )      |   |   | - |   |
| Purchases      of investment securities available-for-sale                                                                                                                                                                                                                                    |   |   | (57,793,573 | )      |   |   | (5,286,957 | )      |   |   | (14,029,560 | ) |
| Purchase      of other equity securities                                                                                                                                                                                                                                                      |   |   | (27,600     | )      |   |   | -          |   |   |   | (371,500 | ) |
| Net      (increase)/decrease in loans                                                                                                                                                                                                                                                         |   |   | 19,583,636  |   |   |   | 1,013,155  |   |   |   | (26,509,385 | ) |
| Proceeds      from sales of other repossessed assets                                                                                                                                                                                                                                          |   |   | 5,000       |   |   |   | 22,626     |   |   |   | 30,565 |   |
| Proceeds      from sale of other real estate                                                                                                                                                                                                                                                  |   |   | 653,948     |   |   |   | 334,461    |   |   |   | 890,709 |   |
| Purchases      of premises and equipment                                                                                                                                                                                                                                                      |   |   | (430,328    | )      |   |   | (470,831   | )      |   |   | (641,972 | ) |
| Proceeds      from sales of premises and equipment                                                                                                                                                                                                                                            |   |   | 491         |   |   |   | -          |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                          |   |   |        |   |   |   |       |   |   |   |   |   |
| Net      Cash Provided by/ (Used in) Investing Activities                                                                                                                                                                                                                                     |   |   | 21,928,619  |   |   |   | 15,885,405 |   |   |   | (13,621,963 | ) |

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|                                                                |   | 2007   |        |   | 2006   |   |        | 2005   |   |
|---------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|-------------|--------|--------|
| CASH      FLOWS FROM FINANCING ACTIVITIES:                          |   |   |        |   |   |   |        |   |   |
| Net      increase (decrease) in customer deposits                   |   |   | (6,508,063  | )      |   |   | (4,961,586  | )      |   |   | 33,069,981 |   |
| Net      increase (decrease) in brokered deposits                   |   |   | (855,062    | )      |   |   | 1,341,951   |   |   |   | (1,981,000 | ) |
| Net      increase (decrease) in federal funds purchased             |   |   | -           |   |   |   | -           |   |   |   | (6,435,000 | ) |
| Net      increase (decrease) in Federal Home Loan Bank              |   |   |        |   |   |   |        |   |   |   |   |   |
| advances                                                            |   |   | (36,507,241 | )      |   |   | (18,528,095 | )      |   |   | (12,726,804 | ) |
| Net      increase (decrease) in securities sold under               |   |   |        |   |   |   |        |   |   |   |   |   |
| repurchase      agreements                                          |   |   | 40,080,283  |   |   |   | 116,295     |   |   |   | (70,660 | ) |
| Increase      (decrease) in advances from borrowers                 |   |   |        |   |   |   |        |   |   |   |   |   |
| for      taxes and insurance                                        |   |   | (42,177     | )      |   |   | (35,544     | )      |   |   | 37,779 |   |
| Cash      dividends paid                                            |   |   | (1,524,936  | )      |   |   | (1,524,619  | )      |   |   | (1,460,258 | ) |
| Cash      received from stock options exercised                     |   |   | -           |   |   |   | 35,244      |   |   |   | - |   |
| Fair      value of unexercised stock options                        |   |   | 10,735      |   |   |   | 10,003      |   |   |   | - |   |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| Net      Cash Provided by/(Used in)  Financing Activities |   |   | (5,346,461  | )      |   |   | (23,546,351 | )      |   |   | 10,434,038 |   |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| NET      INCREASE/(DECREASE) IN CASH AND DUE                        |   |   |        |   |   |   |        |   |   |   |   |   |
|  FROM      BANKS                                               |   |   | 2,160,144   |   |   |   | (3,253,296  | )      |   |   | 3,248,634 |   |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| CASH      AND DUE FROM BANKS AT BEGINNING OF YEAR                   |   |   | 6,572,163   |   |   |   | 9,825,459   |   |   |   | 6,576,825 |   |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| CASH      AND DUE FROM BANKS AT END OF YEAR                         |   | $      | 8,732,307   |   |   | $      | 6,572,163   |   |   | $ | 9,825,459 |   |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| SUPPLEMENTAL      DISCLOSURES OF CASH FLOW                          |   |   |        |   |   |   |        |   |   |   |   |   |
| INFORMATION:                                                        |   |   |        |   |   |   |        |   |   |   |   |   |
| Cash      payments for:                                             |   |   |        |   |   |   |        |   |   |   |   |   |
| Income      taxes                                                   |   | $      | 950,750     |   |   | $      | 1,609,528   |   |   | $ | 579,504 |   |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| Interest      on deposits and borrowings                            |   | $      | 10,980,905  |   |   | $      | 9,858,619   |   |   | $ | 7,991,084 |   |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| SCHEDULE      OF NONCASH INVESTING AND                              |   |   |        |   |   |   |        |   |   |   |   |   |
| FINANCING      ACTIVITIES:                                          |   |   |        |   |   |   |        |   |   |   |   |   |
| Transfers      to other real estate/other repossessed assets        |   | $      | 523,192     |   |   | $      | 169,134     |   |   | $ | 1,072,050 |   |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| Change      in unrealized (gains) losses on                         |   |   |        |   |   |   |        |   |   |   |   |   |
| securities      available-for-sale                                  |   | $      | 1,531,545   |   |   | $      | 454,517     |   |   | $ | (2,494,135 | ) |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| Change      in the deferred tax effect in unrealized                |   |   |        |   |   |   |        |   |   |   |   |   |
| gains      (losses) on securities available-for-sale                |   | $      | 571,266     |   |   | $      | 169,535     |   |   | $ | (930,312 | ) |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| Change      in unrealized gains on derivatives                      |   | $      | 261,730     |   |   | $      | (75,697     | )      |   | $ | (151,784 | ) |
|                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| Change      in the deferred tax effect in                           |   |   |        |   |   |   |        |   |   |   |   |   |
| unrealized      gains on derivatives                                |   | $      | 97,625      |   |   | $      | (28,235     | )      |   | $ | (56,615 | ) |

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N

|   | The      consolidated financial statements include the accounts of Britton &      Koontz Capital Corporation (the “Company”) and its wholly owned      subsidiaries, Britton & Koontz Bank, National Association (the “Bank”)      and B & K Title Insurance Agency, Inc. (the “Agency”).  All      material inter-company profits, balances and transactions have been      eliminated |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                              |   | 2007   |      |   | 2006   |   |      | 2005   |   |
|---------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
| Basic      weighted average shares outstanding    |   |   | 2,117,966 |   |   |   | 2,117,529 |   |   |   | 2,116,316 |   |
| Dilutive      effect of stock options             |   |   | 1,600     |   |   |   | 4,317     |   |   |   | 4,635 |   |
|                                              |   |   |      |   |   |   |      |   |   |   |   |   |
| Dilutive      weighted average shares outstanding |   |   | 2,119,566 |   |   |   | 2,121,846 |   |   |   | 2,120,951 |   |
| Net      income                                   |   | $      | 3,005,781 |   |   | $      | 3,578,583 |   |   | $ | 3,227,640 |   |
| Net      income per share-basic                   |   | $      | 1.42      |   |   | $      | 1.69      |   |   | $ | 1.53 |   |
| Net      income per share-dilutive                |   | $      | 1.42      |   |   | $      | 1.69      |   |   | $ | 1.52 |   |

