----

----

| x      | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                                                                                                         |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | For the quarterly period ended March 31, 2011                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                            |
| o      | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | For the transition period from                                to                               |

|                                                           | Ohio                                    |   |   | 31-1626393 |   |
|----------------------------------------------------------------|-----------------------------------------|--------|--------|------------|--------|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |

| 2 North Broadway, Lebanon, Ohio 45036 |
|---------------------------------------|

| (513) 932-1414 |
|----------------|

----

----

----

INDEX

| PART I – FINANCIAL INFORMATION                                                                | 3      |
|-----------------------------------------------------------------------------------------------------|--------|
|                                                                                                |   |
| Item 1.  Financial Statements                                                             | 3      |
|                                                                                                |   |
| CONSOLIDATED BALANCE SHEETS                                                                         | 3      |
|                                                                                                |   |
| CONSOLIDATED STATEMENTS OF INCOME                                                                   | 4      |
|                                                                                                |   |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                                     | 5      |
|                                                                                                |   |
| CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY                                               | 6      |
|                                                                                                |   |
| CONSOLIDATED STATEMENTS OF CASH FLOWS                                                               | 7      |
|                                                                                                |   |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                          | 8      |
|                                                                                                |   |
| REPORT OF INDEPENDENT  REGISTERED PUBLIC ACCOUNTING FIRM                                  | 33     |
|                                                                                                |   |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 34     |
|                                                                                                |   |
| Item 3.  Quantitative and Qualitative Disclosures about Market Risks                      | 39     |
|                                                                                                |   |
| Item 4.  Controls and Procedures                                                          | 40     |
|                                                                                                |   |
| Item 4T.  Controls and Procedures                                                         | 40     |
|                                                                                                |   |
| PART II -- OTHER INFORMATION                                                                        | 41     |
|                                                                                                |   |
| Item 1. Legal Proceedings                                                                           | 41     |
|                                                                                                |   |
| Item 1A.  Risk Factors                                                                    | 41     |
|                                                                                                |   |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                 | 41     |
|                                                                                                |   |
| Item 3. Defaults Upon Senior Securities                                                             | 41     |
|                                                                                                |   |
| Item 4. (Removed and Reserved)                                                                      | 41     |
|                                                                                                |   |
| Item 5. Other Information                                                                           | 41     |
|                                                                                                |   |
| Item 6. Exhibits                                                                                    | 42     |
|                                                                                                |   |
| SIGNATURES                                                                                          | 43     |

----

INDEX

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

| LCNB CORP. AND SUBSIDIARIES |
|-----------------------------|
| CONSOLIDATED BALANCE SHEETS |
| (Dollars in thousands)      |

|                                                                                                                       |   | March 31,2011(Unaudited) |    |    | December 31,2010 |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|---------|---------|------------------|--------|
| ASSETS:                                                                                                                    |   |                     |    |    |             |   |   |   |
| Cash and due from banks                                                                                                    |   | $                        | 14,266  |    |             |   | 10,817 |   |
| Interest-bearing demand deposits                                                                                           |   |                     | 17,622  |    |             |   |  182 |   |
| Total cash and cash equivalents                                                                                            |   |                     | 31,888  |    |             |   | 10,999 |   |
|                                                                                                                       |   |                     |    |    |             |   |   |   |
| Investment securities:                                                                                                     |   |                     |    |    |             |   |   |   |
| Available-for-sale, at fair value                                                                                          |   |                     | 211,852 |    |             |   | 235,882 |   |
| Held-to-maturity, at cost                                                                                                  |   |                     | 11,497  |    |             |   | 12,141 |   |
| Federal Reserve Bank stock, at cost                                                                                        |   |                     | 939     |    |             |   | 939 |   |
| Federal Home Loan Bank stock, at cost                                                                                      |   |                     | 2,091   |    |             |   | 2,091 |   |
| Loans, net                                                                                                                 |   |                     | 460,522 |    |             |   | 452,350 |   |
| Premises and equipment, net                                                                                                |   |                     | 16,493  |    |             |   | 16,017 |   |
| Goodwill                                                                                                                   |   |                     | 5,915   |    |             |   | 5,915 |   |
| Bank owned life insurance                                                                                                  |   |                     | 14,388  |    |             |   | 14,242 |   |
| Other assets                                                                                                               |   |                     | 9,910   |    |             |   | 9,558 |   |
| TOTAL ASSETS                                                                                                               |   | $                        | 765,495 |    |             |   | 760,134 |   |
|                                                                                                                       |   |                     |    |    |             |   |   |   |
| LIABILITIES:                                                                                                               |   |                     |    |    |             |   |   |   |
| Deposits:                                                                                                                  |   |                     |    |    |             |   |   |   |
| Noninterest-bearing                                                                                                        |   | $                        | 95,487  |    |             |   | 98,994 |   |
| Interest-bearing                                                                                                           |   |                     | 559,604 |    |             |   | 539,545 |   |
| Total deposits                                                                                                             |   |                     | 655,091 |    |             |   | 638,539 |   |
| Short-term borrowings                                                                                                      |   |                     | 11,402  |    |             |   |  21,691 |   |
| Long-term debt                                                                                                             |   |                     | 22,402  |    |             |   |    23,120 |   |
| Accrued interest and other liabilities                                                                                     |   |                     | 5,132   |    |             |   | 6,077 |   |
| TOTAL LIABILITIES                                                                                                          |   |                     | 694,027 |    |             |   | 689,427 |   |
|                                                                                                                       |   |                     |    |    |             |   |   |   |
| SHAREHOLDERS’ EQUITY:                                                                                                |   |                     |    |    |             |   |   |   |
| Preferred shares - no par value, authorized 1,000,000 shares, none outstanding                                             |   |                     | — |    |             |   | — |   |
| Common shares - no par value, authorized 8,000,000 shares, issued 7,445,514 shares at March 31, 2011 and December 31, 2010 |   |                     | 11,068  |    |             |   | 11,068 |   |
| Surplus                                                                                                                    |   |                     | 15,457  |    |             |   | 15,447 |   |
| Retained earnings                                                                                                          |   |                     | 55,277  |    |             |   | 54,045 |   |
| Treasury shares at cost, 755,771 shares at March 31, 2011 and December 31, 2010                                            |   |                     | (11,698 | )  |             |   | (11,698 | )  |
| Accumulated other comprehensive income, net of taxes                                                                       |   |                     | 1,364   |    |             |   | 1,845 |   |
| TOTAL SHAREHOLDERS’ EQUITY                                                                                           |   |                     | 71,468  |    |             |   | 70,707 |   |
|                                                                                                                       |   |                     |    |    |             |   |   |   |
| TOTAL LIABILITES AND SHAREHOLDERS’ EQUITY                                                                            |   | $                        | 765,495 |    |             |   | 760,134 |   |

----

INDEX

| LCNB CORP. AND SUBSIDIARIES                   |
|-----------------------------------------------|
| CONSOLIDATED STATEMENTS OF INCOME             |
| (Dollars in thousands, except per share data) |
| (Unaudited)                                   |

|                                                |   |   | Three Months Ended |   |
|-----------------------------------------------------|--------|--------|--------------------|--------|
|                                                |   |   | March 31,          |   |
|                                                |   |   | 2011               |   |   |   | 2010 |   |
| INTEREST INCOME:                                    |   |   |               |   |   |   |   |   |
| Interest and fees on loans                          |   | $      | 6,518              |   |   |   | 6,832 |   |
| Interest on investment securities:                  |   |   |               |   |   |   |   |   |
| Taxable                                             |   |   | 876                |   |   |   | 930 |   |
| Non-taxable                                         |   |   | 707                |   |   |   | 808 |   |
| Other investments                                   |   |   | 29                 |   |   |   | 32 |   |
| TOTAL INTEREST INCOME                               |   |   | 8,130              |   |   |   | 8,602 |   |
|                                                |   |   |               |   |   |   |   |   |
| INTEREST EXPENSE:                                   |   |   |               |   |   |   |   |   |
| Interest on deposits                                |   |   | 1,584              |   |   |   | 1,976 |   |
| Interest on short-term borrowings                   |   |   | 10                 |   |   |   | 9 |   |
| Interest on long-term debt                          |   |   | 178                |   |   |   | 177 |   |
| TOTAL INTEREST EXPENSE                              |   |   | 1,772              |   |   |   | 2,162 |   |
| NET INTEREST INCOME                                 |   |   | 6,358              |   |   |   | 6,440 |   |
| PROVISION FOR LOAN LOSSES                           |   |   | 664                |   |   |   | 208 |   |
|                                                |   |   |               |   |   |   |   |   |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |   |   | 5,694              |   |   |   | 6,232 |   |
|                                                |   |   |               |   |   |   |   |   |
| NON-INTEREST INCOME:                                |   |   |               |   |   |   |   |   |
| Trust income                                        |   |   | 483                |   |   |   | 469 |   |
| Service charges and fees on deposit accounts        |   |   | 901                |   |   |   | 926 |   |
| Net gain on sales of securities                     |   |   | 295                |   |   |   | 77 |   |
| Bank owned life insurance income                    |   |   | 146                |   |   |   | 153 |   |
| Gains from sales of mortgage loans                  |   |   | 33                 |   |   |   | 30 |   |
| Other operating income                              |   |   | 73                 |   |   |   | 98 |   |
| TOTAL NON-INTEREST INCOME                           |   |   | 1,931              |   |   |   | 1,753 |   |
|                                                |   |   |               |   |   |   |   |   |
| NON-INTEREST EXPENSE:                               |   |   |               |   |   |   |   |   |
| Salaries and employee benefits                      |   |   | 3,052              |   |   |   | 2,768 |   |
| Equipment expenses                                  |   |   | 217                |   |   |   | 204 |   |
| Occupancy expense, net                              |   |   | 455                |   |   |   | 524 |   |
| State franchise tax                                 |   |   | 196                |   |   |   | 181 |   |
| Marketing                                           |   |   | 115                |   |   |   | 76 |   |
| Intangible amortization                             |   |   | 14                 |   |   |   | 14 |   |
| FDIC premiums                                       |   |   | 280                |   |   |   | 218 |   |
| Other non-interest expense                          |   |   | 1,472              |   |   |   | 1,222 |   |
| TOTAL NON-INTEREST EXPENSE                          |   |   | 5,801              |   |   |   | 5,207 |   |
|                                                |   |   |               |   |   |   |   |   |
| INCOME BEFORE INCOME TAXES                          |   |   | 1,824              |   |   |   | 2,778 |   |
| PROVISION FOR INCOME TAXES                          |   |   | 346                |   |   |   | 637 |   |
| NET INCOME FROM CONTINUING OPERATIONS               |   |   | 1,478              |   |   |   | 2,141 |   |
| INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX     |   |   | 824                |   |   |   | 71 |   |
| NET INCOME                                     |   | $      | 2,302              |   |   |   | 2,212 |   |
|                                                |   |   |               |   |   |   |   |   |
| Dividends declared per common share                 |   | $      | 0.16               |   |   |   | 0.16 |   |
|                                                |   |   |               |   |   |   |   |   |
| Basic and diluted earnings per common share:        |   |   |               |   |   |   |   |   |
| Continuing operations                               |   | $      | 0.22               |   |   |   | 0.32 |   |
| Discontinued operations                             |   |   | 0.12               |   |   |   | 0.01 |   |
|                                                |   |   |               |   |   |   |   |   |
| Weighted average common shares outstanding:         |   |   |               |   |   |   |   |   |
| Basic                                               |   |   | 6,689,743          |   |   |   | 6,687,232 |   |
| Diluted                                             |   |   | 6,741,767          |   |   |   | 6,729,790 |   |

