----

----

| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|---|-----------------------------------------------------------------------------------------|

|  ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|--------|------------------------------------------------------------------------------------------|

| Virginia                                                       | 54-1288193                           |
|----------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |

| 10 Courthouse Square, Warrenton, Virginia | 20186      |
|-------------------------------------------|------------|
| (Address of principal executive offices)  | (Zip Code) |

----

----

----

FAU

| Part I. FINANCIAL INFORMATION |                                                                                                                               |
|-------------------------------|------------------------------------------------------------------------------------------------------------------------------------|
|                          |                                                                                                                               | Page |
|                          |                                                                                                                               |   |
| Item 1.                       | Financial Statements                                                                                                               | 3 |
|                          |                                                                                                                               |   |
|                          | Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009                                             | 3 |
|                          |                                                                                                                               |   |
|                          | Consolidated Statements of Income (unaudited) for the Three Months Ended September 30, 2010 and 2009                               | 4 |
|                          |                                                                                                                               |   |
|                          | Consolidated Statements of Income (unaudited) for the Nine Months Ended September 30, 2010 and 2009                                | 5 |
|                          |                                                                                                                               |   |
|                          | Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the Nine Months Ended September 30, 2010 and 2009 | 6 |
|                          |                                                                                                                               |   |
|                          | Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2010 and 2009                            | 7 |
|                          |                                                                                                                               |   |
|                          | Notes to Consolidated Financial Statements                                                                                         | 8 |
|                          |                                                                                                                               |   |
| Item 2.                       | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                        | 25 |
|                          |                                                                                                                               |   |
| Item 3.                       | Quantitative and Qualitative Disclosures About Market Risk                                                                         | 42 |
|                          |                                                                                                                               |   |
| Item 4.                       | Controls and Procedures                                                                                                            | 43  |
|                          |                                                                                                                               |   |
| Part II. OTHER INFORMATION    |                                                                                                                               |
|                          |                                                                                                                               |   |
| Item 1.                       | Legal Proceedings                                                                                                                  | 43 |
|                          |                                                                                                                               |   |
| Item 1A.                      | Risk Factors                                                                                                                       | 43 |
|                          |                                                                                                                               |   |
| Item 2.                       | Unregistered Sales of Equity Securities and Use of Proceeds                                                                        | 43 |
|                          |                                                                                                                               |   |
| Item 3.                       | Defaults Upon Senior Securities                                                                                                    | 43 |
|                          |                                                                                                                               |   |
| Item 4.                       | Removed and Reserved                                                                                                               | 44 |
|                          |                                                                                                                               |   |
| Item 5.                       | Other Information                                                                                                                  | 44 |
|                          |                                                                                                                               |   |
| Item 6.                       | Exhibits                                                                                                                           | 44 |
|                          |                                                                                                                               |   |
| SIGNATURES                    | 44                                                                                                                                 |