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| In      the ordinary course of business, the Bank has entered into      off-balance-sheet financial instruments consisting of interest-rate swap      and cap agreements, commitments to extend credit and standby letters of      credit.  Financial instruments related to loans are recorded in      the financial statements when they become  payable. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| During      1999, the Company acquired certain assets and liabilities of three Union      Planters, N.A. branches in Natchez and Vicksburg, Mississippi, which were      accounted for as a purchase.  The Bank paid a premium for the      depositor relationship of $1,614,210.  This premium is included      in other assets and is being amortized over 15 years, which is the      estimated life of the customerbase. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | FASB      Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”),      encouraged all entities to adopt a fair value based method of accounting      for employee stock compensation plans, whereby com­pensation cost is      measured at the grant date based on the value of the award and is      recognized over the service period, which is usually the vesting period.      However, it also permitted an entity to continue to measure compensation      cost for those plans using the intrinsic value based method of accounting      prescribed by Accounting Principles Board (“APB”) Opinion No. 25,      “Accounting for Stock Issued to Employees,” whereby compensation cost is      the excess, if any, of the quoted market price of the stock at the grant      date (or other measurement date) over the amount an employee must pay to      acquire the stock.  Prior to 2006, the Company applied the      accounting methodology in APB Opinion No. 25 with respect to outstanding      stock options.  Note J below provides pro forma disclosures of      net income and earnings per share and other disclosures as if the fair      value based method of accounting had been applied prior to      2006. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In      December 2004, FASB issued Statement No. 123 (revised 2004), “Share-Based      Payment” (“SFAS 123(R)”). This statement is a revision to SFAS 123 and      supersedes APB Opinion No. 25.  This statement eliminated the      alternative to use APB Opinion No. 25’s intrinsic value method of      accounting that was allowed under SFAS 123 as originally      issued.  As a result, a public entity is required to measure the      cost of employee services received in exchange for an award of equity      based instruments based on the grant-date fair value of the award and to      recognize the cost over the period during which an employee is required to      provide service in exchange for the award.  In March 2005, the      Securities and Exchange Commission (“SEC”) issued Staff Accounting      Bulletin No. 107 (“SAB 107”) which expressed the views of the staff      regarding the interaction between SFAS 123(R) and certain SEC rules and      regulations and the valuation of share based payment arrangements for      public companies.  SAB 107 provided that the effective date for      implementation of SFAS 123(R) was the first fiscal year beginning on or      after June 15, 2005.  The Company has applied the principles set      forth in SFAS 123(R) beginning in the 2006 fiscal year.  Note J      below sets forth information regarding the Company’s application of SFAS      123(R) with respect to stock options outstanding in  2007. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Recent      Accounting Pronouncements |
|--------|---------------------------------------|

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|   | Reclassifications |
|--------|-------------------|

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Table of Contents

| NOTE      B. | INVESTMENT      SECURITIES  |
|--------------|----------------------------------|

|                                                                                                                                                        |   |      |       |   | Gross      |   |    | Gross      |   |   |     |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|------------|--------|------------|--------|---------|------------|--------|--------|----------|--------|
|                                                                                                                                                        |   | Amortized |       |   | Unrealized |   |    | Unrealized |   |   | Fair     |   |
|                                                                                                                                                        |   | Cost      |       |   | Gains      |   |    | Losses     |   |   | Value    |   |
| Obligations      of State and                                                                                                                               |   |      |       |   |       |   |    |       |   |   |     |   |
| Political      Subdivisions                                                                                                                                 |   | $         | 38,004,634 |   |       | $      | 926,882 |       |   | $      | (286,861 | )      |   | $ | 38,644,655 |   |
|                                                                                                                                                        |   |      |       |   |       |   |    |       |   |   |     |   |   |   |   |   |
| Mortgage-Backed      Securities                                                                                                                             |   |      | 1,983,671  |   |       |   | 11,568  |       |   |   | -        |   |   |   | 1,995,239 |   |
|                          Total |   | $         | 39,988,305 |   |       | $      | 938,451 |       |   | $      | (286,861 | )      |   | $ | 40,639,894 |   |

|                                                                                                                                                        |   |      |       |   | Gross      |   |    | Gross      |   |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|------------|--------|------------|--------|---------|------------|--------|--------|--------|--------|
|                                                                                                                                                        |   | Amortized |       |   | Unrealized |   |    | Unrealized |   |   | Fair   |   |
|                                                                                                                                                        |   | Cost      |       |   | Gains      |   |    | Losses     |   |   | Value  |   |
|  Mortgage-Backed      Securities                                                                                                                       |   | $         | 63,612,681 |   |       | $      | 376,987 |       |   | $      | (6,522 | )      |   | $ | 63,983,146 |   |
|                          Total |   | $         | 63,612,681 |   |       | $      | 376,987 |       |   | $      | (6,522 | )      |   | $ | 63,983,146 |   |

|                                                                                                                                                        |   |      |       |   | Gross      |   |   | Gross      |   |   |    |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|------------|--------|------------|--------|--------|------------|--------|--------|---------|--------|
|                                                                                                                                                        |   | Amortized |       |   | Unrealized |   |   | Unrealized |   |   | Fair    |   |
|                                                                                                                                                        |   | Cost      |       |   | Gains      |   |   | Losses     |   |   | Value   |   |
|  Mortgage-Backed      Securities                                                                                                                       |   | $         | 19,144,678 |   |       | $      | 65,250 |       |   | $      | (10,721 | )      |   | $ | 19,199,207 |   |
|                          Total |   | $         | 19,144,678 |   |       | $      | 65,250 |       |   | $      | (10,721 | )      |   | $ | 19,199,207 |   |

| The      amortized cost and approximate market value of investment securities      classified as held-to-maturity at December 31, 2006, are summarized as      follows: |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| NOTE      B. | INVESTMENT      SECURITIES (Continued) |
|--------------|----------------------------------------|

|                            |   |      |       |   | Gross      |   |      | Gross      |   |   |    |   |
|---------------------------------|--------|-----------|------------|--------|------------|--------|-----------|------------|--------|--------|---------|--------|
|                            |   | Amortized |       |   | Unrealized |   |      | Unrealized |   |   | Fair    |   |
|                            |   | Cost      |       |   | Gains      |   |      | Losses     |   |   | Value   |   |
| Obligations      of State and   |   |      |       |   |       |   |      |       |   |   |    |   |
| Political      Subdivisions     |   | $         | 36,175,580 |   |       | $      | 1,008,011 |       |   | $      | (76,999 | )      |   | $ | 37,106,592 |   |
| Mortgage-Backed      Securities |   |      | 2,435,340  |   |       |   | 2,005     |       |   |   | (18,442 | )      |   |   | 2,418,903 |   |
|                            |   | $         | 38,610,920 |   |       | $      | 1,010,016 |       |   | $      | (95,441 | )      |   | $ | 39,525,495 |   |

| The      amortized cost and approximate market value of investment securities      classified as available-for-sale at December 31, 2006, are summarized as      follows: |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                  |   |      |       |   | Gross      |   |   | Gross      |   |   |       |   |
|---------------------------------------|--------|-----------|------------|--------|------------|--------|--------|------------|--------|--------|------------|--------|
|                                  |   | Amortized |       |   | Unrealized |   |   | Unrealized |   |   | Fair       |   |
|                                  |   | Cost      |       |   | Gains      |   |   | Losses     |   |   | Value      |   |
|  Mortgage-Backed      Securities |   | $         | 59,083,551 |   |       | $      | 35,224 |       |   | $      | (1,138,712 | )      |   | $ | 57,980,063 |   |
| Agency      Obligations               |   |      | 6,496,959  |   |       |   | -      |       |   |   | (57,594    | )      |   |   | 6,439,365 |   |
|                                  |   | $         | 65,580,510 |   |       | $      | 35,224 |       |   | $      | (1,196,306 | )      |   | $ | 64,419,428 |   |

|   | The      aggregate fair value and aggregate unrealized losses on securities whose      fair values are below book values as of December 31, 2007, are summarized      below.  Due to the nature of the investment and current market      prices, these unrealized losses are considered a temporary impairment of      the securities. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                            |   | Less      than 12 Months |      |   | 12      Months or More |   |     | Total  |   |
|---------------------------------|--------|--------------------------|-----------|--------|------------------------|--------|----------|--------|--------|
|                            |   | Fair                     |      |   | Unrealized             |   |     | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                            |   | Value                    |      |   | Loss                   |   |     | Value  |   |   | Loss |   |   | Value |   |   | Loss |   |
| Held-to-Maturity:               |   |                     |      |   |                   |   |     |   |   |   |   |   |   |   |   |   |   |   |
|  Obligations      of       |   |                     |      |   |                   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| State      and Political        |   |                     |      |   |                   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Subdivisions      (25)          |   | $                        | 7,167,727 |   |                   | $      | (205,231 | )      |   | $ | 1,683,047 |   |   | $ | (81,630 | ) |   | $ | 8,850,774 |   |   | $ | (286,861 | ) |
|                            |   | $                        | 7,167,727 |   |                   | $      | (205,231 | )      |   | $ | 1,683,047 |   |   | $ | (81,630 | ) |   | $ | 8,850,774 |   |   | $ | (286,861 | ) |
|                            |   |                     |      |   |                   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available      for Sale:        |   |                     |      |   |                   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgaged-backed                |   |                     |      |   |                   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Securities      (1) |   | $                        | -         |   |                   | $      | -        |   |   | $ | 289,977 |   |   | $ | (6,522 | ) |   | $ | 289,977 |   |   | $ | (6,522 | ) |
|                            |   | $                        | -         |   |                   | $      | -        |   |   | $ | 289,977 |   |   | $ | (6,522 | ) |   | $ | 289,977 |   |   | $ | (6,522 | ) |