----

INDEX

| LCNB CORP. AND SUBSIDIARIES                     |
|-------------------------------------------------|
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (In thousands)                                  |
| (Unaudited)                                     |

|                                                                                                                                                                                                                                  |   |   | Three Months Ended |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------|---------|
|                                                                                                                                                                                                                                  |   |   | March 31,          |    |
|                                                                                                                                                                                                                                  |   |   | 2011               |    |   |   | 2010 |   |
|                                                                                                                                                                                                                                  |   |   |               |    |   |   |   |   |
| Net Income                                                                                                                                                                                                                            |   | $      | 2,302              |    |   |   | 2,212 |   |
|                                                                                                                                                                                                                                  |   |   |               |    |   |   |   |   |
| Other comprehensive income:                                                                                                                                                                                                           |   |   |               |    |   |   |   |   |
|                                                                                                                                                                                                                                  |   |   |               |    |   |   |   |   |
| Net unrealized gain (loss) on available-for-sale securities (net of taxes of $230 and $181 for the three months ended March 31, 2011 and 2010, respectively)                                                                          |   |   | (447               | )  |   |   | 351 |   |
|                                                                                                                                                                                                                                  |   |   |               |    |   |   |   |   |
| Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of taxes of $100 and $26 for the three months ended March 31, 2011 and 2010, respectively) |   |   | (194               | )  |   |   | (51 | )  |
|                                                                                                                                                                                                                                  |   |   |               |    |   |   |   |   |
| Change in nonqualified pension plan unrecognized net gain (loss) (net of taxes of $4)                                                                                                                                                 |   |   | 8                  |    |   |   | — |   |
|                                                                                                                                                                                                                                  |   |   |               |    |   |   |   |   |
| Reclassification adjustment for recognition of nonqualified pension plan net (gain) loss (net of taxes of $1)                                                                                                                         |   |   | (3                 | )  |   |   | — |   |
|                                                                                                                                                                                                                                  |   |   |               |    |   |   |   |   |
| Nonqualified pension plan curtailment entry (net of taxes of $80)                                                                                                                                                                     |   |   | 155                |    |   |   | — |   |
|                                                                                                                                                                                                                                  |   |   |               |    |   |   |   |   |
| Total comprehensive income                                                                                                                                                                                                            |   | $      | 1,821              |    |   |   | 2,512 |   |

----

INDEX

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

|                                                                                                                            |   | CommonSharesOutstanding |      |   | PreferredStock |   |    | CommonStock |   |   | Surplus |   |   | RetainedEarnings |   |   | TreasuryShares |   |   | AccumulatedOtherComprehensiveIncome (Loss) |   |   | TotalShareholders’Equity |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-----------|--------|----------------|--------|---------|-------------|--------|--------|---------|--------|--------|------------------|--------|--------|----------------|--------|--------|--------------------------------------------|--------|--------|--------------------------------|--------|
|                                                                                                                            |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   |   |                                       |   |   |                           |   |   |   |   |   |   |   |   |   |
| Balance January 1, 2011                                                                                                         |   |                    | 6,689,743 |   |           | $      | — |        |   |   | 11,068  |   |   |             | 15,447 |   |           |   | 54,045 |                                       |   |   | (11,698                        | )      |   |   | 1,845 |   |   |   | 70,707 |   |
| Net income                                                                                                                      |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   | 2,302  |                                       |   |   |                           |   |   |   |   |   |   |   | 2,302 |   |
| Net unrealized gain (loss) on available-for-sale securities, net of taxes                                                       |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   |   |                                       |   |   |                           |   |   |   | (447 | ) |   |   | (447 | ) |
| Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income, net of taxes |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   |   |                                       |   |   |                           |   |   |   | (194 | ) |   |   | (194 | ) |
| Change in nonqualified pension plan unrecognized net gain (loss), net of taxes                                                  |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   |   |                                       |   |   |                           |   |   |   | 8 |   |   |   | 8 |   |
| Reclassification adjustment for recognition of nonqualified pension plan net gain, net of taxes                                 |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   |   |                                       |   |   |                           |   |   |   | (3 | ) |   |   | (3 | ) |
| Nonqualified pension plan curtailment entry, net of taxes                                                                       |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   |   |                                       |   |   |                           |   |   |   | 155 |   |   |   | 155 |   |
| Compensation expense relating to stock options                                                                                  |   |                    |      |   |           |   |    |        |   |   |    |   |   |             | 10     |   |           |   |   |                                       |   |   |                           |   |   |   |   |   |   |   | 10 |   |
| Common stock dividends, $0.16 per share                                                                |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   | (1,070 | )                                          |   |   |                           |   |   |   |   |   |   |   | (1,070 | ) |
| Balance March 31, 2011                                                                                                          |   |                    | 6,689,743 |   |           |   | — |        |   |   | 11,068  |   |   |             | 15,457 |   |           |   | 55,277 |                                       |   |   | (11,698                        | )      |   |   | 1,364 |   |   |   | 71,468 |   |
|                                                                                                                            |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   |   |                                       |   |   |                           |   |   |   |   |   |   |   |   |   |
| Balance January 1, 2010                                                                                                         |   |                    | 6,687,232 |   |           | $      | — |        |   |   | 11,068  |   |   |             | 15,407 |   |           |   | 48,962 |                                       |   |   | (11,737                        | )      |   |   | 1,915 |   |   |   | 65,615 |   |
| Net income                                                                                                                      |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   | 2,212  |                                       |   |   |                           |   |   |   |   |   |   |   | 2,212 |   |
| Net unrealized gain (loss) on available-for-sale securities, net of tax                                                         |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   |   |                                       |   |   |                           |   |   |   | 351 |   |   |   | 351 |   |
| Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income, net of taxes |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   |   |                                       |   |   |                           |   |   |   | (51 | ) |   |   | (51 | ) |
| Compensation expense relating to stock options                                                                                  |   |                    |      |   |           |   |    |        |   |   |    |   |   |             | 9      |   |           |   |   |                                       |   |   |                           |   |   |   |   |   |   |   | 9 |   |
| Common stock dividends, $0.16 per share                                                                |   |                    |      |   |           |   |    |        |   |   |    |   |   |             |   |   |           |   | (1,070 | )                                          |   |   |                           |   |   |   |   |   |   |   | (1,070 | ) |
| Balance March 31, 2010                                                                                                          |   |                    | 6,687,232 |   |           | $      | — |        |   |   | 11,068  |   |   |             | 15,416 |   |           |   | 50,104 |                                       |   |   | (11,737                        | )      |   |   | 2,215 |   |   |   | 67,066 |   |