----

Index

IT

Fa

|                                                                                                                                                                                                                       |   | September 30, |        |   | December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-------------|--------|--------------|--------|
|                                                                                                                                                                                                                       |   | 2010          |        |   | 2009         |   |
|                                                                                                                                                                                                                       |   | (Unaudited)   |        |   | (Audited)    |   |
|                                                                                                                                                                                                                       |   |          |        |   |         |   |
| Assets                                                                                                                                                                                                                     |   |          |        |   |         |   |
| Cash and due from banks                                                                                                                                                                                                    |   | $             | 5,703,579   |   |         | $      | 5,652,617 |   |
| Interest-bearing deposits in other banks                                                                                                                                                                                   |   |          | 68,070,938  |   |         |   | 20,546,596 |   |
| Federal funds sold                                                                                                                                                                                                         |   |          | 7,302       |   |         |   | 9,154 |   |
| Securities available for sale                                                                                                                                                                                              |   |          | 46,986,127  |   |         |   | 36,692,094 |   |
| Restricted investments                                                                                                                                                                                                     |   |          | 3,514,900   |   |         |   | 3,774,700 |   |
| Loans, net of allowance for loan losses of $5,730,512 in 2010 and $5,481,963 in 2009                                                                                                                                       |   |          | 459,785,130 |   |         |   | 462,783,962 |   |
| Bank premises and equipment, net                                                                                                                                                                                           |   |          | 14,469,773  |   |         |   | 14,025,745 |   |
| Accrued interest receivable                                                                                                                                                                                                |   |          | 1,592,518   |   |         |   | 1,495,085 |   |
| Other real estate owned, net of valuation allowance                                                                                                                                                                        |   |          | 2,821,000   |   |         |   | 2,479,860 |   |
| Other assets                                                                                                                                                                                                               |   |          | 21,401,815  |   |         |   | 21,022,655 |   |
| Total assets                                                                                                                                                                                                               |   | $             | 624,353,082 |   |         | $      | 568,482,468 |   |
|                                                                                                                                                                                                                       |   |          |        |   |         |   |   |   |
|                                                                                                                                                                                                                       |   |          |        |   |         |   |   |   |
| Liabilities and Shareholders' Equity                                                                                                                                                                                       |   |          |        |   |         |   |   |   |
| Deposits:                                                                                                                                                                                                                  |   |          |        |   |         |   |   |   |
| Noninterest-bearing                                                                                                                                                                                                        |   |          | 67,620,634  |   |         |   | 68,469,699 |   |
| Interest-bearing:                                                                                                                                                                                                          |   |          |        |   |         |   |   |   |
| NOW accounts                                                                                                                                                                                                               |   |          | 166,169,865 |   |         |   | 83,395,687 |   |
| Savings accounts                                                                                                                                                                                                           |   |          | 50,347,207  |   |         |   | 47,718,188 |   |
| Money market accounts                                                                                                                                                                                                      |   |          | 68,001,961  |   |         |   | 58,740,375 |   |
| Time certificates of deposit                                                                                                                                                                                               |   |          | 193,182,911 |   |         |   | 207,662,808 |   |
| Total interest-bearing                                                                                                                                                                                                     |   |          | 477,701,944 |   |         |   | 397,517,058 |   |
| Total deposits                                                                                                                                                                                                             |   |          | 545,322,578 |   |         |   | 465,986,757 |   |
|                                                                                                                                                                                                                       |   |          |        |   |         |   |   |   |
| Federal funds purchased                                                                                                                                                                                                    |   |          | -           |   |         |   | - |   |
| Federal Home Loan Bank advances                                                                                                                                                                                            |   |          | 25,000,000  |   |         |   | 50,000,000 |   |
| Company-obligated mandatorily redeemable capital securities                                                                                                                                                                |   |          | 4,124,000   |   |         |   | 4,124,000 |   |
| Other liabilities                                                                                                                                                                                                          |   |          | 5,797,876   |   |         |   | 5,732,869 |   |
| Commitments and contingencies                                                                                                                                                                                              |   |          | -           |   |         |   | - |   |
| Total liabilities                                                                                                                                                                                                          |   |          | 580,244,454 |   |         |   | 525,843,626 |   |
|                                                                                                                                                                                                                       |   |          |        |   |         |   |   |   |
| Shareholders' Equity                                                                                                                                                                                                       |   |          |        |   |         |   |   |   |
| Common stock, par value, $3.13; authorized 8,000,000 shares: issued and outstanding, 2010: 3,636,758 shares (includes nonvested shares of 33,772);  2009: 3,594,685 shares (includes nonvested shares of 47,282) |   |          | 11,277,346  |   |         |   | 11,103,371 |   |
| Retained earnings                                                                                                                                                                                                          |   |          | 34,439,061  |   |         |   | 33,458,933 |   |
| Accumulated other comprehensive income (loss), net                                                                                                                                                                         |   |          | (1,607,779  | )      |         |   | (1,923,462 | ) |
| Total shareholders' equity                                                                                                                                                                                                 |   |          | 44,108,628  |   |         |   | 42,638,842 |   |
|                                                                                                                                                                                                                       |   |          |        |   |         |   |   |   |
| Total liabilities and shareholders' equity                                                                                                                                                                                 |   | $             | 624,353,082 |   |         | $      | 568,482,468 |   |