----

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| NOTE      B. | INVESTMENT      SECURITIES  (Continued) |
|--------------|---------------------------------------------------|

|                                  |   | Less      than 12 Months |      |   | 12      Months or More |   |    | Total  |   |
|---------------------------------------|--------|--------------------------|-----------|--------|------------------------|--------|---------|--------|--------|
|                                  |   | Fair                     |      |   | Unrealized             |   |    | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                  |   | Value                    |      |   | Loss                   |   |    | Value  |   |   | Loss |   |   | Value |   |   | Loss |   |
| Held-to-Maturity:                     |   |                     |      |   |                   |   |    |   |   |   |   |   |   |   |   |   |   |   |
|  Obligations      of             |   |                     |      |   |                   |   |    |   |   |   |   |   |   |   |   |   |   |   |
| State      and Political              |   |                     |      |   |                   |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Subdivisions      (5)                 |   | $                        | 1,433,200 |   |                   | $      | (30,881 | )      |   | $ | 955,936 |   |   | $ | (46,118 | ) |   | $ | 2,389,136 |   |   | $ | (76,999 | ) |
|  Mortgaged-backed                |   |                     |      |   |                   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Securities      (1) |   |                     | -         |   |                   |   | -       |   |   |   | 1,744,972 |   |   |   | (18,442 | ) |   |   | 1,744,972 |   |   |   | (18,442 | ) |
|                                  |   | $                        | 1,433,200 |   |                   | $      | (30,881 | )      |   | $ | 2,700,908 |   |   | $ | (64,560 | ) |   | $ | 4,134,108 |   |   | $ | (95,441 | ) |
| Available      for Sale:              |   |                     |      |   |                   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgaged-backed                      |   |                     |      |   |                   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Securities      (26)      |   | $                        | 1,756,255 |   |                   | $      | (18,286 | )      |   | $ | 50,035,263 |   |   | $ | (1,120,425 | ) |   | $ | 51,791,518 |   |   | $ | (1,138,711 | ) |
| Agency      Obligations (3)           |   |                     | -         |   |                   |   | -       |   |   |   | 6,439,365 |   |   |   | (57,594 | ) |   |   | 6,439,365 |   |   |   | (57,594 | ) |
|                                  |   | $                        | 1,756,255 |   |                   | $      | (18,286 | )      |   | $ | 56,474,628 |   |   | $ | (1,178,019 | ) |   | $ | 58,230,883 |   |   | $ | (1,196,305 | ) |

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| NOTE      B. | INVESTMENT      SECURITIES  (Continued) |
|--------------|---------------------------------------------------|

----

Table of Contents

| NOTE      B. | INVESTMENT      SECURITIES  (Continued) |
|--------------|---------------------------------------------------|

|                                        |   | Securities      held-to-maturity   |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | Weighted                           |   |   |   |   |   |   |   |
|                                        |   | Average                            |   |   | Amortized |   |   | Market |   |
|                                        |   | Yield                              |   |   | Cost |   |   | Value |   |
|                                        |   |                               |   |   |   |   |   |   |   |
| Due      in One Year or Less                |   |                               | 6.818  | % |   | $ | 1,037,519 |   |   | $ | 1,043,219 |   |
| Due      After One Year through Five Years  |   |                               | 7.512  | % |   |   | 2,427,116 |   |   |   | 2,510,796 |   |
| Due      After Five Years through Ten Years |   |                               | 6.945  | % |   |   | 19,675,871 |   |   |   | 20,120,355 |   |
| Due      After Ten Years                    |   |                               | 6.577  | % |   |   | 16,847,799 |   |   |   | 16,965,525 |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
|                                        |   |                               | 6.821  | % |   | $ | 39,988,305 |   |   | $ | 40,639,894 |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
|                                        |   | Securities      available-for-sale |   |
|                                        |   | Weighted                           |   |   |   |   |   |   |   |   |   |
|                                        |   | Average                            |   |   | Amortized |   |   | Market |   |
|                                        |   | Yield                              |   |   | Cost |   |   | Value |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
| Due      in One Year or Less                |   |                               | 0.000  | % |   | $ | - |   |   | $ | - |   |
| Due      After One Year through Five Years  |   |                               | 0.000  | % |   |   | - |   |   |   | - |   |
| Due      After Five Years through Ten Years |   |                               | 0.000  | % |   |   | - |   |   |   | - |   |
| Due      After Ten Years                    |   |                               | 5.452  | % |   |   | 63,612,681 |   |   |   | 63,983,146 |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
|                                        |   |                               | 5.452  | % |   | $ | 63,612,681 |   |   | $ | 63,983,146 |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
|                                        |   | Securities      trading            |   |
|                                        |   | Weighted                           |   |   |   |   |   |   |   |   |   |
|                                        |   | Average                            |   |   | Amortized |   |   | Market |   |
|                                        |   | Yield                              |   |   | Cost |   |   | Value |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
| Due      in One Year or Less                |   |                               | 0.000  | % |   | $ | - |   |   | $ | - |   |
| Due      After One Year through Five Years  |   |                               | 0.000  | % |   |   | - |   |   |   | - |   |
| Due      After Five Years through Ten Years |   |                               | 0.000  | % |   |   | - |   |   |   | - |   |
| Due      After Ten Years                    |   |                               | 5.317  | % |   |   | 19,144,678 |   |   |   | 19,199,207 |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
|                                        |   |                               | 5.317  | % |   | $ | 19,144,678 |   |   | $ | 19,199,207 |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |

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| NOTE      B. | INVESTMENT      SECURITIES  (Continued) |
|--------------|---------------------------------------------------|

|     Description                                                                                                                                                     | Balance      SheetAt      January 1, 2007Prior      to Adoption |   | Net      Loss Upon Adoption                                   |   |   Balance      SheetAt      January 1, 2007After      Adoption of Fair Value      Option |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------|--------|---------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|
|  Investment      Securities Increase      in Deferred Tax Asset Cumulative      Effect of the Adoption of the Fair Value Option (charge to retained      earnings)  |  $20,387,696                                               |   |  $(657,080) 245,091  $       411,989 |        |  $19,730,616                                                                        |

|       Description                  | Fair      Value Measurements at December      31, 2007 |   | Quoted      Prices in Active Markets for Identical Assets(Level      1)     |   |     Significant      Other Observable Inputs(Level      2) |     SignificantUnobservable      Inputs(Level      3)                                             |
|------------------------------------------------------------------|--------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
|                                                             |                                                   |   |                                                                        |   |                                                                           |                                                                                                                  |
| Trading  SecuritiesAvailable-for-saleDerivatives  | $  19,199,20763,983,146186,448          |   |               $    - |   | $  19,199,20763,983,146186,448                             |                      $    - |