----

INDEX

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                             |   | Three Months Ended |    |
|----------------------------------------------------------------------------------|--------|--------------------|---------|
|                                                                             |   | March 31,          |    |
|                                                                             |   | 2011               |    |   | 2010 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                            |   |               |    |   |   |   |
| Net income                                                                       |   | $                  | 2,302   |   |   |   | 2,212 |   |
| Adjustments to reconcile net income to net cash flows from operating activities: |   |               |    |   |   |   |   |   |
| Depreciation, amortization and accretion                                         |   |               | 685     |   |   |   | 631 |   |
| Provision for loan losses                                                        |   |               | 664     |   |   |   | 208 |   |
| Curtailment charge for nonqualified defined benefit retirement plan              |   |               | 191     |   |   |   | - |   |
| Increase in cash surrender value of bank owned life insurance                    |   |               | (146    | ) |   |   | (153 | ) |
| Realized gain from sales of securities available-for-sale                        |   |               | (295    | ) |   |   | (77 | ) |
| Realized gain from sales of premises and equipment                               |   |               | -       |   |   |   | (4 | ) |
| Realized gain from sale of insurance agency                                      |   |               | (1,503  | ) |   |   | - |   |
| Realized gain from sale of repossessed assets                                    |   |               | (16     | ) |   |   | (10 | ) |
| Origination of mortgage loans for sale                                           |   |               | (1,722  | ) |   |   | (1,600 | ) |
| Realized gains from sales of mortgage loans                                      |   |               | (33     | ) |   |   | (30 | ) |
| Proceeds from sales of mortgage loans                                            |   |               | 1,737   |   |   |   | 1,613 |   |
| Compensation expense related to stock options                                    |   |               | 10      |   |   |   | 9 |   |
| (Increase) decrease due to changes in assets and liabilities:                    |   |               |    |   |   |   |   |   |
| Accrued income receivable                                                        |   |               | (604    | ) |   |   | (149 | ) |
| Other assets                                                                     |   |               | (6      | ) |   |   | (211 | ) |
| Other liabilities                                                                |   |               | (261    | ) |   |   | 28 |   |
| NET CASH FLOWS FROM OPERATING ACTIVITIES                                         |   |               | 1,003   |   |   |   | 2,467 |   |
|                                                                             |   |               |    |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                            |   |               |    |   |   |   |   |   |
| Proceeds from sales of investment securities available-for-sale                  |   |               | 14,518  |   |   |   | 5,342 |   |
| Proceeds from maturities of investment securities:                               |   |               |    |   |   |   |   |   |
| Available-for-sale                                                               |   |               | 8,520   |   |   |   | 16,875 |   |
| Held-to-maturity                                                                 |   |               | 1,259   |   |   |   | 516 |   |
| Purchases of investment securities:                                              |   |               |    |   |   |   |   |   |
| Available-for-sale                                                               |   |               | (9      | ) |   |   | (5,324 | ) |
| Held-to-maturity                                                                 |   |               | (615    | ) |   |   | (1,373 | ) |
| Net (increase) decrease in loans                                                 |   |               | (9,102  | ) |   |   | 259 |   |
| Proceeds from sale of repossessed assets                                         |   |               | 35      |   |   |   | 61 |   |
| Purchases of premises and equipment                                              |   |               | (718    | ) |   |   | (87 | ) |
| Proceeds from sales of premises and equipment                                    |   |               | -       |   |   |   | 4 |   |
| Proceeds from sale of insurance agency, net of cash disposed                     |   |               | 1,523   |   |   |   | - |   |
| NET CASH FLOWS FROM INVESTING ACTIVITIES                                         |   |               | 15,411  |   |   |   | 16,273 |   |
|                                                                             |   |               |    |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                            |   |               |    |   |   |   |   |   |
| Net increase in deposits                                                         |   |               | 16,552  |   |   |   | 7,000 |   |
| Net decrease in short-term borrowings                                            |   |               | (10,289 | ) |   |   | (9,157 | ) |
| Proceeds from long-term debt                                                     |   |               | 5,000   |   |   |   | - |   |
| Principal payments on long-term debt                                             |   |               | (5,718  | ) |   |   | (807 | ) |
| Cash dividends paid on common stock                                              |   |               | (1,070  | ) |   |   | (1,070 | ) |
| NET CASH FLOWS FROM FINANCING ACTIVITIES                                         |   |               | 4,475   |   |   |   | (4,034 | ) |
|                                                                             |   |               |    |   |   |   |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                          |   |               | 20,889  |   |   |   | 14,706 |   |
|                                                                             |   |               |    |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                 |   |               | 10,999  |   |   |   | 12,626 |   |
|                                                                             |   |               |    |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       |   | $                  | 31,888  |   |   |   | 27,332 |   |
|                                                                             |   |               |    |   |   |   |   |   |
| SUPPLEMENTAL CASH FLOW INFORMATION:                                              |   |               |    |   |   |   |   |   |
| CASH PAID DURING THE YEAR FOR:                                                   |   |               |    |   |   |   |   |   |
| Interest                                                                         |   | $                  | 1,831   |   |   |   | 2,186 |   |
| Income taxes                                                                     |   |               | 620     |   |   |   | 315 |   |
|                                                                             |   |               |    |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:                         |   |               |    |   |   |   |   |   |
| Transfer from loans to other real estate owned and repossessed assets            |   |               | 225     |   |   |   | 125 |   |

----

INDEX

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

----

INDEX

|                                   |   | March 31, 2011 |    |
|----------------------------------------|--------|----------------|---------|
|                                   |   | AmortizedCost  |    |   | UnrealizedGains |   |   | UnrealizedLosses |   |   | FairValue |   |
| U.S. Treasury notes                    |   | $              | 19,634  |   |   |   | 13 |   |   |   | 237 |   |   |   | 19,410 |   |
| U.S. Agency notes                      |   |           | 76,371  |   |   |   | 29 |   |   |   | 1,225 |   |   |   | 75,175 |   |
| U.S. Agency mortgage-backed securities |   |           | 27,155  |   |   |   | 1,101 |   |   |   | 67 |   |   |   | 28,189 |   |
| Corporate securities                   |   |           | 1,010   |   |   |   | 13 |   |   |   | — |   |   |   | 1,023 |   |
| Municipal securities:                  |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-taxable                            |   |           | 65,647  |   |   |   | 2,611 |   |   |   | 135 |   |   |   | 68,123 |   |
| Taxable                                |   |           | 18,177  |   |   |   | 187 |   |   |   | 363 |   |   |   | 18,001 |   |
| Mutual fund                            |   |           | 1,072   |   |   |   | — |   |   |   | 14 |   |   |   | 1,058 |   |
| Trust preferred securities             |   |           | 549     |   |   |   | 59 |   |   |   | 3 |   |   |   | 605 |   |
| Equity securities                      |   |           | 249     |   |   |   | 25 |   |   |   | 6 |   |   |   | 268 |   |
|                                   |   | $              | 209,864 |   |   |   | 4,038 |   |   |   | 2,050 |   |   |   | 211,852 |   |

|                                   |   | December 31, 2010 |    |
|----------------------------------------|--------|-------------------|---------|
|                                   |   | AmortizedCost     |    |   | UnrealizedGains |   |   | UnrealizedLosses |   |   | FairValue |   |
|                                   |   |              |    |   |   |   |   |   |   |   |   |   |
| U.S. Treasury notes                    |   | $                 | 19,724  |   |   |   | 16 |   |   |   | 155 |   |   |   | 19,585 |   |
| U.S. Agency notes                      |   |              | 83,600  |   |   |   | 107 |   |   |   | 845 |   |   |   | 82,862 |   |
| U.S. Agency mortgage-backed securities |   |              | 31,786  |   |   |   | 1,364 |   |   |   | 56 |   |   |   | 33,094 |   |
| Corporate securities                   |   |              | 2,012   |   |   |   | 13 |   |   |   | — |   |   |   | 2,025 |   |
| Municipal securities:                  |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-taxable                            |   |              | 71,902  |   |   |   | 2,642 |   |   |   | 116 |   |   |   | 74,428 |   |
| Taxable                                |   |              | 22,049  |   |   |   | 302 |   |   |   | 383 |   |   |   | 21,968 |   |
| Mutual fund                            |   |              | 1,063   |   |   |   | — |   |   |   | 10 |   |   |   | 1,053 |   |
| Trust preferred securities             |   |              | 549     |   |   |   | 57 |   |   |   | 2 |   |   |   | 604 |   |
| Equity securities                      |   |              | 249     |   |   |   | 18 |   |   |   | 4 |   |   |   | 263 |   |
|                                   |   | $                 | 232,934 |   |   |   | 4,519 |   |   |   | 1,571 |   |   |   | 235,882 |   |

----

INDEX

|                                      |   | March 31, |    |   | December 31, |   |
|-------------------------------------------|--------|-----------|---------|--------|--------------|--------|
|                                      |   | 2011      |    |   | 2010         |   |
|                                      |   |      |    |   |         |   |   |   |
| Commercial and industrial                 |   | $         | 35,381  |   |         |   | 36,122 |   |
| Commercial, secured by real estate        |   |      | 209,952 |   |         |   | 196,136 |   |
| Residential real estate                   |   |      | 187,905 |   |         |   | 190,277 |   |
| Consumer                                  |   |      | 18,229  |   |         |   | 19,691 |   |
| Agricultural                              |   |      | 2,260   |   |         |   | 2,966 |   |
| Other loans, including deposit overdrafts |   |      | 9,402   |   |         |   | 9,413 |   |
|                                      |   |      | 463,129 |   |         |   | 454,605 |   |
| Deferred net origination costs            |   |      | 324     |   |         |   | 386 |   |
|                                      |   |      | 463,453 |   |         |   | 454,991 |   |
| Less allowance for loan losses            |   |      | 2,931   |   |         |   | 2,641 |   |
| Loans, net                                |   | $         | 460,522 |   |         |   | 452,350 |   |

----

INDEX

|                                        |   | March 31,2011 |   |    | December 31,2010 |   |
|---------------------------------------------|--------|---------------|--------|---------|------------------|--------|
|                                        |   |          |   |    |             |   |   |   |
| Non-accrual loans                           |   | $             | 3,098  |    |             |   | 3,761 |   |
| Past-due 90 days or more and still accruing |   |          | 572    |    |             |   | 300 |   |
| Restructured loans                          |   |          | 9,619  |    |             |   | 9,088 |   |
| Total                                       |   | $             | 13,289 |    |             |   | 13,149 |   |
| Percent to total loans                      |   |          | 2.87   | %  |             |   | 2.89 | % |