----

Index

Fa

|                                                                                                                                                                                                                                                                                |   | 2010   |      |   | 2009   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Interest Income                                                                                                                                                                                                                                                                     |   |   |      |   |   |   |
| Interest and fees on loans                                                                                                                                                                                                                                                          |   | $      | 6,758,535 |   |   | $      | 6,741,498 |   |
| Interest and dividends on securities available for sale:                                                                                                                                                                                                                            |   |   |      |   |   |   |   |   |
| Taxable interest income                                                                                                                                                                                                                                                             |   |   | 290,865   |   |   |   | 307,862 |   |
| Interest income exempt from federal income taxes                                                                                                                                                                                                                                    |   |   | 56,352    |   |   |   | 59,374 |   |
| Dividends                                                                                                                                                                                                                                                                           |   |   | 8,259     |   |   |   | 22,291 |   |
| Interest on federal funds sold                                                                                                                                                                                                                                                      |   |   | 5         |   |   |   | 38 |   |
| Interest on deposits in other banks                                                                                                                                                                                                                                                 |   |   | 13,853    |   |   |   | 4,511 |   |
| Total interest income                                                                                                                                                                                                                                                               |   |   | 7,127,869 |   |   |   | 7,135,574 |   |
|                                                                                                                                                                                                                                                                                |   |   |      |   |   |   |   |   |
| Interest Expense                                                                                                                                                                                                                                                                    |   |   |      |   |   |   |   |   |
| Interest on deposits                                                                                                                                                                                                                                                                |   |   | 1,279,051 |   |   |   | 1,310,379 |   |
| Interest on federal funds purchased                                                                                                                                                                                                                                                 |   |   | 1,278     |   |   |   | 15,698 |   |
| Interest on Federal Home Loan Bank advances                                                                                                                                                                                                                                         |   |   | 254,361   |   |   |   | 274,382 |   |
| Distribution on capital securities of subsidiary trusts                                                                                                                                                                                                                             |   |   | 27,295    |   |   |   | 23,483 |   |
| Total interest expense                                                                                                                                                                                                                                                              |   |   | 1,561,985 |   |   |   | 1,623,942 |   |
|                                                                                                                                                                                                                                                                                |   |   |      |   |   |   |   |   |
| Net interest income                                                                                                                                                                                                                                                                 |   |   | 5,565,884 |   |   |   | 5,511,632 |   |
|                                                                                                                                                                                                                                                                                |   |   |      |   |   |   |   |   |
| Provision for loan losses                                                                                                                                                                                                                                                           |   |   | 700,000   |   |   |   | 360,000 |   |
|                                                                                                                                                                                                                                                                                |   |   |      |   |   |   |   |   |
| Net interest income after provision for loan losses                                                                                                                                                                                                                                 |   |   | 4,865,884 |   |   |   | 5,151,632 |   |
|                                                                                                                                                                                                                                                                                |   |   |      |   |   |   |   |   |
| Other Income                                                                                                                                                                                                                                                                        |   |   |      |   |   |   |   |   |
| Wealth management income                                                                                                                                                                                                                                                            |   |   | 365,242   |   |   |   | 317,811 |   |
| Service charges on deposit accounts                                                                                                                                                                                                                                                 |   |   | 752,147   |   |   |   | 700,521 |   |