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|                                        |   | 2007   |        |   | 2006   |   |
|---------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                        |   |   |        |   |   |   |
| Commercial,      Financial and Agricultural |   | $      | 25,884,000  |   |   | $      | 28,385,000 |   |
| Real      Estate-Construction               |   |   | 45,097,000  |   |   |   | 44,592,000 |   |
| Real      Estate-Mortgage                   |   |   | 144,561,000 |   |   |   | 159,729,000 |   |
| Installment                                 |   |   | 7,550,000   |   |   |   | 10,680,000 |   |
| Overdrafts                                  |   |   | 261,000     |   |   |   | 203,000 |   |
|    Total      loans          |   | $      | 223,353,000 |   |   | $      | 243,589,000 |   |
|                                        |   |   |        |   |   |   |   |   |

|  Loans      on which accrual of interest has been discontinued or reduced were      approximately $1,302,000 and $1,193,000 at December 31, 2007, and 2006,      respectively. If interest on such loans had been accrued, the income would      have approximated $36,000 in 2007, $31,000 in 2006, and $24,000 in      2005.  At December 31, 2007 and 2006, the recorded investment in      loans that were considered to be impaired was approximately $1,301,942 and      $1,192,901, respectively, substantially all of which were on a non-accrual      basis.  The related allowance amount on impaired loans at      December 31, 2007, was approximately $333,000 compared to $388,000 at      December 31, 2006.  Loans which are contractually 90 days or      more past due as of December 31, 2007 and 2006, were approximately $12,302      and $232,292, respectively. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The      aggregate amount of loans to such related parties for 2007 and 2006 is as      follows: |
|--------------------------------------------------------------------------------------------------|

|                        |   | 2007   |       |   | 2006   |   |
|-----------------------------|--------|--------|------------|--------|--------|--------|
| Balance      at January 1   |   | $      | 3,255,659  |   |   | $      | 2,807,745 |   |
| New      Loans              |   |   | 840,313    |   |   |   | 1,732,202 |   |
| Repayments                  |   |   | (1,689,300 | )      |   |   | (1,284,288 | ) |
| Balance      at December 31 |   | $      | 2,406,672  |   |   | $      | 3,255,659 |   |

----

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|                                        |   | 2007   |      |   | 2006   |   |      | 2005   |   |
|---------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
| Balance      at January 1                   |   | $      | 2,344,434 |   |   | $      | 2,377,840 |   |   | $ | 2,236,778 |   |
| Credits      charged off:                   |   |   |      |   |   |   |      |   |   |   |   |   |
| Real      Estate – Mortgage           |   |   | (283,733  | )      |   |   | (7,501    | )      |   |   | (149,502 | ) |
| Commercial,      Financial and Agricultural |   |   | (86,854   | )      |   |   | (570,717  | )      |   |   | (53,960 | ) |
| Installment      Loans                      |   |   | (136,380  | )      |   |   | (64,488   | )      |   |   | (47,187 | ) |
| Total      Charge-Offs                      |   |   | (506,967  | )      |   |   | (642,706  | )      |   |   | (250,649 | ) |
| Recoveries:                                 |   |   |      |   |   |   |      |   |   |   |   |   |
| Real      Estate - Mortgage                 |   |   | 4,703     |   |   |   | 77,198    |   |   |   | 35,225 |   |
| Commercial,      Financial and Agricultural |   |   | 109,714   |   |   |   | 25,991    |   |   |   | 22,520 |   |
| Installment      Loans                      |   |   | 39,052    |   |   |   | 31,111    |   |   |   | 33,966 |   |
| Total      Recoveries                       |   |   | 153,469   |   |   |   | 134,300   |   |   |   | 91,711 |   |
| Net      Credits Charged Off                |   |   | (353,498  | )      |   |   | (508,406  | )      |   |   | (158,938 | ) |
| Provision      for Loan Losses              |   |   | 440,000   |   |   |   | 475,000   |   |   |   | 300,000 |   |
| Balance      at December 31                 |   | $      | 2,430,936 |   |   | $      | 2,344,434 |   |   | $ | 2,377,840 |   |

| Loans      serviced for others are not included in the accompanying consolidated      balance sheets. The unpaid principal balances of these loans were      approximately $12,691,665, $12,830,831 and $11,274,712 in 2007, 2006 and      2005, respectively. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                  |   | 2007   |       |   | 2006   |   |
|---------------------------------------|--------|--------|------------|--------|--------|--------|
| Buildings      and Improvements       |   | $      | 7,403,176  |   |   | $      | 7,327,873 |   |
| Furniture      and Equipment          |   |   | 5,582,038  |   |   |   | 5,227,504 |   |
|                                  |   |   | 12,985,214 |   |   |   | 12,555,377 |   |
| Less:      Accumulated Depreciation   |   |   | (6,741,982 | )      |   |   | (5,950,652 | ) |
| Land                                  |   |   | 1,114,553  |   |   |   | 1,114,553 |   |
| Bank      Premises and Equipment, Net |   | $      | 7,357,785  |   |   | $      | 7,719,278 |   |

----

Table of Contents

|                                      |   | 2007   |        |   | 2006   |   |
|-------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                      |   |   |        |   |   |   |
| Non-Interest      Bearing Demand Deposits |   | $      | 47,305,927  |   |   | $      | 50,345,279 |   |
| NOW      Accounts                         |   |   | 24,056,081  |   |   |   | 24,555,009 |   |
| Money      Market Deposit Accounts        |   |   | 34,449,399  |   |   |   | 37,101,457 |   |
| Savings      Accounts                     |   |   | 17,310,284  |   |   |   | 18,082,839 |   |
| Certificates      of Deposit              |   |   | 123,272,459 |   |   |   | 123,672,691 |   |
|                                      |   | $      | 246,394,150 |   |   | $      | 253,757,275 |   |

|                                |   | 2007   |       |   | 2006   |   |
|-------------------------------------|--------|--------|------------|--------|--------|--------|
| Time      Remaining Until Maturity: |   |   |       |   |   |   |
| Three      Months or Less           |   | $      | 13,693,963 |   |   | $      | 11,261,017 |   |
| Over      Three Through Six Months  |   |   | 16,183,305 |   |   |   | 15,290,171 |   |
| Over      Six Through Twelve Months |   |   | 18,119,579 |   |   |   | 26,185,733 |   |
| Over      Twelve Months             |   |   | 4,210,503  |   |   |   | 9,647,050 |   |
|                                |   | $      | 52,207,350 |   |   | $      | 62,383,971 |   |

----

Table of Contents

|   | The      approximate scheduled maturities of certificates of deposits for each of      the next five years are: |
|--------|-----------------------------------------------------------------------------------------------------------------|

| 2008   |   | $      | 102,592,695 |   |
|--------|--------|--------|-------------|--------|
| 2009   |   |   | 10,456,592  |   |
| 2010   |   |   | 8,084,036   |   |
| 2011   |   |   | 540,818     |   |
| 2012   |   |   | 1,598,317   |   |
|   |   | $      | 123,272,458 |   |

|   | Advances      outstanding at December 31, 2007, consistof: |
|--------|------------------------------------------------------------|

|   | Advances      outstanding at December 31, 2006, consistof: |
|--------|------------------------------------------------------------|

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Table of Contents

| 2008   |   | $      | 26,735,031 |   |
|--------|--------|--------|------------|--------|
| 2009   |   |   | 2,409,099  |   |
| 2010   |   |   | 16,600     |   |
|   |   | $      | 29,160,730 |   |

----

Table of Contents

|                         |   |        |                     |   | Weighted            |   |
|------------------------------|--------|-------------|--------------------------|--------|---------------------|--------|
|                         |   | Options     |                     |   | Average             |   |
|                         |   | Outstanding |                     |   | Exercise      Price |   |
| December      31, 2004       |   |        | 35,000                   |   |                | $      | 16.83 |   |
| Options      granted         |   |        | 5,000                    |   |                |   | 18.00 |   |
| Options exercised       |   |        | -                        |   |                |   | - |   |
| Options      forfeited       |   |        | (4,480                   | )      |                |   | 14.50 |   |
| December      31, 2005       |   |        | 35,520                   |   |                | $      | 17.29 |   |
| Options      granted         |   |        | -                        |   |                |   | - |   |
| Options      exercised       |   |        | (1,650                   | )      |                |   | 14.50 |   |
| Options      forfeited       |   |        | (5,500                   | )      |                |   | 16.97 |   |
| December      31, 2006       |   |        | 28,370                   |   |                | $      | 17.51 |   |
| Options      granted         |   |        |    14,000 |   |                |   | 19.02 |   |
| Options      expired         |   |        | (12,500                  | )      |                |   | 19.94 |   |
| Options      forfeited       |   |        | (2,000                   | )      |                |   | 14.50 |   |
|  December      31, 2007 |   |        | 27,870                   |   |                | $      | 17.40 |   |

| Exercise      Price     | Options      Outstanding | Remaining      Contractual Life |
|-------------------------|--------------------------|---------------------------------|
| $      19.02            | 14,000                   | 4.5      years                  |
|    14.50 |   8,870        | 3.9      years                  |
|    18.00 |   5,000        | 2.3      years                  |