----

INDEX

|                                                             |   | Commercial& Industrial |    |   | CommercialReal Estate |   |    | ResidentialReal Estate |   |   | Consumer |   |   | Agricultural |    |   | Other  |   |    | Unallocated |   |   | Total   |   |
|------------------------------------------------------------------|--------|----------------------------|---------|--------|-----------------------|--------|---------|------------------------|--------|--------|----------|--------|--------|--------------|---------|--------|--------|--------|---------|-------------|--------|--------|---------|--------|
| March 31, 2011                                                   |   |                       |    |   |                  |   |    |                   |   |   |     |   |   |         |    |   |   |   |    |        |   |   |    |   |
| Allowance for loan losses:                                       |   |                       |    |   |                  |   |    |                   |   |   |     |   |   |         |    |   |   |   |    |        |   |   |    |   |
| Balance, beginning of year                                       |   | $                          | 305     |   |                  |   | 1,625   |                   |   |   | 459      |   |   |         | 246     |   |   |   | — |        |   |   | 6       |   |   |   | — |   |   |   | 2,641 |   |
| Provision charged to expenses                                    |   |                       | 284     |   |                  |   | 200     |                   |   |   | 141      |   |   |         | 34      |   |   |   | — |        |   |   | 5       |   |   |   | — |   |   |   | 664 |   |
| Losses charged off                                               |   |                       | (251    | )      |                  |   | — |                   |   |   | (100     | )      |   |         | (91     | )      |   |   | — |        |   |   | (30     | )      |   |   | — |   |   |   | (472 | ) |
| Recoveries                                                       |   |                       | — |   |                  |   | 30      |                   |   |   | 1        |   |   |         | 42      |   |   |   | — |        |   |   | 25      |   |   |   | — |   |   |   | 98 |   |
| Balance, end of period                                           |   | $                          | 338     |   |                  |   | 1,855   |                   |   |   | 501      |   |   |         | 231     |   |   |   | — |        |   |   | 6       |   |   |   | — |   |   |   | 2,931 |   |
|                                                             |   |                       |    |   |                  |   |    |                   |   |   |     |   |   |         |    |   |   |   |    |        |   |   |    |   |   |   |   |   |   |   |   |   |
| Ending balance:  individually evaluated for impairment |   | $                          | 100     |   |                  |   | 336     |                   |   |   | —  |   |   |         | — |   |   |   | — |        |   |   | — |   |   |   | — |   |   |   | 436 |   |
| Ending balance:  collectively evaluated for impairment |   |                       | 238     |   |                  |   | 1,519   |                   |   |   | 501      |   |   |         | 231     |   |   |   | — |        |   |   | 6       |   |   |   | — |   |   |   | 2,495 |   |
|                                                             |   |                       |    |   |                  |   |    |                   |   |   |     |   |   |         |    |   |   |   |    |        |   |   |    |   |   |   |   |   |   |   |   |   |
| Loans:                                                           |   |                       |    |   |                  |   |    |                   |   |   |     |   |   |         |    |   |   |   |    |        |   |   |    |   |   |   |   |   |   |   |   |   |
| Ending balance                                                   |   | $                          | 35,381  |   |                  |   | 209,952 |                   |   |   | 187,905  |   |   |         | 18,229  |   |   |   | 2,260   |        |   |   | 9,402   |   |   |   | — |   |   |   | 463,129 |   |
| Ending balance:  individually evaluated for impairment |   |                       | 833     |   |                  |   | 12,026  |                   |   |   | 532      |   |   |         | — |   |   |   | — |        |   |   | — |   |   |   | — |   |   |   | 13,391 |   |
| Ending balance:  collectively evaluated for impairment |   |                       | 34,548  |   |                  |   | 197,926 |                   |   |   | 187,373  |   |   |         | 18,229  |   |   |   | 2,260   |        |   |   | 9,402   |   |   |   | — |   |   |   | 449,738 |   |

----

INDEX

|                                                             |   | Commercial& Industrial |    |   | CommercialReal Estate |   |    | ResidentialReal Estate |   |   | Consumer |   |   | Agricultural |    |   | Other  |   |    | Unallocated |   |   | Total   |   |
|------------------------------------------------------------------|--------|----------------------------|---------|--------|-----------------------|--------|---------|------------------------|--------|--------|----------|--------|--------|--------------|---------|--------|--------|--------|---------|-------------|--------|--------|---------|--------|
| March 31, 2010                                                   |   |                       |    |   |                  |   |    |                   |   |   |     |   |   |         |    |   |   |   |    |        |   |   |    |   |
| Allowance for loan losses:                                       |   |                       |    |   |                  |   |    |                   |   |   |     |   |   |         |    |   |   |   |    |        |   |   |    |   |
| Balance, beginning of year                                       |   | $                          | 546     |   |                  |   | 1,628   |                   |   |   | 491      |   |   |         | 313     |   |   |   | — |        |   |   | 9       |   |   |   | 11 |   |   |   | 2,998 |   |
| Provision charged to expenses                                    |   |                       | 14      |   |                  |   | 102     |                   |   |   | 11       |   |   |         | 80      |   |   |   | — |        |   |   | 12      |   |   |   | (11 | ) |   |   | 208 |   |
| Losses charged off                                               |   |                       | (5      | )      |                  |   | — |                   |   |   | (18      | )      |   |         | (144    | )      |   |   | — |        |   |   | (38     | )      |   |   | — |   |   |   | (205 | ) |
| Recoveries                                                       |   |                       | — |   |                  |   | — |                   |   |   | —  |   |   |         | 33      |   |   |   | — |        |   |   | 26      |   |   |   | — |   |   |   | 59 |   |
| Balance, end of period                                           |   | $                          | 555     |   |                  |   | 1,730   |                   |   |   | 484      |   |   |         | 282     |   |   |   | — |        |   |   | 9       |   |   |   | — |   |   |   | 3,060 |   |
|                                                             |   |                       |    |   |                  |   |    |                   |   |   |     |   |   |         |    |   |   |   |    |        |   |   |    |   |   |   |   |   |   |   |   |   |
| Ending balance:  individually evaluated for impairment |   | $                          | 290     |   |                  |   | 654     |                   |   |   | —  |   |   |         | — |   |   |   | — |        |   |   | — |   |   |   | — |   |   |   | 944 |   |
| Ending balance:  collectively evaluated for impairment |   |                       | 265     |   |                  |   | 1,076   |                   |   |   | 484      |   |   |         | 282     |   |   |   | — |        |   |   | 9       |   |   |   | — |   |   |   | 2,116 |   |
|                                                             |   |                       |    |   |                  |   |    |                   |   |   |     |   |   |         |    |   |   |   |    |        |   |   |    |   |   |   |   |   |   |   |   |   |
| Loans:                                                           |   |                       |    |   |                  |   |    |                   |   |   |     |   |   |         |    |   |   |   |    |        |   |   |    |   |   |   |   |   |   |   |   |   |
| Ending balance                                                   |   | $                          | 44,092  |   |                  |   | 187,593 |                   |   |   | 191,771  |   |   |         | 23,792  |   |   |   | 2,648   |        |   |   | 9,441   |   |   |   | — |   |   |   | 459,337 |   |
| Ending balance:  individually evaluated for impairment |   |                       | 1,242   |   |                  |   | 9,116   |                   |   |   | —  |   |   |         | — |   |   |   | — |        |   |   | — |   |   |   | — |   |   |   | 10,358 |   |
| Ending balance:  collectively evaluated for impairment |   |                       | 42,850  |   |                  |   | 178,477 |                   |   |   | 191,771  |   |   |         | 23,792  |   |   |   | 2,648   |        |   |   | 9,441   |   |   |   | — |   |   |   | 448,979 |   |

----

INDEX

|   | ● | Pass – loans categorized in this category are higher quality loans that do not fit any of the other categories described below. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Other Assets Especially Mentioned (OAEM) - loans in this category are currently protected but are potentially weak.  These loans constitute a risk but not to the point of justifying a classification of substandard.  The credit risk may be relatively minor yet constitute an undue risk in light of the circumstances surrounding a specific asset. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Substandard – loans in this category are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the possibility that the Company will sustain some loss if the deficiencies are not corrected. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Doubtful – loans classified in this category have all the weaknesses inherent in loans classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

INDEX

|                               |   | No Grade |   |   | Pass   |   |    | OAEM   |   |   | Substandard |   |   | Doubtful |    |   | Total  |   |
|------------------------------------|--------|----------|--------|--------|--------|--------|---------|--------|--------|--------|-------------|--------|--------|----------|---------|--------|--------|--------|
| March 31, 2011                     |   |     |   |   |   |   |    |   |   |   |        |   |   |     |    |   |   |   |
| Commercial & industrial        |   | $        | 1,115  |   |   |   | 32,376  |   |   |   | 1,139       |   |   |     | 751     |   |   |   | — |   |   |   | 35,381 |   |
| Commercial, secured by real estate |   |     | 1,987  |   |   |   | 192,977 |   |   |   | 4,853       |   |   |     | 7,767   |   |   |   | 2,368 |   |   |   | 209,952 |   |
| Residential real estate            |   |     | 18,544 |   |   |   | 165,941 |   |   |   | 1,390       |   |   |     | 2,030   |   |   |   | — |   |   |   | 187,905 |   |
| Consumer                           |   |     | 368    |   |   |   | 17,768  |   |   |   | —     |   |   |     | 70      |   |   |   | 23 |   |   |   | 18,229 |   |
| Agricultural                       |   |     | 311    |   |   |   | 1,949   |   |   |   | —     |   |   |     | — |   |   |   | — |   |   |   | 2,260 |   |
| Other                              |   |     | 75     |   |   |   | 9,327   |   |   |   | —     |   |   |     | — |   |   |   | — |   |   |   | 9,402 |   |
| Total                              |   | $        | 22,400 |   |   |   | 420,338 |   |   |   | 7,382       |   |   |     | 10,618  |   |   |   | 2,391 |   |   |   | 463,129 |   |
|                               |   |     |   |   |   |   |    |   |   |   |        |   |   |     |    |   |   |   |   |   |   |   |   |   |
| December 31, 2010                  |   |     |   |   |   |   |    |   |   |   |        |   |   |     |    |   |   |   |   |   |   |   |   |   |
| Commercial & industrial        |   | $        | 1,299  |   |   |   | 32,421  |   |   |   | 1,177       |   |   |     | 1,225   |   |   |   | — |   |   |   | 36,122 |   |
| Commercial, secured by real estate |   |     | 2,053  |   |   |   | 179,710 |   |   |   | 4,897       |   |   |     | 8,574   |   |   |   | 902 |   |   |   | 196,136 |   |
| Residential real estate            |   |     | 17,346 |   |   |   | 170,900 |   |   |   | 264         |   |   |     | 1,702   |   |   |   | 65 |   |   |   | 190,277 |   |
| Consumer                           |   |     | 394    |   |   |   | 19,144  |   |   |   | —     |   |   |     | 72      |   |   |   | 81 |   |   |   | 19,691 |   |
| Agricultural                       |   |     | 247    |   |   |   | 2,719   |   |   |   | —     |   |   |     | — |   |   |   | — |   |   |   | 2,966 |   |
| Other                              |   |     | 116    |   |   |   | 9,297   |   |   |   | —     |   |   |     | — |   |   |   | — |   |   |   | 9,413 |   |
| Total                              |   | $        | 21,455 |   |   |   | 414,191 |   |   |   | 6,338       |   |   |     | 11,573  |   |   |   | 1,048 |   |   |   | 454,605 |   |