| Other service charges, commissions and income                                                                                                                                                                                                                                       |   |   | 421,272   |   |   |   | 338,334 |   |
| (Loss) on sale or impairment of other real estate owned                                                                                                                                                                                                                             |   |   | (58,671   | )      |   |   | - |   |
| Gain on sale of investments                                                                                                                                                                                                                                                         |   |   | 465,209   |   |   |   | - |   |
| Net other than temporary impairment losses on securities recognized in earnings (includes total other than temporary impairment losses of $303,035, net of $198,881 gain recognized in other comprehensive income for the three months ended September 30, 2010 before tax benefit) |   |   | (501,916  | )      |   |   | (245,741 | ) |
| Total other income                                                                                                                                                                                                                                                                  |   |   | 1,443,283 |   |   |   | 1,110,925 |   |
| Other Expenses                                                                                                                                                                                                                                                                      |   |   |      |   |   |   |   |   |
| Salaries and benefits                                                                                                                                                                                                                                                               |   |   | 2,644,321 |   |   |   | 2,677,232 |   |
| Net occupancy expense of premises                                                                                                                                                                                                                                                   |   |   | 453,877   |   |   |   | 387,895 |   |
| Furniture and equipment                                                                                                                                                                                                                                                             |   |   | 322,588   |   |   |   | 259,107 |   |
| Marketing expense                                                                                                                                                                                                                                                                   |   |   | 175,817   |   |   |   | 184,127 |   |
| Legal, audit and consulting expense                                                                                                                                                                                                                                                 |   |   | 246,027   |   |   |   | 220,023 |   |
| Federal Deposit Insurance Corporation expense                                                                                                                                                                                                                                       |   |   | 173,881   |   |   |   | 145,050 |   |
| Data processing expense                                                                                                                                                                                                                                                             |   |   | 239,806   |   |   |   | 232,563 |   |
| Other operating expenses                                                                                                                                                                                                                                                            |   |   | 732,153   |   |   |   | 877,643 |   |
| Total other expenses                                                                                                                                                                                                                                                                |   |   | 4,988,470 |   |   |   | 4,983,640 |   |
|                                                                                                                                                                                                                                                                                |   |   |      |   |   |   |   |   |
| Income before income taxes                                                                                                                                                                                                                                                          |   |   | 1,320,697 |   |   |   | 1,278,917 |   |
|                                                                                                                                                                                                                                                                                |   |   |      |   |   |   |   |   |
| Income tax expense                                                                                                                                                                                                                                                                  |   |   | 338,328   |   |   |   | 322,982 |   |
|                                                                                                                                                                                                                                                                                |   |   |      |   |   |   |   |   |
| Net Income                                                                                                                                                                                                                                                                          |   | $      | 982,369   |   |   | $      | 955,935 |   |
|                                                                                                                                                                                                                                                                                |   |   |      |   |   |   |   |   |
| Earnings per Share, basic                                                                                                                                                                                                                                                           |   | $      | 0.27      |   |   | $      | 0.27 |   |
|                                                                                                                                                                                                                                                                                |   |   |      |   |   |   |   |   |
| Earnings per Share, assuming dilution                                                                                                                                                                                                                                               |   | $      | 0.27      |   |   | $      | 0.26 |   |
|                                                                                                                                                                                                                                                                                |   |   |      |   |   |   |   |   |
| Dividends per Share                                                                                                                                                                                                                                                                 |   | $      | 0.20      |   |   | $      | 0.20 |   |