----

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|                                         |   | 2005   |      |
|----------------------------------------------|--------|--------|-----------|
|                                         |   |   |      |
| Net      Income, as Reported                 |   | $      | 3,227,640 |   |
| Pro      Forma Net Income                    |   | $      | 3,215,915 |   |
| Basic      Earnings Per Share, as Reported   |   | $      | 1.53      |   |
| Pro      Forma Basic Earnings Per Share      |   | $      | 1.52      |   |
| Diluted      Earnings Per Share, as Reported |   | $      | 1.52      |   |
| Pro      Forma Diluted Earnings Per Share    |   | $      | 1.52      |   |

| Assumption               |   | 2007         |   |   | 2005         |   |
|--------------------------|--------|--------------|--------|--------|--------------|--------|
|                     |   |         |   |   |         |   |
| Dividend      yield      |   |         | 3.76   | %      |         |   | 3.59 | % |
| Risk      free rate      |   |         | 5.06   | %      |         |   | 4.42 | % |
| Expected      life       |   | 5      years |   |   | 5      years |   |
| Expected      volatility |   |         | 21.23  | %      |         |   | 27.59 | % |

----

Table of Contents

| 2008                         |   | $      | 106,092 |   |
|------------------------------|--------|--------|---------|--------|
| 2009                         |   |   | 105,792 |   |
| 2010                         |   |   | 105,792 |   |
| 2011                         |   |   | 105,792 |   |
| 2012                         |   |   | 105,792 |   |
|    Thereafter |   |   | 97,344  |   |
|                         |   | $      | 626,604 |   |

|     |   | 2007   |     |   | 2006   |   |      | 2005   |   |
|----------|--------|--------|----------|--------|--------|--------|-----------|--------|--------|
|     |   |   |     |   |   |   |      |   |   |
| Current  |   | $      | 988,013  |   |   | $      | 1,308,927 |   |   | $ | 1,079,614 |   |
| Deferred |   |   | (131,765 | )      |   |   | (114,945  | )      |   |   | (264,520 | ) |
|     |   |   |     |   |   |   |      |   |   |   |   |   |
|     |   | $      | 856,248  |   |   | $      | 1,193,982 |   |   | $ | 815,094 |   |

|                             |   | 2007   |      |   | 2006   |   |      | 2005   |   |
|----------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
|                             |   |   |      |   |   |   |      |   |   |
| Tax      Based on Statutory Rate |   | $      | 1,313,090 |   |   | $      | 1,622,672 |   |   | $ | 1,374,530 |   |
| State      Taxes                 |   |   | 129,291   |   |   |   | 108,971   |   |   |   | 98,051 |   |
| Effect      of Tax-Exempt Income |   |   | (568,290  | )      |   |   | (565,412  | )      |   |   | (565,456 | ) |
| Other                            |   |   | (17,843   | )      |   |   | 27,751    |   |   |   | (92,031 | ) |
|                             |   |   |      |   |   |   |      |   |   |   |   |   |
|                             |   | $      | 856,248   |   |   | $      | 1,193,982 |   |   | $ | 815,094 |   |

----

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|                                                  |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|-------------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
| Deferred      Tax Liabilities:                        |   |   |       |   |   |   |       |   |   |
| Unrealized      gain on available-for-sale securities |   | $      | (138,183   | )      |   | $      | -          |   |   | $ | - |   |
| Unrealized      gain on derivatives                   |   |   | (69,545    | )      |   |   | -          |   |   |   | (155 | ) |
| Depreciation                                          |   |   | (954,487   | )      |   |   | (978,128   | )      |   |   | (992,514 | ) |
| Federal      Home Loan Bank dividends                 |   |   | (160,248   | )      |   |   | (271,687   | )      |   |   | (335,975 | ) |
| Mark      to Market trading securities                |   |   | (54,045    | )      |   |   | -          |   |   |   | - |   |
| Other                                                 |   |   | -          |   |   |   | (6,869     | )      |   |   | (191,067 | ) |
|                                                  |   |   | (1,376,508 | )      |   |   | (1,256,685 | )      |   |   | (1,519,711 | ) |
| Deferred      Tax Assets:                             |   |   |       |   |   |   |       |   |   |   |   |   |
| Unrealized      Loss on available-for-sale securities |   |   | -          |   |   |   | 433,083    |   |   |   | 602,618 |   |
| Unrealized      loss on derivatives                   |   |   | -          |   |   |   | 28,080     |   |   |   | - |   |
| Provision      for loan losses                        |   |   | 616,938    |   |   |   | 584,673    |   |   |   | 597,133 |   |
| Other      real estate                                |   |   | 59,400     |   |   |   | 19,463     |   |   |   | 11,190 |   |
| Voluntary      severance                              |   |   | -          |   |   |   | 35,293     |   |   |   | 171,770 |   |
| Other                                                 |   |   | 172,662    |   |   |   | 165,713    |   |   |   | 172,974 |   |
|                                                  |   |   | 849,000    |   |   |   | 1,266,305  |   |   |   | 1,555,685 |   |
|  Net      Deferred Tax Asset/(Liability)         |   | $      | (527,508   | )      |   | $      | 9,620      |   |   | $ | 35,974 |   |

|                                             |   | 2007   |           |   | 2006   |   |           | 2005   |   |
|--------------------------------------------------|--------|--------|----------------|--------|--------|--------|----------------|--------|--------|
| Balance      at beginning of year                |   | $      | 9,620          |   |   | $      | 35,974         |   |   | $ | (1,024,406 | ) |
| Deferred      tax expense, charged to operations |   |   | 131,764        |   |   |   | 114,945        |   |   |   | 264,520 |   |
| Other      comprehensive income, charged to      |   |   |           |   |   |   |           |   |   |   |   |   |
|    equity                         |   |   |  (668,892 | )      |   |   |  (141,299 | )      |   |   |  795,860 |   |
| Balance      at end of year                      |   | $      | (527,508       | )      |   | $      | 9,620          |   |   | $ | 35,974 |   |

----

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| NOTE      N. | REGULATORY      MATTERS |
|--------------|-------------------------|

----

Table of Contents

| NOTE      N. | REGULATORY      MATTERS (Continued) |
|--------------|-------------------------------------|

----

Table of Contents

| NOTE      N. | REGULATORY      MATTERS (Continued) |
|--------------|-------------------------------------|

|                            |   | Actual                      |   |   | Minimum      Capital Requirement |   |   | Minimum      To Be Well Capitalized Under Prompt Corrective Action      Provisions |   |
|---------------------------------|--------|-----------------------------|--------|--------|----------------------------------|--------|--------|-----------------------------------------------------------------------------------------|--------|
|                            |   | Amount                      |   |   | Ratio                            |   |   | Amount                                                                                  |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
|                            |   | (dollars      in thousands) |   |
| As      of December 31, 2007    |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Total      Capital (to Risk-    |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Weighted      Assets)           |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |
|    Consolidated  |   | $                           | 42,217 |   |                             |   | 16.36  | %                                                                                       |   | $ | 20,643 |   |   |   | 8.00 | % |   |   | N/A |   |   |   | N/A |   |
|    The      Bank |   | $                           | 38,285 |   |                             |   | 14.84  | %                                                                                       |   | $ | 20,637 |   |   |   | 8.00 | % |   | $ | 25,797 |   |   |   | 10.00 | % |
| Tier      I Capital (to Risk-   |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      Assets)           |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Consolidated  |   | $                           | 39,786 |   |                             |   | 15.42  | %                                                                                       |   | $ | 10,321 |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
|    The      Bank |   | $                           | 35,854 |   |                             |   | 13.90  | %                                                                                       |   | $ | 10,319 |   |   |   | 4.00 | % |   | $ | 15,478 |   |   |   | 6.00 | % |
| Tier      I Capital (to Average |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets)                         |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Consolidated  |   | $                           | 39,786 |   |                             |   | 10.98  | %                                                                                       |   | $ | 14,500 |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
|    The      Bank |   | $                           | 35,854 |   |                             |   | 9.84   | %                                                                                       |   | $ | 14,577 |   |   |   | 4.00 | % |   | $ | 18,221 |   |   |   | 5.00 | % |