----

INDEX

|                               |   | 30-59 DaysPast Due |    |   | 60-89 DaysPast Due |   |    | Greater Than90 Days |   |   | TotalPast Due |   |   | Current |    |   | Total LoansReceivable |   |    | Total Loans Greater Than90 Days andAccruing |   |
|------------------------------------|--------|--------------------|---------|--------|--------------------|--------|---------|---------------------|--------|--------|---------------|--------|--------|---------|---------|--------|-----------------------|--------|---------|---------------------------------------------|--------|
| March 31, 2011                     |   |               |    |   |               |   |    |                |   |   |          |   |   |    |    |   |                  |   |    |                                        |   |
| Commercial & industrial        |   | $                  | 9       |   |               |   | — |                |   |   | —       |   |   |    | 9       |   |                  |   | 35,372  |                                        |   |   | 35,381 |   |   |   | — |   |
| Commercial, secured by real estate |   |               | 223     |   |               |   | 35      |                |   |   | 2,368         |   |   |    | 2,626   |   |                  |   | 207,326 |                                        |   |   | 209,952 |   |   |   | — |   |
| Residential real estate            |   |               | 711     |   |               |   | 60      |                |   |   | 1,078         |   |   |    | 1,849   |   |                  |   | 186,056 |                                        |   |   | 187,905 |   |   |   | 549 |   |
| Consumer                           |   |               | 95      |   |               |   | 54      |                |   |   | 23            |   |   |    | 172     |   |                  |   | 18,057  |                                        |   |   | 18,229 |   |   |   | 23 |   |
| Agricultural                       |   |               | — |   |               |   | — |                |   |   | —       |   |   |    | — |   |                  |   | 2,260   |                                        |   |   | 2,260 |   |   |   | — |   |
| Other                              |   |               | 74      |   |               |   | — |                |   |   | —       |   |   |    | 74      |   |                  |   | 9,328   |                                        |   |   | 9,402 |   |   |   | — |   |
| Total                              |   | $                  | 1,112   |   |               |   | 149     |                |   |   | 3,469         |   |   |    | 4,730   |   |                  |   | 458,399 |                                        |   |   | 463,129 |   |   |   | 572 |   |
|                               |   |               |    |   |               |   |    |                |   |   |          |   |   |    |    |   |                  |   |    |                                        |   |   |   |   |   |   |   |   |
| December 31, 2010                  |   |               |    |   |               |   |    |                |   |   |          |   |   |    |    |   |                  |   |    |                                        |   |   |   |   |   |   |   |   |
| Commercial & industrial        |   | $                  | 138     |   |               |   | — |                |   |   | 595           |   |   |    | 733     |   |                  |   | 35,389  |                                        |   |   | 36,122 |   |   |   | 1 |   |
| Commercial, secured by real estate |   |               | 753     |   |               |   | — |                |   |   | 1,766         |   |   |    | 2,519   |   |                  |   | 193,617 |                                        |   |   | 196,136 |   |   |   | 114 |   |
| Residential real estate            |   |               | 482     |   |               |   | 36      |                |   |   | 698           |   |   |    | 1,216   |   |                  |   | 189,061 |                                        |   |   | 190,277 |   |   |   | 110 |   |
| Consumer                           |   |               | 231     |   |               |   | 54      |                |   |   | 76            |   |   |    | 361     |   |                  |   | 19,330  |                                        |   |   | 19,691 |   |   |   | 75 |   |
| Agricultural                       |   |               | — |   |               |   | — |                |   |   | —       |   |   |    | — |   |                  |   | 2,966   |                                        |   |   | 2,966 |   |   |   | — |   |
| Other                              |   |               | 5       |   |               |   | — |                |   |   | —       |   |   |    | 5       |   |                  |   | 9,408   |                                        |   |   | 9,413 |   |   |   | — |   |
| Total                              |   | $                  | 1,609   |   |               |   | 90      |                |   |   | 3,135         |   |   |    | 4,834   |   |                  |   | 449,771 |                                        |   |   | 454,605 |   |   |   | 300 |   |

----

INDEX

|                                |   | Recorded Investment |    |   | Unpaid Principal Balance |   |    | Related Allowance |   |   | Average Recorded Investment |   |   | Interest Income Recognized |    |
|-------------------------------------|--------|---------------------|---------|--------|--------------------------|--------|---------|-------------------|--------|--------|-----------------------------|--------|--------|----------------------------|---------|
| March 31, 2011                      |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |
| With no related allowance recorded: |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |
| Commercial & industrial         |   | $                   | 249     |   |                     |   | 249     |              |   |   | —                     |   |   |                       | 424     |   |   |   | 13 |   |
| Commercial real estate              |   |                | 8,250   |   |                     |   | 8,250   |              |   |   | —                     |   |   |                       | 8,276   |   |   |   | 111 |   |
| Residential real estate             |   |                | 533     |   |                     |   | 533     |              |   |   | —                     |   |   |                       | 533     |   |   |   | — |   |
| Total                               |   |                | 9,032   |   |                     |   | 9,032   |              |   |   | —                     |   |   |                       | 9,233   |   |   |   | 124 |   |
|                                |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |   |   |   |   |   |
| With an allowance recorded:         |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |   |   |   |   |   |
| Commercial & industrial         |   |                | 484     |   |                     |   | 584     |              |   |   | 100                         |   |   |                       | 884     |   |   |   | 8 |   |
| Commercial real estate              |   |                | 3,440   |   |                     |   | 3,776   |              |   |   | 336                         |   |   |                       | 3,827   |   |   |   | 45 |   |
| Residential real estate             |   |                | — |   |                     |   | — |              |   |   | —                     |   |   |                       | — |   |   |   | — |   |
| Total                               |   |                | 3,924   |   |                     |   | 4,360   |              |   |   | 436                         |   |   |                       | 4,711   |   |   |   | 53 |   |
|                                |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |   |   |   |   |   |
| Total:                              |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |   |   |   |   |   |
| Commercial & industrial         |   |                | 733     |   |                     |   | 833     |              |   |   | 100                         |   |   |                       | 1,308   |   |   |   | 21 |   |
| Commercial real estate              |   |                | 11,690  |   |                     |   | 12,026  |              |   |   | 336                         |   |   |                       | 12,103  |   |   |   | 156 |   |
| Residential real estate             |   |                | 533     |   |                     |   | 533     |              |   |   | —                     |   |   |                       | 533     |   |   |   | — |   |
| Total                               |   | $                   | 12,956  |   |                     |   | 13,392  |              |   |   | 436                         |   |   |                       | 13,944  |   |   |   | 177 |   |

----

INDEX

|                                |   | Recorded Investment |    |   | Unpaid Principal Balance |   |    | Related Allowance |   |   | Average Recorded Investment |   |   | Interest Income Recognized |    |
|-------------------------------------|--------|---------------------|---------|--------|--------------------------|--------|---------|-------------------|--------|--------|-----------------------------|--------|--------|----------------------------|---------|
| December 31, 2010                   |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |
| With no related allowance recorded: |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |
| Commercial & industrial         |   | $                   | 594     |   |                     |   | 594     |              |   |   | —                     |   |   |                       | 751     |   |   |   | 9 |   |
| Commercial real estate              |   |                | 8,350   |   |                     |   | 8,350   |              |   |   | —                     |   |   |                       | 9,058   |   |   |   | 372 |   |
| Residential real estate             |   |                | 533     |   |                     |   | 533     |              |   |   | —                     |   |   |                       | 534     |   |   |   | — |   |
| Total                               |   |                | 9,477   |   |                     |   | 9,477   |              |   |   | —                     |   |   |                       | 10,343  |   |   |   | 381 |   |
|                                |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |   |   |   |   |   |
| With an allowance recorded:         |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |   |   |   |   |   |
| Commercial & industrial         |   |                | 356     |   |                     |   | 476     |              |   |   | 120                         |   |   |                       | 693     |   |   |   | 29 |   |
| Commercial real estate              |   |                | 2,974   |   |                     |   | 3,150   |              |   |   | 176                         |   |   |                       | 3,403   |   |   |   | 142 |   |
| Residential real estate             |   |                | — |   |                     |   | — |              |   |   | —                     |   |   |                       | — |   |   |   | — |   |
| Total                               |   | $                   | 3,330   |   |                     |   | 3,626   |              |   |   | 296                         |   |   |                       | 4,096   |   |   |   | 171 |   |
|                                |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |   |   |   |   |   |
| Total:                              |   |                |    |   |                     |   |    |              |   |   |                        |   |   |                       |    |   |   |   |   |   |
| Commercial & industrial         |   | $                   | 950     |   |                     |   | 1,070   |              |   |   | 120                         |   |   |                       | 1,444   |   |   |   | 38 |   |
| Commercial real estate              |   |                | 11,324  |   |                     |   | 11,500  |              |   |   | 176                         |   |   |                       | 12,461  |   |   |   | 514 |   |
| Residential real estate             |   |                | 533     |   |                     |   | 533     |              |   |   | —                     |   |   |                       | 534     |   |   |   | — |   |
| Total                               |   | $                   | 12,807  |   |                     |   | 13,103  |              |   |   | 296                         |   |   |                       | 14,439  |   |   |   | 552 |   |

|                               |   | March 31,2011 |    |   | December 31, 2010 |   |
|------------------------------------|--------|---------------|---------|--------|-------------------|--------|
| Commercial and industrial          |   | $             | — |   |              |   | 595 |   |
| Commercial, secured by real estate |   |          | 2,368   |   |              |   | 2,377 |   |
| Residential real estate            |   |          | 730     |   |              |   | 789 |   |
|                               |   |          | 3,098   |   |              |   | 3,761 |   |

----

INDEX

|                       |   | Three Months EndedMarch 31, |    |
|----------------------------|--------|-----------------------------|---------|
|                       |   | 2011                        |    |   | 2010 |   |
| Balance, beginning of year |   | $                           | 2,088   |   |   |   | 2,424 |   |
| Additions                  |   |                        | — |   |   |   | 89 |   |
| Balance, end of period     |   | $                           | 2,088   |   |   |   | 2,513 |   |

|                                                               |   | CurrentInterestRate |   |   |   March 31,2011 |   |    | December 31,2010 |   |
|--------------------------------------------------------------------|--------|---------------------|--------|--------|----------------------|--------|---------|------------------|--------|
|                                                               |   |                |   |   |                 |   |    |             |   |
| Fixed Rate Advances, due at maturity:                              |   |                |   |   |                 |   |    |             |   |
| Advance due February 2011                                          |   |                | 2.10   | %      |                 | $      | — |             |   |   | 5,000 |   |
| Advance due August 2012                                            |   |                | 1.99   | %      |                 |   | 6,000   |             |   |   | 6,000 |   |
| Advance due January 2015                                           |   |                | 2.00   | %      |                 |   | 5,000   |             |   |   | — |   |
| Advance due March 2017                                             |   |                | 5.25   | %      |                 |   | 5,000   |             |   |   | 5,000 |   |
|                                                               |   |                |   |   |                 |   |    |             |   |   |   |   |
| Fixed Rate Advances, with monthly principal and interest payments: |   |                |   |   |                 |   |    |             |   |   |   |   |
| Advance due March 2014                                             |   |                | 2.45   | %      |                 |   | 3,073   |             |   |   | 3,319 |   |
| Advance due March 2019                                             |   |                | 2.82   | %      |                 |   | 3,329   |             |   |   | 3,801 |   |
|                                                               |   |                |   |   |                 | $      | 22,402  |             |   |   | 23,120 |   |