----

Index

Fa

|                                                                                                                                                                                                                                                                               |   | 2010   |       |   | 2009   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Interest Income                                                                                                                                                                                                                                                                    |   |   |       |   |   |   |
| Interest and fees on loans                                                                                                                                                                                                                                                         |   | $      | 20,172,788 |   |   | $      | 19,587,882 |   |
| Interest and dividends on securities available for sale:                                                                                                                                                                                                                           |   |   |       |   |   |   |   |   |
| Taxable interest income                                                                                                                                                                                                                                                            |   |   | 896,126    |   |   |   | 980,004 |   |
| Interest income exempt from federal income taxes                                                                                                                                                                                                                                   |   |   | 172,329    |   |   |   | 178,759 |   |
| Dividends                                                                                                                                                                                                                                                                          |   |   | 21,726     |   |   |   | 42,519 |   |
| Interest on federal funds sold                                                                                                                                                                                                                                                     |   |   | 16         |   |   |   | 194 |   |
| Interest on deposits in other banks                                                                                                                                                                                                                                                |   |   | 37,931     |   |   |   | 11,488 |   |
| Total interest income                                                                                                                                                                                                                                                              |   |   | 21,300,916 |   |   |   | 20,800,846 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Interest Expense                                                                                                                                                                                                                                                                   |   |   |       |   |   |   |   |   |
| Interest on deposits                                                                                                                                                                                                                                                               |   |   | 3,891,083  |   |   |   | 4,310,152 |   |
| Interest on federal funds purchased                                                                                                                                                                                                                                                |   |   | 1,314      |   |   |   | 38,544 |   |
| Interest on Federal Home Loan Bank advances                                                                                                                                                                                                                                        |   |   | 720,142    |   |   |   | 770,743 |   |
| Distribution on capital securities of subsidiary trusts                                                                                                                                                                                                                            |   |   | 67,124     |   |   |   | 88,703 |   |
| Total interest expense                                                                                                                                                                                                                                                             |   |   | 4,679,663  |   |   |   | 5,208,142 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Net interest income                                                                                                                                                                                                                                                                |   |   | 16,621,253 |   |   |   | 15,592,704 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Provision for loan losses                                                                                                                                                                                                                                                          |   |   | 1,450,000  |   |   |   | 920,000 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Net interest income after provision for loan losses                                                                                                                                                                                                                                |   |   | 15,171,253 |   |   |   | 14,672,704 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Other Income                                                                                                                                                                                                                                                                       |   |   |       |   |   |   |   |   |
| Wealth management income                                                                                                                                                                                                                                                           |   |   | 1,027,649  |   |   |   | 814,855 |   |
| Service charges on deposit accounts                                                                                                                                                                                                                                                |   |   | 2,019,088  |   |   |   | 2,026,642 |   |
| Other service charges, commissions and income                                                                                                                                                                                                                                      |   |   | 1,145,354  |   |   |   | 1,157,138 |   |
| (Loss) on sale or impairment of other real estate owned                                                                                                                                                                                                                            |   |   | (119,810   | )      |   |   | (135,759 | ) |
| Gain on sale of investments                                                                                                                                                                                                                                                        |   |   | 552,627    |   |   |   | - |   |
| Net other than temporary impairment losses on securities recognized in earnings (includes total other than temporary impairment losses of $579,313, net of $398,276 gain recognized in other comprehensive income for the nine months ended September 30, 2010 before tax benefit) |   |   | (977,589   | )      |   |   | (412,129 | ) |
| Total other income                                                                                                                                                                                                                                                                 |   |   | 3,647,319  |   |   |   | 3,450,747 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Other Expenses                                                                                                                                                                                                                                                                     |   |   |       |   |   |   |   |   |
| Salaries and benefits                                                                                                                                                                                                                                                              |   |   | 7,894,945  |   |   |   | 7,362,842 |   |
| Net occupancy expense of premises                                                                                                                                                                                                                                                  |   |   | 1,397,183  |   |   |   | 1,013,204 |   |
| Furniture and equipment                                                                                                                                                                                                                                                            |   |   | 931,405    |   |   |   | 808,388 |   |
| Marketing expense                                                                                                                                                                                                                                                                  |   |   | 496,679    |   |   |   | 492,485 |   |
| Legal, audit and consulting expense                                                                                                                                                                                                                                                |   |   | 807,979    |   |   |   | 1,032,927 |   |
| Federal Deposit Insurance Corporation expense                                                                                                                                                                                                                                      |   |   | 526,960    |   |   |   | 675,150 |   |
| Data processing expense                                                                                                                                                                                                                                                            |   |   | 758,612    |   |   |   | 906,486 |   |
| Other operating expenses                                                                                                                                                                                                                                                           |   |   | 2,270,072  |   |   |   | 2,292,895 |   |
| Total other expenses                                                                                                                                                                                                                                                               |   |   | 15,083,835 |   |   |   | 14,584,377 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Income before income taxes                                                                                                                                                                                                                                                         |   |   | 3,734,737  |   |   |   | 3,539,074 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Income tax expense                                                                                                                                                                                                                                                                 |   |   | 937,903    |   |   |   | 936,550 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Net Income                                                                                                                                                                                                                                                                         |   | $      | 2,796,834  |   |   | $      | 2,602,524 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Earnings per Share, basic                                                                                                                                                                                                                                                          |   | $      | 0.77       |   |   | $      | 0.72 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Earnings per Share, assuming dilution                                                                                                                                                                                                                                              |   | $      | 0.77       |   |   | $      | 0.72 |   |
|                                                                                                                                                                                                                                                                               |   |   |       |   |   |   |   |   |
| Dividends per Share                                                                                                                                                                                                                                                                |   | $      | 0.60       |   |   | $      | 0.60 |   |