|                            |   | Actual                      |   |   | Minimum      Capital Requirement |   |   | Minimum      To Be Well Capitalized Under Prompt Corrective Action      Provisions |   |
|---------------------------------|--------|-----------------------------|--------|--------|----------------------------------|--------|--------|-----------------------------------------------------------------------------------------|--------|
|                            |   | Amount                      |   |   | Ratio                            |   |   | Amount                                                                                  |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
|                            |   | (dollars      in thousands) |   |
| As      of December 31, 2006    |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Total      Capital (to Risk-    |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Weighted      Assets)           |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |
|    Consolidated  |   | $                           | 40,943 |   |                             |   | 15.27  | %                                                                                       |   | $ | 21,448 |   |   |   | 8.00 | % |   |   | N/A |   |   |   | N/A |   |
|    The      Bank |   | $                           | 37,961 |   |                             |   | 14.17  | %                                                                                       |   | $ | 21,435 |   |   |   | 8.00 | % |   | $ | 26,794 |   |   |   | 10.00 | % |
| Tier      I Capital (to Risk-   |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      Assets)           |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Consolidated  |   | $                           | 38,599 |   |                             |   | 14.40  | %                                                                                       |   | $ | 10,724 |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
|    The      Bank |   | $                           | 35,617 |   |                             |   | 13.29  | %                                                                                       |   | $ | 10,718 |   |   |   | 4.00 | % |   | $ | 16,075 |   |   |   | 6.00 | % |
| Tier      I Capital (to Average |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets)                         |   |                        |   |   |                             |   |   |                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Consolidated  |   | $                           | 38,599 |   |                             |   | 10.45  | %                                                                                       |   | $ | 14,776 |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
|    The      Bank |   | $                           | 35,617 |   |                             |   | 9.57   | %                                                                                       |   | $ | 14,891 |   |   |   | 4.00 | % |   | $ | 18,613 |   |   |   | 5.00 | % |

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Table of Contents

| Commitments      to extend credit are agreements to lend money at fixed and variable rates      with fixed expiration dates or termination clauses.  The Bank      applies the same credit standards used in the lending process when      extending these commitments, and periodically reassesses the customer's      creditworthiness through ongoing credit reviews.  Since many of      the commitments are expected to expire without being drawn upon, the total      commitment amounts do not necessarily represent future cash      requirements.  Collateral is obtained based on the Bank's      assessment of the transaction.  At December 31, 2007 and 2006,      the Bank’s commitments to extend credit totaled $58,418,706 and      $67,515,609, respectively. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | Cash      Surrender Value of Life Insurance - The fair value of this item      approximates its carrying value. |
|--------|-----------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| Loans,      Net - For variable-rate loans which are repricing immediately, fair values      are based on carrying values. Other variable-rate loans, fixed-rate      commercial loans, installment loans, and mortgage loans are valued using      discounted cash flows.  The discount rates used to determine the      present value of these loans are based on interest rates currently being      charged by the Bank on loans with comparable credit risk and      terms. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                          |   | 2007       |    |   | 2006                        |   |
|-----------------------------------------------|--------|------------|---------|--------|-----------------------------|--------|
|                                          |   | Carrying   |    |   | Fair                        |   |   | Carrying |   |   | Fair |   |
|                                          |   | Amount     |    |   | Value                       |   |   | Amount |   |   | Value |   |
|                                          |   |       |    |   | (dollars      in Thousands) |   |   |   |   |
| Financial      Assets:                        |   |       |    |   |                        |   |   |   |   |   |   |   |
| Cash      and due from banks                  |   | $          | 8,732   |   |                        | $      | 8,732 |   |   | $ | 6,572 |   |   | $ | 6,572 |   |
| Federal      funds sold                       |   |       | 245     |   |                        |   | 245 |   |   |   | 305 |   |   |   | 305 |   |
| Investment      securities:                   |   |       |    |   |                        |   |   |   |   |   |   |   |   |   |   |   |
|    Held-to-maturity            |   |       | 39,988  |   |                        |   | 40,640 |   |   |   | 38,611 |   |   |   | 39,525 |   |
|    Available-for-sale          |   |       | 63,983  |   |                        |   | 63,983 |   |   |   | 64,419 |   |   |   | 64,419 |   |
| Trading                                       |   |       | 19,199  |   |                        |   | 19,199 |   |   |   | 0 |   |   |   | 0 |   |
|    Equity      securities      |   |       | 2,521   |   |                        |   | 2,521 |   |   |   | 4,340 |   |   |   | 4,340 |   |
| Cash      surrender value of life insurance   |   |       | 1,014   |   |                        |   | 1,014 |   |   |   | 973 |   |   |   | 973 |   |
| Loans,      net                               |   |       | 220,922 |   |                        |   | 234,744 |   |   |   | 241,245 |   |   |   | 239,567 |   |
|                                          |   |       |    |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Financial      Liabilities:                   |   |       |    |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                      |   |       | 246,394 |   |                        |   | 246,659 |   |   |   | 253,757 |   |   |   | 253,135 |   |
| Short-term      borrowings                    |   |       | 26,735  |   |                        |   | 26,738 |   |   |   | 31,244 |   |   |   | 31,146 |   |
| Long-term      borrowings                     |   |       | 2,426   |   |                        |   | 2,423 |   |   |   | 34,424 |   |   |   | 34,044 |   |
| Securities      sold under                    |   |       |    |   |                        |   |   |   |   |   |   |   |   |   |   |   |
|    repurchase      agreements: |   |       |    |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Retail                                        |   |       | 8,229   |   |                        |   | 7,122 |   |   |   | 8,149 |   |   |   | 8,131 |   |
| Structured                                    |   |       | 40,000  |   |                        |   | 41,581 |   |   |   | 0 |   |   |   | 0 |   |
| Junior      subordinated debentures           |   |       | 5,155   |   |                        |   | 5,155 |   |   |   | 5,155 |   |   |   | 5,155 |   |
|                                          |   |       |    |   |                        |   |   |   |   |   |   |   |   |   |   |   |
|                                          |   | FaceAmount |    |   | Fair Value             |   |   | FaceAmount |   |   | Fair Value |   |
|                                          |   |       |    |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Other:                                        |   |       |    |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Commitments      to extend credit             |   | $          | 58,419  |   |                        | $      | 58,419 |   |   | $ | 67,516 |   |   | $ | 67,516 |   |
| Standby      letters of credit                |   |       | 2,808   |   |                        |   | 2,808 |   |   |   | 2,092 |   |   |   | 2,092 |   |
| Interest      rate swap                       |   |       | 186     |   |                        |   | 186 |   |   |   | (75 | ) |   |   | (75 | ) |
|                                          |   |       |    |   |                        |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

| NOTE      T. | CONDENSED      FINANCIAL INFORMATION OF |
|--------------|-----------------------------------------|

|   | BRITTON      & KOONTZ CAPITAL CORPORATION |
|--------|-----------------------------------------------|

|   | The      financial information of Britton & Koontz Capital Corporation, parent      company only, is as follows: |
|--------|----------------------------------------------------------------------------------------------------------------------|