----

INDEX

|                      |   | March 31, 2011 |    |   | December 31, 2010 |   |
|---------------------------|--------|----------------|---------|--------|-------------------|--------|
|                      |   | Amount         |    |   | Rate              |   |   | Amount |   |   | Rate |   |
| U.S. Treasury demand note |   | $              | 884     |   |              |   | — | % |   |   | 1,295 |   |   |   | — | % |
| Federal funds purchased   |   |           | — |   |              |   | — | % |   |   | 7,000 |   |   |   | 0.50 | % |
| Line of credit            |   |           | — |   |              |   | — | % |   |   | 3,026 |   |   |   | 1.00 | % |
| Repurchase agreements     |   |           | 10,518  |   |              |   | 0.30 | % |   |   | 10,370 |   |   |   | 0.30 | % |
|                      |   | $              | 11,402  |   |              |   | 0.28 | % |   |   | 21,691 |   |   |   | 0.44 | % |

|                                                           |   | March 31,2011 |   |   | December 31,2010 |   |
|----------------------------------------------------------------|--------|---------------|--------|--------|------------------|--------|
|                                                           |   |          |   |   |
| Commitments to extend credit:                                  |   |          |   |   |             |   |   |   |
|   Commercial loans                                   |   | $             | 1,174  |   |             |   | 1,856 |   |
|   Other loans:                                       |   |          |   |   |             |   |   |   |
|     Fixed rate                             |   |          | 833    |   |             |   | 1,200 |   |
|     Adjustable rate                        |   |          | 437    |   |             |   | 480 |   |
| Unused lines of credit:                                        |   |          |   |   |             |   |   |   |
|   Fixed rate                                         |   |          | 1,839  |   |             |   | 1,773 |   |
|   Adjustable rate                                    |   |          | 61,605 |   |             |   | 67,038 |   |
| Unused overdraft protection amounts on demand and NOW accounts |   |          | 10,013 |   |             |   | 10,031 |   |
| Standby letters of credit                                      |   |          | 6,391  |   |             |   | 6,528 |   |
|                                                           |   | $             | 82,292 |   |             |   | 88,906 |   |

----

INDEX

----

INDEX

|                                   |   | AtMarch 31,2011 |   |    | AtDecember 31,2010 |   |
|----------------------------------------|--------|-----------------|--------|---------|--------------------|--------|
|                                   |   |            |
| Regulatory Capital:                    |   |            |   |    |               |   |   |   |
| Shareholders’ equity             |   | $               | 71,468 |    |               |   | 70,707 |   |
| Goodwill and other intangibles         |   |            | (6,118 | )  |               |   | (6,413 | )  |
| Accumulated other comprehensive income |   |            | (1,364 | )  |               |   | (1,845 | )  |
| Tier 1 risk-based capital              |   |            | 63,986 |    |               |   | 62,449 |   |
|                                   |   |            |   |    |               |   |   |   |
| Eligible allowance for loan losses     |   |            | 2,931  |    |               |   | 2,641 |   |
| Total risk-based capital               |   | $               | 66,917 |    |               |   | 65,090 |   |
|                                   |   |            |   |    |               |   |   |   |
| Capital ratios:                        |   |            |   |    |               |   |   |   |
| Total risk-based (8% required)         |   |            | 14.13  | %  |               |   | 13.82 | %  |
| Tier 1 risk-based (4% required)        |   |            | 13.52  | %  |               |   | 13.26 | %  |
| Leverage (3% required)                 |   |            | 8.42   | %  |               |   | 8.12 | %  |

----

INDEX

|                                                      |   | Three Months Ended |   |
|-----------------------------------------------------------|--------|--------------------|--------|
|                                                      |   | March 31,          |   |
|                                                      |   | 2011               |   |   | 2010 |   |
|                                                      |   |               |   |   |   |   |
| Qualified noncontributory defined benefit retirement plan |   | $                  | 124    |   |   |   | 60 |   |
|                                                      |   |               |   |   |   |   |   |   |
| 401(k) plan                                               |   |               | 75     |   |   |   | 74 |   |

|                                            |   | Three Months EndedMarch 31, |   |
|-------------------------------------------------|--------|-----------------------------|--------|
|                                            |   | 2011                        |   |   | 2010 |   |
| Service cost                                    |   | $                           | 44     |   |   |   | 43 |   |
| Interest cost                                   |   |                        | 9      |   |   |   | 8 |   |
| Amortization of unrecognized prior service cost |   |                        | 11     |   |   |   | 12 |   |
| Amortization of unrecognized net gain           |   |                        | (4     | ) |   |   | — |   |
| Net periodic pension cost                       |   | $                           | 60     |   |   |   | 63 |   |

----

INDEX

|                |   | Outstanding Stock Options |    |   | Exercisable Stock Options    |   |
|---------------------|--------|---------------------------|---------|--------|------------------------------|--------|
| ExercisePrice Range |   | Number                    |    |   | WeightedAverageExercisePrice |   |   | Weighted AverageRemainingContractualLife (Years) |   |   | Number |   |   | WeightedAverageExercisePrice |   |   | WeightedAverageRemainingContractualLife (Years) |   |
|                |   |                      |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $9.00 - $10.99      |   |                      | 29,110  |   |                         | $      | 9.00 |   |   |   | 7.8 |   |   |   | 11,644 |   |   | $ | 9.00 |   |   |   | 7.8 |   |
| $11.00 - $12.99     |   |                      | 59,799  |   |                         |   | 11.89 |   |   |   | 8.8 |   |   |   | 12,511 |   |   |   | 12.20 |   |   |   | 7.6 |   |
| $13.00 - $14.99     |   |                      | 11,056  |   |                         |   | 13.09 |   |   |   | 1.8 |   |   |   | 11,056 |   |   |   | 13.09 |   |   |   | 1.8 |   |
| $17.00 - $18.99     |   |                      | 24,158  |   |                         |   | 18.16 |   |   |   | 4.5 |   |   |   | 22,535 |   |   |   | 18.18 |   |   |   | 4.4 |   |
|                |   |                      | 124,123 |   |                         |   | 12.54 |   |   |   | 7.1 |   |   |   | 57,746 |   |   |   | 14.06 |   |   |   | 5.3 |   |

|                   |   | 2011                |    |   | 2010                            |   |
|------------------------|--------|---------------------|---------|--------|---------------------------------|--------|
|                   |   |   Options |    |   | Weighted Average Exercise Price |   |   |   Options |   |   | Weighted Average Exercise Price |   |
| Outstanding, January 1 |   |                | 99,040  |   |                            | $      | 12.71 |   |   |   | 78,242 |   |   | $ | 13.04 |   |
| Granted                |   |                | 25,083  |   |                            |   | 11.85 |   |   |   | 20,798 |   |   |   | 11.50 |   |
| Exercised              |   |                | — |   |                            |   | — |   |   |   | — |   |   |   | — |   |
| Outstanding, March 31  |   |                | 124,123 |   |                            |   | 12.54 |   |   |   | 99,040 |   |   |   | 12.71 |   |
| Exercisable, March 31  |   |                | 57,746  |   |                            |   | 14.06 |   |   |   | 41,770 |   |   |   | 14.78 |   |

----

INDEX

|                                                                               |   | 2011   |   |   | 2010   |   |
|------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Estimated weighted-average fair value of options granted                           |   | $      | 2.09   |   |   |   | 2.27 |   |
| Risk-free interest rate                                                            |   |   | 2.84   | %      |   |   | 3.34 | % |
| Average dividend yield                                                             |   |   | 4.43   | %      |   |   | 4.31 | % |
| Volatility factor of the expected market price of the Company’s common stock |   |   | 27.37  | %      |   |   | 28.32 | % |
| Average life in years                                                              |   |   | 6.5    |   |   |   | 7.0 |   |

----

INDEX

|                                                                                                                |   | For the Three Months |      |
|---------------------------------------------------------------------------------------------------------------------|--------|----------------------|-----------|
|                                                                                                                |   | Ended March 31,      |      |
|                                                                                                                |   | 2011                 |      |   | 2010 |   |
|                                                                                                                |   |                 |      |   |   |   |
| Net income from continuing operations                                                                               |   | $                    | 1,478     |   |   |   | 2,141 |   |
| Income from discontinued operations, net of taxes                                                                   |   |                 | 824       |   |   |   | 71 |   |
| Net income                                                                                                          |   | $                    | 2,302     |   |   |   | 2,212 |   |
|                                                                                                                |   |                 |      |   |   |   |   |   |
| Weighted average number of shares outstanding used in the calculation of basic earnings per common share            |   |                 | 6,689,743 |   |   |   | 6,687,232 |   |
|                                                                                                                |   |                 |      |   |   |   |   |   |
| Add dilutive effect of:                                                                                             |   |                 |      |   |   |   |   |   |
| Stock options                                                                                                       |   |                 | 3,880     |   |   |   | 2,207 |   |
| Restricted stock                                                                                                    |   |                 | —   |   |   |   | 1,060 |   |
| Stock warrant                                                                                                       |   |                 | 48,144    |   |   |   | 39,291 |   |
|                                                                                                                |   |                 | 52,024    |   |   |   | 42,558 |   |
|                                                                                                                |   |                 |      |   |   |   |   |   |
| Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share |   |                 | 6,741,767 |   |   |   | 6,729,790 |   |
|                                                                                                                |   |                 |      |   |   |   |   |   |
| Basic earnings per common share:                                                                                    |   |                 |      |   |   |   |   |   |
| Continuing operations                                                                                               |   | $                    | 0.22      |   |   |   | 0.32 |   |
| Discontinued operations                                                                                             |   |                 | 0.12      |   |   |   | 0.01 |   |
| Diluted earnings per common share                                                                                   |   |                 |      |   |   |   |   |   |
| Continuing operations                                                                                               |   |                 | 0.22      |   |   |   | 0.32 |   |
| Discontinued operations                                                                                             |   |                 | 0.12      |   |   |   | 0.01 |   |