----

Index

Fa

|                                                                                          |   | Common Stock |       |   | Retained Earnings |   |       | Accumulated Other Comprehensive Income (Loss) |   |   | Comprehensive Income |   |   | Total  |      |
|-----------------------------------------------------------------------------------------------|--------|--------------|------------|--------|-------------------|--------|------------|-----------------------------------------------|--------|--------|----------------------|--------|--------|--------|-----------|
| Balance, December 31, 2008                                                                    |   | $            | 11,036,687 |   |              | $      | 32,668,530 |                                          |   | $      | (2,217,280           | )      |   |   |      |   | $ | 41,487,937 |   |
| Comprehensive income:                                                                         |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   |      |   |   |   |   |
| Net income                                                                                    |   |         |       |   |              |   | 2,602,524  |                                          |   |   |                 |   |   |   | 2,602,524 |   |   |   | 2,602,524 |   |
| Other comprehensive income net of tax:                                                        |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   |      |   |   |   |   |   |
| Unrealized holding losses on securities available for sale, net of tax of $21,446             |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   | 41,630    |   |   |   |   |   |
| Add: reclassification adjustments for other than temporary impairment, net of tax of $101,731 |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   | 310,398   |   |   |   |   |   |
| Other comprehensive income net of tax of $123,177                                             |   |         |       |   |              |   |       |                                          |   |   | 352,028              |   |   |   | 352,028   |   |   |   | 352,028 |   |
| Total comprehensive income                                                                    |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   | 2,954,552 |   |   |   |   |   |
| Cash dividends ($.60 per share)                                                               |   |         |       |   |              |   | (2,158,322 | )                                             |   |   |                 |   |   |   |      |   |   |   | (2,158,322 | ) |
| Amortization of unearned compensation,                                                        |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   |      |   |   |   |   |   |
| restricted stock awards                                                                       |   |         |       |   |              |   | 218,843    |                                          |   |   |                 |   |   |   |      |   |   |   | 218,843 |   |
| Issuance of common stock - nonvested                                                          |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   |      |   |   |   |   |   |
| shares  (10,585 shares)                                                             |   |         | 33,131     |   |              |   | (33,131    | )                                             |   |   |                 |   |   |   |      |   |   |   | - |   |
| Exercise of stock options                                                                     |   |         | 33,553     |   |              |   | 64,487     |                                          |   |   |                 |   |   |   |      |   |   |   | 98,040 |   |
| Balance, September 30, 2009                                                                   |   | $            | 11,103,371 |   |              | $      | 33,362,931 |                                          |   | $      | (1,865,252           | )      |   |   |      |   |   | $ | 42,601,050 |   |
|                                                                                          |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   |      |   |   |   |   |   |
| Balance, December 31, 2009                                                                    |   | $            | 11,103,371 |   |              | $      | 33,458,933 |                                          |   | $      | (1,923,462           | )      |   |   |      |   |   | $ | 42,638,842 |   |
| Comprehensive income:                                                                         |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   |      |   |   |   |   |   |
| Net income                                                                                    |   |         |       |   |              |   | 2,796,834  |                                          |   |   |                 |   |   | $      | 2,796,834 |   |   |   | 2,796,834 |   |
| Other comprehensive income net of tax:                                                        |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   |      |   |   |   |   |   |
| Interest rate swap (cash flow hedge), net of tax benefit of $88,131                           |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   | (171,078  | ) |   |   |   |   |
| Add: Change in beneficial obligation for defined plan, net of tax of $94,864                  |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   | 184,149   |   |   |   |   |   |
| Unrealized holding losses on securities available for sale, net of tax of $11,405             |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   | 22,137    |   |   |   |   |   |
| Less: gain on sale of securities available for sale, net net of tax benefit of $187,893       |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   | (364,734  | ) |   |   |   |   |
| Add: reclassification adjustments for other than temporary impairment, net of tax of $332,380 |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   | 645,209   |   |   |   |   |   |
| Other comprehensive income net of tax of $162,625                                             |   |         |       |   |              |   |       |                                          |   |   | 315,683              |   |   |   | 315,683   |   |   |   | 315,683 |   |
| Total comprehensive income                                                                    |   |         |       |   |              |   |       |                                          |   |   |                 |   |   |   | 3,112,517 |   |   |   |   |   |
| Cash dividends ($.60 per share)                                                               |   |         |       |   |              |   | (2,178,612 | )                                             |   |   |                 |   |   |   |      |   |   |   | (2,178,612 | ) |
| Amortization of unearned compensation, restricted stock awards                                |   |         |       |   |              |   | 281,848    |                                          |   |   |                 |   |   |   |      |   |   |   | 281,848 |   |
| Issuance of common stock - nonvested shares (28,847 shares)                                   |   |         | 90,291     |   |              |   | (90,291    | )                                             |   |   |                 |   |   |   |      |   |   |   | - |   |
| Issuance of common stock - vested shares (6,522 shares)                                       |   |         | 20,414     |   |              |   | 69,459     |                                          |   |   |                 |   |   |   |      |   |   |   | 89,873 |   |
| Exercise of stock options                                                                     |   |         | 63,270     |   |              |   | 100,890    |                                          |   |   |                 |   |   |   |      |   |   |   | 164,160 |   |
| Balance, September 30, 2010                                                                   |   | $            | 11,277,346 |   |              | $      | 34,439,061 |                                          |   | $      | (1,607,779           | )      |   |   |      |   |   | $ | 44,108,628 |   |