|                                           |   | December      31 |       |
|------------------------------------------------|--------|------------------|------------|
|                                           |   | 2007             |       |   | 2006 |   |
| ASSETS:                                        |   |             |       |   |   |   |
| Cash                                           |   | $                | 3,681,391  |   |   | $ | 2,778,862 |   |
| Investment      in subsidiaries                |   |             | 37,179,848 |   |   |   | 35,914,120 |   |
| Other      assets                              |   |             | 70,154     |   |   |   | 95,557 |   |
| TOTAL      ASSETS                              |   | $                | 40,931,393 |   |   | $ | 38,788,539 |   |
| LIABILITIES:                                   |   |             |       |   |   |   |   |   |
| Junior      subordinated debentures            |   | $                | 5,155,000  |   |   | $ | 5,155,000 |   |
| Other      liabilities                         |   |             | (24,472    | ) |   |   | 36,651 |   |
| TOTAL      LIABILITIES                         |   |             | 5,130,528  |   |   |   | 5,191,651 |   |
| STOCKHOLDERS’      EQUITY                |   |             | 35,800,865 |   |   |   | 33,596,888 |   |
| TOTAL      LIABILITIES AND STOCKHOLDERS’ |   |             |       |   |   |   |   |   |
| EQUITY                                         |   | $                | 40,931,393 |   |   | $ | 38,788,539 |   |

|                                        |   | Years      Ended December 31, |      |
|---------------------------------------------|--------|-------------------------------|-----------|
|                                        |   | 2007                          |      |   | 2006 |   |   | 2005 |   |
| REVENUE:                                    |   |                          |      |   |   |   |   |   |   |
| Dividends      Received:                    |   |                          |      |   |   |   |   |   |   |
| Britton      & Koontz Bank, N.A.        |   | $                             | 2,800,000 |   |   | $ | 2,500,000 |   |   | $ | 2,100,000 |   |
| Other      income                           |   |                          | 3,058     |   |   |   | 3,308 |   |   |   | 18,592 |   |
|                                        |   |                          | 2,803,058 |   |   |   | 2,503,308 |   |   |   | 2,118,592 |   |
| EXPENSES                                    |   |                          | 558,952   |   |   |   | 675,339 |   |   |   | 414,355 |   |
|                                        |   |                          | 2,244,106 |   |   |   | 1,827,969 |   |   |   | 1,704,237 |   |
| INCOME      TAX EXPENSE (BENEFIT)           |   |                          | (208,344  | ) |   |   | (273,332 | ) |   |   | (162,090 | ) |
|                                        |   |                          | 2,452,450 |   |   |   | 2,101,301 |   |   |   | 1,866,327 |   |
| EQUITY      IN UNDISTRIBUTED                |   |                          |      |   |   |   |   |   |   |   |   |   |
| EARNINGS:                                   |   |                          |      |   |   |   |   |   |   |   |   |   |
| Britton      & Koontz Bank, N.A.        |   |                          | 542,479   |   |   |   | 1,464,176 |   |   |   | 1,337,909 |   |
| B      & K Title Insurance Agency, Inc. |   |                          | 10,852    |   |   |   | 13,106 |   |   |   | 23,404 |   |
| NET      INCOME                             |   | $                             | 3,005,781 |   |   | $ | 3,578,583 |   |   | $ | 3,227,640 |   |
|                                        |   |                          |      |   |   |   |   |   |   |   |   |   |

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| NOTE      T. | CONDENSED      FINANCIAL INFORMATION OF |
|--------------|-----------------------------------------|

|   | BRITTON      & KOONTZ CAPITAL CORPORATION(Continued) |
|--------|----------------------------------------------------------|

|                                            |   | Years      Ended December 31, |       |
|-------------------------------------------------|--------|-------------------------------|------------|
|                                            |   | 2007                          |       |   | 2006 |   |   | 2005 |   |
|                                            |   |                          |       |   |   |   |   |   |   |
| CASH      FLOWS FROM OPERATING ACTIVITIES:      |   |                          |       |   |   |   |   |   |   |
| Net      Income                                 |   | $                             | 3,005,781  |   |   | $ | 3,578,583 |   |   | $ | 3,227,640 |   |
| Adjustments      to reconcile net income to net |   |                          |       |   |   |   |   |   |   |   |   |   |
| cash      provided by operating activities:     |   |                          |       |   |   |   |   |   |   |   |   |   |
| Equity      on undistributed earnings           |   |                          |       |   |   |   |   |   |   |   |   |   |
| and      losses of affiliates                   |   |                          | (553,331   | ) |   |   | (1,477,282 | ) |   |   | (1,361,313 | ) |
| (Increase)      decrease in other assets        |   |                          | 25,403     |   |   |   | 184,413 |   |   |   | 26,006 |   |
| Increase      in other liabilities              |   |                          | (61,123    | ) |   |   | 30,061 |   |   |   | 1,693 |   |
| Net      Cash Provided by Operating Activities  |   |                          | 2,416,730  |   |   |   | 2,315,775 |   |   |   | 1,894,026 |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES:      |   |                          |       |   |   |   |   |   |   |   |   |   |
| Cash      dividends paid                        |   |                          | (1,524,936 | ) |   |   | (1,524,619 | ) |   |   | (1,460,258 | ) |
| Fair      value of stock options                |   |                          | 10,735     |   |   |   | 10,003 |   |   |   | - |   |
| Cash      received from stock options exercised |   |                          | -          |   |   |   | 35,244 |   |   |   | - |   |
| Net      Cash Provided by (Used in)             |   |                          |       |   |   |   |   |   |   |   |   |   |
|    Financing      Activities     |   |                          | (1,514,201 | ) |   |   | (1,479,372 | ) |   |   | (1,460,258 | ) |
|                                            |   |                          |       |   |   |   |   |   |   |   |   |   |
| NET      INCREASE (DECREASE) IN CASH            |   |                          | 902,529    |   |   |   | 836,403 |   |   |   | 433,768 |   |
| CASH      AT BEGINNING OF YEAR                  |   |                          | 2,778,862  |   |   |   | 1,942,459 |   |   |   | 1,508,691 |   |
| CASH      AT END OF YEAR                        |   | $                             | 3,681,391  |   |   | $ | 2,778,862 |   |   | $ | 1,942,459 |   |

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| DIRECTORS                                                                                         |   | EXECUTIVE      OFFICERS                                                                                              |
|---------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------|
|                                                                                              |   |                                                                                                                 |
| Robert      R. Punches                                                                            |   | W.      Page Ogden                                                                                                   |
| Partner,      Gwin, Lewis & Punches, LLP                                                      |   | President      & Chief Executive Officer                                                                         |
| Chairman,      Britton & Koontz Capital Corporation                                           |   | Britton      & Koontz Capital CorporationBritton      & Koontz Bank, National Association                    |
|                                                                                              |   |                                                                                                                 |
| R.      Andrew Patty II                                                                           |   | William      M. Salters                                                                                              |
| Member,      McGlinchey Stafford PLLCVice      Chairman, Britton & Koontz Capital Corporation |   | Treasurer,      Chief Financial & Accounting Officer and ControllerBritton      & Koontz Capital Corporation |
|                                                                                              |   | Britton      & Koontz Bank, National Association                                                                 |
|  W.      W. Allen, Jr.                                                                       |   |                                                                                                                 |
| President,      Allen Petroleum Services, Inc.                                                    |   | Jarrett      E. Nicholson                                                                                            |
|                                                                                              |   | Credit      Policy Officer                                                                                           |
|                                                                                              |   | Chief      Operations Officer                                                                                        |
| Craig      A. Bradford, D.M.D                                                                     |   | Britton      & Koontz Capital Corporation                                                                        |
| Pediatric      Dentist                                                                            |   | Britton      & Koontz Bank, National Association                                                                 |
|                                                                                              |   |                                                                                                                 |
|  A.      J. Ferguson                                                                         |   |                                                                                                                 |
| Petroleum      Geologist                                                                          |   |                                                                                                                 |
|                                                                                              |   |                                                                                                                 |
|  George      R. Kurz                                                                         |   |                                                                                                                 |
| Principal,      Kurz & Hebert                                                                 |   |                                                                                                                 |
|                                                                                              |   |                                                                                                                 |
|  Bethany      L. Overton                                                                     |   |                                                                                                                 |
| President,      Lambdin-Bisland Realty Co.                                                        |   |                                                                                                                 |
|                                                                                              |   |                                                                                                                 |
|  Vinod      K. Thukral, Ph.D.                                                                |   |                                                                                                                 |
| Retired      University Professor                                                                 |   |                                                                                                                 |