----

INDEX

|   | ● | Level 1 – quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the reporting date. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly.  Level 2 inputs may include quoted prices for similar assets in active markets,  quoted prices for identical assets or liabilities in markets that are not active, inputs other than quoted prices (such as interest rates or yield curves) that are observable for the asset or liability, and inputs that are derived from or corroborated by observable market data. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Level 3 - inputs that are unobservable for the asset or liability. |
|--------|---------|--------------------------------------------------------------------|

----

INDEX

|                                   |   |                    | Fair Value Measurements at Reporting Date Using |   |
|----------------------------------------|--------|-------------------------|-------------------------------------------------|--------|
|                                   |   | Fair Value Measurements |                                            |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs (Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |
| March 31, 2011                         |   |                    |                                            |   |   |   |   |   |   |   |   |   |
| Available-for-sale securities:         |   |                    |                                            |   |   |   |   |   |   |   |   |   |
| U.S. Treasury notes                    |   | $                       | 19,410                                          |   |   |   | 19,410 |   |   |   | — |   |   |   | — |   |
| U.S. Agency notes                      |   |                    | 75,175                                          |   |   |   | — |   |   |   | 75,175 |   |   |   | — |   |
| U.S. Agency mortgage-backed securities |   |                    | 28,189                                          |   |   |   | — |   |   |   | 28,189 |   |   |   | — |   |
| Corporate securities                   |   |                    | 1,023                                           |   |   |   | 1,023 |   |   |   | — |   |   |   | — |   |
| Municipal securities:                  |   |                    |                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-taxable                            |   |                    | 68,123                                          |   |   |   | — |   |   |   | 68,123 |   |   |   | — |   |
| Taxable                                |   |                    | 18,001                                          |   |   |   | — |   |   |   | 18,001 |   |   |   | — |   |
| Mutual fund                            |   |                    | 1,058                                           |   |   |   | — |   |   |   | — |   |   |   | 1,058 |   |
| Trust preferred securities             |   |                    | 605                                             |   |   |   | 605 |   |   |   | — |   |   |   | — |   |
| Equity securities                      |   |                    | 268                                             |   |   |   | 268 |   |   |   | — |   |   |   | — |   |
| Totals                                 |   | $                       | 211,852                                         |   |   |   | 21,306 |   |   |   | 189,488 |   |   |   | 1,058 |   |
|                                   |   |                    |                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2010                      |   |                    |                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available-for-sale securities:         |   |                    |                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury notes                    |   | $                       | 19,585                                          |   |   |   | 19,585 |   |   |   | — |   |   |   | — |   |
| U.S. Agency notes                      |   |                    | 82,862                                          |   |   |   | — |   |   |   | 82,862 |   |   |   | — |   |
| U.S. Agency mortgage-backed securities |   |                    | 33,094                                          |   |   |   | — |   |   |   | 33,094 |   |   |   | — |   |
| Corporate securities                   |   |                    | 2,025                                           |   |   |   | 2,025 |   |   |   | — |   |   |   | — |   |
| Municipal securities:                  |   |                    |                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-taxable                            |   |                    | 74,428                                          |   |   |   | — |   |   |   | 74,428 |   |   |   | — |   |
| Taxable                                |   |                    | 21,968                                          |   |   |   | — |   |   |   | 21,968 |   |   |   | — |   |
| Mutual fund                            |   |                    | 1,053                                           |   |   |   | — |   |   |   | — |   |   |   | 1,053 |   |
| Trust preferred securities             |   |                    | 604                                             |   |   |   | 604 |   |   |   | — |   |   |   | — |   |
| Equity securities                      |   |                    | 263                                             |   |   |   | 263 |   |   |   | — |   |   |   | — |   |
| Totals                                 |   | $                       | 235,882                                         |   |   |   | 22,477 |   |   |   | 212,352 |   |   |   | 1,053 |   |

----

INDEX

|                                                                           |   | OtherDebtSecurities |   |
|--------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                           |   |                |   |
| Beginning balance                                                              |   | $                   | 1,053  |   |
| Purchases                                                                      |   |                |   |   |
| Dividends reinvested                                                           |   |                | 9      |   |
| Net change in unrealized gains (losses) included in other comprehensive income |   |                | (4     | ) |
| Ending balance                                                                 |   | $                   | 1,058  |   |

----

INDEX

|                    |   |                   |   |    Fair Value Measurements at Reporting Date Using |                                                      |
|-------------------------|--------|------------------------|--------|--------------------------------------------------------------|-----------------------------------------------------------|
|                    |   | Fair ValueMeasurements |   |                                                         | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |   |   | SignificantOtherObservableInputs(Level 2) |   |   | SignificantUnobservableInputs(Level 3) |   |
| March 31, 2011          |   |                   |   |                                                         |                                                      |   |   |   |   |   |   |   |
| Impaired loans          |   | $                      | 4,674  |                                                         |                                                      |   | — |   |   |   | 823 |   |   |   | 3,851 |   |
| Other real estate owned |   |                   | 2,088  |                                                         |                                                      |   | — |   |   |   | 2,088 |   |   |   | — |   |
| Repossessed assets      |   |                   | 231    |                                                         |                                                      |   | — |   |   |   | — |   |   |   | 231 |   |
| Totals                  |   | $                      | 6,993  |                                                         |                                                      |   | — |   |   |   | 2, 911 |   |   |   | 4,082 |   |
|                    |   |                   |   |                                                         |                                                      |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2010       |   |                   |   |                                                         |                                                      |   |   |   |   |   |   |   |   |   |   |   |
| Impaired loans          |   | $                      | 4,080  |                                                         |                                                      |   | — |   |   |   | 1,430 |   |   |   | 2,650 |   |
| Other real estate owned |   |                   | 2,088  |                                                         |                                                      |   | — |   |   |   | 2,088 |   |   |   | — |   |
| Repossessed assets      |   |                   | 26     |                                                         |                                                      |   | — |   |   |   | — |   |   |   | 26 |   |
| Totals                  |   | $                      | 6,194  |                                                         |                                                      |   | — |   |   |   | 3,518 |   |   |   | 2,676 |   |

|                         |   | March 31, 2011 |    |   | December 31, 2010 |   |
|------------------------------|--------|----------------|---------|--------|-------------------|--------|
|                         |   | CarryingAmount |    |   | FairValue         |   |   | CarryingAmount |   |   | FairValue |   |
|                         |   |           |    |   |              |   |   |   |   |   |   |   |
| FINANCIAL ASSETS:            |   |           |    |   |              |   |   |   |   |   |   |   |
| Cash and cash equivalents    |   | $              | 31,888  |   |              |   | 31,888 |   |   |   | 10,999 |   |   |   | 10,999 |   |
| Investment securities:       |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Available-for-sale           |   |           | 211,852 |   |              |   | 211,852 |   |   |   | 235,882 |   |   |   | 235,882 |   |
| Held-to-maturity             |   |           | 11,497  |   |              |   | 11,497 |   |   |   | 12,141 |   |   |   | 12,141 |   |
| Federal Reserve Bank stock   |   |           | 939     |   |              |   | 939 |   |   |   | 939 |   |   |   | 939 |   |
| Federal Home Loan Bank stock |   |           | 2,091   |   |              |   | 2,091 |   |   |   | 2,091 |   |   |   | 2,091 |   |
| Loans, net                   |   |           | 460,522 |   |              |   | 472,025 |   |   |   | 452,350 |   |   |   | 465,053 |   |
|                         |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| FINANCIAL LIABILITIES:       |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                     |   |           | 655,091 |   |              |   | 658,887 |   |   |   | 638,539 |   |   |   | 642,734 |   |
| Short-term borrowings        |   |           | 11,402  |   |              |   | 11,402 |   |   |   | 21,691 |   |   |   | 21,691 |   |
| Long-term debt               |   |           | 22,402  |   |              |   | 23,438 |   |   |   | 23,120 |   |   |   | 24,217 |   |

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INDEX

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INDEX

|                                                                |   | For the Three Months |   |
|---------------------------------------------------------------------|--------|----------------------|--------|
|                                                                |   | Ended March 31,      |   |
|                                                                |   | 2011                 |   |   | 2010 |   |
|                                                                |   |                 |   |   |   |   |
| Dakin Insurance Agency financial results:                           |   |                 |   |   |   |   |
|   Revenue                                                 |   | $                    | 381    |   |   |   | 421 |   |
|   Non-interest expenses                                   |   |                 | 303    |   |   |   | 313 |   |
|   Income from operations before income taxes              |   |                 | 78     |   |   |   | 108 |   |
| Gain from sale of insurance agency                                  |   |                 | 1,503  |   |   |   | — |   |
| Closing costs related to sale                                       |   |                 | (47    | ) |   |   | — |   |
| Curtailment expense on nonqualified defined benefit retirement plan |   |                 | (191   | ) |   |   | — |   |
| Provision for income taxes                                          |   |                 | (519   | ) |   |   | (37 | ) |
| Total income from discontinued operations, net of taxes             |   |                 | 824    |   |   |   | 71 |   |

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INDEX

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

|   | /s/ J.D. Cloud & Co. L.L.P. |   |
|--------|---------------------------------|--------|