----

Index

F

|                                                                                    |   | 2010    |        |   | 2009   |    |
|-----------------------------------------------------------------------------------------|--------|---------|-------------|--------|--------|---------|
| Cash Flows from Operating Activities                                                    |   |    |        |   |   |    |
| Net income                                                                              |   | $       | 2,796,834   |   |   | $       | 2,602,524 |   |
| Adjustments to reconcile net income to net cash provided by operating activities:       |   |    |        |   |   |    |   |   |
| Depreciation and amortization                                                           |   |    | 931,407     |   |   |    | 602,622 |   |
| Provision for loan losses                                                               |   |    | 1,450,000   |   |   |    | 920,000 |   |
| Loss on impairment of other real estate                                                 |   |    | 58,085      |   |   |    | - |   |
| Loss on sale of other real estate                                                       |   |    | 61,725      |   |   |    | 135,759 |   |
| (Gain) on sale of securities                                                            |   |    | (552,627    | )      |   |    | - |   |
| Loss on impairment of securities                                                        |   |    | 977,589     |   |   |    | 412,129 |   |
| Amortization (accretion) of security premiums, net                                      |   |    | 50,431      |   |   |    | (32,079 | ) |
| Amortization of unearned compensation, net of forfeiture                                |   |    | 281,848     |   |   |    | 218,843 |   |
| Changes in assets and liabilities:                                                      |   |    |        |   |   |    |   |   |
| (Increase) in other assets                                                              |   |    | (639,219    | )      |   |    | (257,471 | ) |
| Increase in other liabilities                                                           |   |    | 84,810      |   |   |    | 757,163 |   |
| Net cash provided by operating activities                                               |   |    | 5,500,883   |   |   |    | 5,359,490 |   |
|                                                                                    |   |    |        |   |   |    |   |   |
| Cash Flows from Investing Activities                                                    |   |    |        |   |   |    |   |   |
| Proceeds from sale of securities available for sale                                     |   |    | 10,499,027  |   |   |    | - |   |
| Proceeds from maturities, calls and principal payments of securities available for sale |   |    | 12,027,291  |   |   |    | 7,127,108 |   |
| Purchase of securities available for sale                                               |   |    | (32,837,240 | )      |   |    | (6,689,614 | ) |
| Purchase of premises and equipment                                                      |   |    | (1,375,435  | )      |   |    | (4,808,664 | ) |
| Sale proceeds (purchase) of other bank stock                                            |   |    | 259,800     |   |   |    | (719,900 | ) |
| Net decrease (increase) in loans                                                        |   |    | 270,832     |   |   |    | (21,632,692 | ) |
| Proceeds from sale of other real estate owned                                           |   |    | 817,050     |   |   |    | 869,626 |   |
| Net cash used in investing activities                                                   |   |    | (10,338,675 | )      |   |    | (25,854,136 | ) |
|                                                                                    |   |    |        |   |   |    |   |   |
| Cash Flows from Financing Activities                                                    |   |    |        |   |   |    |   |   |
| Net increase in demand deposits, NOW accounts and savings accounts                      |   |    | 93,815,718  |   |   |    | 2,136,077 |   |
| Net (decrease) increase in certificates of deposit                                      |   |    | (14,479,897 | )      |   |    | 33,137,651 |   |
| Federal Home Loan Bank advances                                                         |   |    | -           |   |   |    | 170,000,000 |   |
| Federal Home Loan Bank principal repayments                                             |   |    | (25,000,000 | )      |   |    | (165,000,000 | ) |
| Purchase of federal funds                                                               |   |    | -           |   |   |    | (8,275,000 | ) |
| Cash dividends paid on common stock                                                     |   |    | (2,178,612  | )      |   |    | (2,158,322 | ) |
| Issuance of common stock                                                                |   |    | 254,033     |   |   |    | 98,040 |   |
| Net cash provided by financing activities                                               |   |    | 52,411,242  |   |   |    | 29,938,446 |   |
|                                                                                    |   |    |        |   |   |    |   |   |
| Increase in cash and cash equivalents                                                   |   |    | 47,573,450  |   |   |    | 9,443,800 |   |
|                                                                                    |   |    |        |   |   |    |   |   |
| Cash and Cash Equivalents                                                               |   |    |        |   |   |    |   |   |
| Beginning                                                                               |   |    | 26,208,367  |   |   |    | 11,023,162 |   |
|                                                                                    |   |    |        |   |   |    |   |   |
| Ending                                                                                  |   | $       | 73,781,817  |   |   | $       | 20,466,962 |   |
| Supplemental Disclosures of Cash Flow Information                                       |   |    |        |   |   |    |   |   |
|                                                                                    |   |    |        |   |   |    |   |   |
| Cash payments for:                                                                      |   |    |        |   |   |    |   |   |
| Interest                                                                                |   | $       | 4,746,676   |   |   | $       | 5,419,609 |   |
|                                                                                    |   |    |        |   |   |    |   |   |
| Income taxes                                                                            |   | $       | 1,596,000   |   |   | $       | 1,106,000 |   |
|                                                                                    |   |    |        |   |   |    |   |   |
| Supplemental Disclosures of Noncash Investing Activities                                |   |    |        |   |   |    |   |   |
|                                                                                    |   |    |        |   |   |    |   |   |
| Unrealized gain on securities available for sale, net of tax effect                     |   | $       | 22,137      |   |   | $       | 41,630 |   |
|                                                                                    |   |    |        |   |   |    |   |   |
| Change in market value of interest rate swaps                                           |   | $  | (171,000    | )      |   | $  | - |   |
|                                                                                    |   |    |        |   |   |    |   |   |
| Other real estate acquired in settlement of loans                                       |   | $       | 1,278,000   |   |   | $       | - |   |