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| Plan category                                                   |   | Number      of securities to be issued upon exercise of outstanding options, warrants and rights |    |   | Weighted-average      exercise price of outstanding options, warrants and rights |   |    | Number      of securities remaining available for future      issuance |   |
|-----------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|---------|--------|----------------------------------------------------------------------------------|--------|---------|------------------------------------------------------------------------|--------|
| Equity      compensation plans approved by security holders(1)  |   |                                                                                             | 27,870  |   |                                                                             | $      | 17.40   |                                                                   |   |   | 87,130 |   |
| Equity      compensation plans not approved by security holders |   |                                                                                             | — |   |                                                                             |   | — |                                                                   |   |   | — |   |
| Total                                                           |   |                                                                                             | 27,870  |   |                                                                             | $      | 17.40   |                                                                   |   |   | 87,130 |   |

| (1) | An      aggregate of 115,000 shares of common stock were authorized for issuance      under the 2007 LTIP.  This amount includes 28,663 newly-reserved      shares and 86,337 shares that remained after the expiration of the 1996      LTIP. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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PART IV

I

| 1.   | Consolidated      Financial Statements and Supplementary Information for Years Ended      December 31, 2007, 2006 and 2005, which include the    following: |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a)   | Management’s      Annual Report on Internal Control over Financial  Reporting |
|-----------------|-------------------------------------------------------------------------------------|

| (b)   | Report      of Independent Registered Public AccountingFirm |
|-----------------|-------------------------------------------------------------|

| (c)   | Consolidated      Balance Sheets |
|-----------------|----------------------------------|

| (d)   | Consolidated      Statements of Income |
|-----------------|----------------------------------------|

| (e)   | Consolidated      Statements of Changes in Shareholders’Equity |
|-----------------|----------------------------------------------------------------------|

| (f)   | Consolidated      Statement of Cash Flows |
|-----------------|-------------------------------------------|

| (g)   | Notes      to the Consolidated FinancialStatements |
|-----------------|----------------------------------------------------|

| 2.   | Financial      Statement Schedules |
|----------------|------------------------------------|

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| Exhibit |     | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|---------|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.1     | *        | Restated      Articles of Incorporation of Britton & Koontz Capital Corporation      (“Registrant”), incorporated by reference to Exhibit 3.1 to Registrant’s      Quarterly Report on Form 10-Q, filed with the Securities and Exchange      Commission (the “Commission”) on August 4, 2006.                                                                                                                                                                                                                                                                             |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.2     |     | By-Laws      of Britton & Koontz Capital Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.1     | *        | Shareholder      Rights Agreement dated June 1, 1996 between Britton & Koontz Capital      Corporation and Britton & Koontz First National Bank, as Rights Agent,      incorporated by reference to Exhibit 4.3 to Registrant’s Registration      Statement on Form S-8, Registration No. 333-20631, filed with the      Commission on January 29, 1997, as amended by Amendment No. 1 to Rights      Agreement dated as of August 15, 2006, incorporated by reference to      Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed with the      Commission on August 17, 2006. |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.01   | *† | Employment      Agreement dated December 31, 2002, between Britton & Koontz Capital      Corporation and W. Page Ogden, incorporated by reference to Exhibit 10.01      to Registrant’s Annual Report on Form 10-KSB filed with the Commission on      March 27, 2003.                                                                                                                                                                                                                                                                                                                             |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.02   | *† | Britton      & Koontz Capital Corporation Long-Term Incentive Compensation Plan and      Amendment, incorporated by reference to Exhibit 4.4 to Registrant’s      Registration Statement on Form S-8, Registration No. 333-20631, filed with      the Commission on January 29, 1997.                                                                                                                                                                                                                                                                                                              |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.03   | *† | Britton      & Koontz Capital Corporation 2007 Long-Term Incentive Compensation      Plan, incorporated by reference to Appendix B to Registrant’s Definitive      Proxy Statement filed with the Commission on March 21,    2007.                                                                                                                                                                                                                                                                                                                                                                 |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.04   | *† | Salary      Continuation Plan Agreement dated December 18, 2007, between Britton &      Koontz Bank, N.A. and W. Page Ogden, incorporated by reference to Exhibit      10.04 to Registrant’s Current Report on Form 8-K filed with the Commission      on February 27, 2008.                                                                                                                                                                                                                                                                                                                       |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 21      |     | Subsidiaries      of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 23      |     | Consent      of Independent Registered Public Accountants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.1    |     | Certification      of Chief Executive Officer as required pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.2    |     | Certification      of Chief Financial Officer as required pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 32.1    |     | Certification      of Chief Executive Officer as required pursuant to Section 906 of the      Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 32.2    |     | Certification      of Chief Financial Officer as required pursuant to Section 906 of the      Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

| * | As      indicated in the column entitled “Description of Exhibit,” this exhibit is      incorporated by reference to another filing or  document. |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| † | Management      contract or compensatory plan or arrangement required to be filed as an      exhibit to this Annual Report on Form 10-K pursuant to Item 15 of Form      10-K. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Signature                        |   | Title                           |   | Date                |
|----------------------------------|--------|---------------------------------|--------|---------------------|
|  /s/      Robert R. Punches |   |                            |   |                |
| Robert      R. Punches           |   | Chairman      and Director      |   | March      11, 2008 |
|                             |   |                            |   |                |
| /s/      R. Andrew Patty II      |   |                            |   |                |
| R.      Andrew Patty II          |   | Vice      Chairman and Director |   | March      11, 2008 |
|                             |   |                            |   |                |
| /s/      W. W. Allen, Jr.        |   |                            |   |                |
| W.      W. Allen, Jr.            |   | Director                        |   | March      11, 2008 |
|                             |   |                            |   |                |
| /s/      Craig A. Bradford, DMD  |   |                            |   |                |
| Craig      A. Bradford, DMD      |   | Director                        |   | March      11, 2008 |
|                             |   |                            |   |                |
| /s/      A. J. Ferguson          |   |                            |   |                |
| A.      J. Ferguson              |   | Director                        |   | March      11, 2008 |
|                             |   |                            |   |                |
| /s/      Bethany L. Overton      |   |                            |   |                |
| Bethany      L. Overton          |   | Director                        |   | March      11, 2008 |
|                             |   |                            |   |                |
| /s/      George R. Kurz          |   |                            |   |                |
| George      R. Kurz              |   | Director                        |   | March      11, 2008 |
|                             |   |                            |   |                |
| /s/      Vinod K. Thukral, Ph.D. |   |                            |   |                |
| Vinod      K. Thukral, Ph.D.     |   | Director                        |   | March      11, 2008 |
|                             |   |                            |   |                |

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| Signature                    |   | Title                                                                                   |   | Date                |
|------------------------------|--------|-----------------------------------------------------------------------------------------|--------|---------------------|
|  /s/      W. Page Ogden |   |                                                                                    |   |                |
| W.      Page Ogden           |   | President,Principal      Executive Officer                                              |   | March      11, 2008 |
| /s/      William M. Salters  |   |                                                                                    |   |                |
| William      M. Salters      |   | Treasurer,Principal      Financial Officer,Principal      Accounting Officer,Controller |   | March      11, 2008 |

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|   | EXHIBIT      INDEX |
|--------|--------------------|

| Exhibit   |   | Description      of Exhibit                                                                                             |
|-----------|--------|-------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                    |
|  3.2 |   | By-Laws of Britton & Koontz Capital Corporation, as      amended                                                    |
|      |   |                                                                                                                    |
| 21        |   | Subsidiaries of Britton & Koontz Capital Corporation,      as amended                                               |
|      |   |                                                                                                                    |
| 23        |   | Consent of Independent Registered Public      Accountants                                                               |
|      |   |                                                                                                                    |
| 31.1      |   | Certification of Chief Executive Officer as required      pursuant to Section 302 of the Sarbanes-Oxley Act of    2002. |
|      |   |                                                                                                                    |
| 31.2      |   | Certification of Chief Financial Officer as required      pursuant to Section 302 of the Sarbanes-Oxley Act of    2002. |
|      |   |                                                                                                                    |
| 32.1      |   | Certification of Chief Executive Officer as required      pursuant to Section 906 of the Sarbanes-Oxley Act of    2002  |
|      |   |                                                                                                                    |
| 32.2      |   | Certification of Chief Financial Officer as required      pursuant to Section 906 of the Sarbanes-Oxley Act of    2002  |