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INDEX

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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INDEX

|                                                                      |   | Three Months Ended March 31, |    |
|---------------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                      |   | 2011                         |    |   | 2010 |   |
|                                                                      |   | AverageOutstandingBalance    |    |   | InterestEarned/Paid |   |   | AverageYield/Rate |   |   | AverageOutstandingBalance |   |   | InterestEarned/Paid |   |   | AverageYield/Rate |   |
|                                                                      |   | (Dollars in thousands)       |    |
|                                                                      |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans (1)                                                                 |   | $                            | 457,385 |   |   |   | 6,518 |   |   |   | 5.78 | % |   | $ | 458,503 |   |   | $ | 6,832 |   |   |   | 6.04 | % |
| Interest-bearing demand deposits                                          |   |                         | 10,730  |   |   |   | 5 |   |   |   | 0.19 | % |   |   | 10,105 |   |   |   | 8 |   |   |   | 0.32 | % |
| Federal Reserve Bank stock                                                |   |                         | 939     |   |   |   | - |   |   |   | - | % |   |   | 940 |   |   |   | - |   |   |   | - | % |
| Federal Home Loan Bank stock                                              |   |                         | 2,091   |   |   |   | 24 |   |   |   | 4.65 | % |   |   | 2,091 |   |   |   | 24 |   |   |   | 4.65 | % |
| Investment securities:                                                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                   |   |                         | 150,346 |   |   |   | 876 |   |   |   | 2.36 | % |   |   | 118,537 |   |   |   | 930 |   |   |   | 3.18 | % |
| Non-taxable (2)                                                           |   |                         | 82,810  |   |   |   | 1,071 |   |   |   | 5.25 | % |   |   | 86,068 |   |   |   | 1,224 |   |   |   | 5.77 | % |
| Total interest-earning assets                                             |   |                         | 704,301 |   |   |   | 8,494 |   |   |   | 4.89 | % |   |   | 676,244 |   |   |   | 9,018 |   |   |   | 5.41 | % |
| Non-earning assets                                                        |   |                         | 65,988  |   |   |   |   |   |   |   |   |   |   |   | 70,885 |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses                                                 |   |                         | (2,613  | ) |   |   |   |   |   |   |   |   |   |   | (3,003 | ) |   |   |   |   |   |   |   |   |
| Total assets                                                              |   | $                            | 767,676 |   |   |   |   |   |   |   |   |   |   | $ | 744,126 |   |   |   |   |   |   |   |   |   |
|                                                                      |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits                                                 |   | $                            | 556,186 |   |   |   | 1,584 |   |   |   | 1.16 | % |   |   | 547,394 |   |   |   | 1,976 |   |   |   | 1.46 | % |
| Short-term borrowings                                                     |   |                         | 12,836  |   |   |   | 10 |   |   |   | 0.32 | % |   |   | 8,000 |   |   |   | 9 |   |   |   | 0.46 | % |
| Long-term debt                                                            |   |                         | 25,485  |   |   |   | 178 |   |   |   | 2.83 | % |   |   | 24,574 |   |   |   | 177 |   |   |   | 2.92 | % |
| Total interest-bearing liabilities                                        |   |                         | 594,507 |   |   |   | 1,772 |   |   |   | 1.21 | % |   |   | 579,968 |   |   |   | 2,162 |   |   |   | 1.51 | % |
| Demand deposits                                                           |   |                         | 96,866  |   |   |   |   |   |   |   |   |   |   |   | 91,687 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                         |   |                         | 5,333   |   |   |   |   |   |   |   |   |   |   |   | 5,356 |   |   |   |   |   |   |   |   |   |
| Capital                                                                   |   |                         | 70,970  |   |   |   |   |   |   |   |   |   |   |   | 67,115 |   |   |   |   |   |   |   |   |   |
| Total liabilities and capital                                             |   | $                            | 767,676 |   |   |   |   |   |   |   |   |   |   | $ | 744,126 |   |   |   |   |   |   |   |   |   |
|                                                                      |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest rate spread (3)                                              |   |                         |    |   |   |   |   |   |   |   | 3.68 | % |   |   |   |   |   |   |   |   |   |   | 3.90 | % |
|                                                                      |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income and net interest margin on a tax-equivalent basis (4) |   |                         |    |   |   |   | 6,722 |   |   |   | 3.87 | % |   |   |   |   |   | $ | 6,856 |   |   |   | 4.11 | % |
|                                                                      |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of interest-earning assets to interest-bearing liabilities          |   |                         | 118.47  | % |   |   |   |   |   |   |   |   |   |   | 116.60 | % |   |   |   |   |   |   |   |   |

| (1) | Includes nonaccrual loans if any. |
|-----|-----------------------------------|

| (2) | Income from tax-exempt securities is included in interest income on a tax-equivalent basis.  Interest income has been divided by a factor comprised of the complement of the incremental tax rate of 34%. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | The net interest rate spread is the difference between the average rate on total interest-earning assets and interest-bearing liabilities. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The net interest margin is the tax-equivalent net interest income divided by average interest-earning assets. |
|-----|---------------------------------------------------------------------------------------------------------------|

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INDEX

|                             |   | Three Months EndedMarch 31,2011 vs. 2010 |    |
|----------------------------------|--------|------------------------------------------|---------|
|                             |   | Increase (decrease) due to:              |    |
|                             |   | Volume                                   |    |   | Rate |   |   | Total |   |
|                             |   | (In thousands)                           |    |
| Interest-earning Assets:         |   |                                     |    |   |   |   |   |   |   |
| Loans                            |   | $                                        | (17     | ) |   |   | (297 | ) |   |   | (314 | ) |
| Interest-bearing demand deposits |   |                                     | — |   |   |   | (3 | ) |   |   | (3 | ) |
| Investment securities:           |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Taxable                          |   |                                     | 217     |   |   |   | (271 | ) |   |   | (54 | ) |
| Nontaxable                       |   |                                     | (45     | ) |   |   | (108 | ) |   |   | (153 | ) |
| Total interest income            |   |                                     | 155     |   |   |   | (679 | ) |   |   | (524 | ) |
|                             |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Interest-bearing Liabilities:    |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Deposits                         |   |                                     | 31      |   |   |   | (423 | ) |   |   | (392 | ) |
| Short-term borrowings            |   |                                     | 4       |   |   |   | (3 | ) |   |   | 1 |   |
| Long-term debt                   |   |                                     | 6       |   |   |   | (5 | ) |   |   | 1 |   |
| Total interest expense           |   |                                     | 41      |   |   |   | (431 | ) |   |   | (390 | ) |
| Net interest income              |   | $                                        | 114     |   |   |   | (248 | ) |   |   | (134 | ) |

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INDEX

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INDEX

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INDEX

Item 3.  Quantitative and Qualitative Disclosures about Market Risks

| Rate Shock Scenario inBasis Points |   |  Amount           |   |   | $ Change inNII |   |    | % Change in NII |   |
|------------------------------------|--------|------------------------|--------|--------|----------------|--------|---------|----------------------|--------|
|                               |   | (Dollars in thousands) |   |
| Up 300                             |   | $                      | 26,373 |   |           |   | 747     |                 |   |   | 2.92 | % |
| Up 200                             |   |                   | 26,095 |   |           |   | 469     |                 |   |   | 1.83 | % |
| Up 100                             |   |                   | 25,809 |   |           |   | 183     |                 |   |   | 0.71 | % |
| Base                               |   |                   | 25,626 |   |           |   | — |                 |   |   | — | % |
| Down 100                           |   |                   | 25,514 |   |           |   | (112    | )                    |   |   | -0.44 | % |

| Rate Shock Scenario inBasis Points |   | Amount                 |   |   | $ Change in EVE |   |    | % Change inEVE  |   |
|------------------------------------|--------|------------------------|--------|--------|----------------------|--------|---------|----------------------|--------|
|                               |   | (Dollars in thousands) |   |
| Up 300                             |   | $                      | 70,125 |   |                 |   | (18,389 | )                    |   |   | -20.78 | % |
| Up 200                             |   |                   | 75,807 |   |                 |   | (12,707 | )                    |   |   | -14.36 | % |
| Up 100                             |   |                   | 81,859 |   |                 |   | (6,655  | )                    |   |   | -7.52 | % |
| Base                               |   |                   | 88,514 |   |                 |   | — |                 |   |   | — | % |
| Down 100                           |   |                   | 95,059 |   |                 |   | 6,545   |                 |   |   | 7.39 | % |

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INDEX

Item 4.  Controls and Procedures

Item 4T.  Controls and Procedures

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INDEX

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A.  Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Item 4. (Removed and Reserved).

Item 5. Other Information

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INDEX

Item 6.     Exhibits

| Exhibit No. |   | Exhibit Description |
|-------------|--------|---------------------|
|        | 3.1    |                | Amended and Restated Articles of Incorporation of LCNB Corp., as amended – incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010, Exhibit 3.1. |
|        |   |                |   |
|        | 3.2    |                | Code of Regulations of LCNB Corp. – incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005, Exhibit 3(ii). |
|        |   |                |   |
|        | 4.1    |                | Warrant to Purchase Shares of Common Stock of the Registrant, dated January 9, 2009 – incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 9, 2009, Exhibit 4.1. |
|        |   |                |   |
|        | 4.2    |                | Letter Agreement, dated as of January 9, 2009 between the Registrant and the U.S. Department of the Treasury, which includes the Securities Purchase Agreement – Standard Terms – incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 9, 2009, Exhibit 10.1. |
|        |   |                |   |
|        | 4.3    |                | Substitute Warrant to Purchase Shares of Common Stock of the Registrant, dated January 9, 2009 - incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009, Exhibit 4.3. |
|        |   |                |   |
|        | 4.4    |                | Repurchase Letter Agreement, dated as of October 21, 2009 between the Registrant and the U.S. Department of the Treasury – incorporated by reference to the Registrant’s Current Report on Form 8-K filed on October 21, 2009, Exhibit 10.1. |
|        |   |                |   |
|        | 31.1   |                | Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
|        |   |                |   |
|        | 31.2   |                | Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
|        |   |                |   |
|        | 32     |                | Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |

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INDEX

SIGNATURES

|        |   | LCNB Corp.                    |   |
|-------------|--------|------------------------------------|--------|
|        |   |                               |   |
| May 2, 2011 |   | /s/ Stephen P. Wilson              |   |
|        |   | Stephen P. Wilson, CEO &       |   |
|        |   | Chairman of the Board of Directors |   |

| May 2, 2011 |   | /s/ Robert C. Haines, II                  |   |
|-------------|--------|------------------------------------------------|--------|
|        |   | Robert C. Haines, II, Executive Vice President |   |
|        |   | and Chief Financial Officer                    |   |

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