----

Index

F

| Note 1. | General |
|---------|---------|

----

Index

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

----

Index

|                                                     |   | AmortizedCost      |       |   | GrossUnrealizedGains |   |      | GrossUnrealized(Losses) |   |   | FairValue  |   |
|----------------------------------------------------------|--------|--------------------|------------|--------|----------------------|--------|-----------|-------------------------|--------|--------|------------|--------|
|                                                     |   | September 30, 2010 |       |
| Obligations of U.S. Government corporations and agencies |   | $                  | 38,744,005 |   |                 | $      | 666,456   |                    |   | $      | (1,415     | )      |   | $ | 39,409,046 |   |
| Obligations of states and political subdivisions         |   |               | 5,467,817  |   |                 |   | 438,189   |                    |   |   | -          |   |   |   | 5,906,006 |   |
| Corporate Bonds                                          |   |               | 4,363,697  |   |                 |   | -         |                    |   |   | (3,030,554 | )      |   |   | 1,333,143 |   |
| Mutual Funds                                             |   |               | 324,216    |   |                 |   | 7,216     |                    |   |   | -          |   |   |   | 331,432 |   |
| FHLMC Preferred Bank Stock                               |   |               | 18,500     |   |                 |   | -         |                    |   |   | (12,000    | )      |   |   | 6,500 |   |
|                                                     |   | $                  | 48,918,235 |   |                 | $      | 1,111,861 |                    |   | $      | (3,043,969 | )      |   | $ | 46,986,127 |   |
|                                                     |   |               |       |   |                 |   |      |                    |   |   |       |   |   |   |   |   |
|                                                     |   | AmortizedCost      |       |   | GrossUnrealizedGains |   |      | GrossUnrealized(Losses) |   |   | FairValue  |   |
|                                                     |   | December 31, 2009  |       |
| Obligations of U.S. Government corporations and agencies |   | $                  | 27,837,619 |   |                 | $      | 916,798   |                    |   | $      | (25,592    | )      |   | $ | 28,728,825 |   |
| Obligations of states and political subdivisions         |   |               | 5,569,586  |   |                 |   | 163,021   |                    |   |   | (8,758     | )      |   |   | 5,723,849 |   |
| Corporate Bonds                                          |   |               | 5,341,286  |   |                 |   | -         |                    |   |   | (3,428,830 | )      |   |   | 1,912,456 |   |
| Mutual Funds                                             |   |               | 315,715    |   |                 |   | -         |                    |   |   | (3,451     | )      |   |   | 312,264 |   |
| FHLMC Preferred Bank Stock                               |   |               | 18,500     |   |                 |   | -         |                    |   |   | (3,800     | )      |   |   | 14,700 |   |
|                                                     |   | $                  | 39,082,706 |   |                 | $      | 1,079,819 |                    |   | $      | (3,470,431 | )      |   | $ | 36,692,094 |   |

|                                   |   | September 30, 2010 |       |
|----------------------------------------|--------|--------------------|------------|
|                                   |   | AmortizedCost      |       |   | FairValue |   |
| Due in one year or less                |   | $                  | -          |   |   | $ | - |   |
| Due after one year through five years  |   |               | 11,079,307 |   |   |   | 11,092,241 |   |
| Due after five years through ten years |   |               | 5,839,683  |   |   |   | 6,070,525 |   |
| Due after ten years                    |   |               | 31,656,529 |   |   |   | 29,485,429 |   |
| Equity securities                      |   |               | 342,716    |   |   |   | 337,932 |   |
|                                   |   | $                  | 48,918,235 |   |   | $ | 46,986,127 |   |

----

Index

| September 30, 2010                               |   | Less than 12 Months |      |   | 12 Months or More   |   |    | Total      |   |
|--------------------------------------------------|--------|---------------------|-----------|--------|---------------------|--------|---------|------------|--------|
| Description of Securities                        |   | Fair Value          |      |   | Unrealized (Losses) |   |    | Fair Value |   |   | Unrealized (Losses) |   |   | Fair Value |   |   | Unrealized (Losses) |   |
|                                             |   |                |      |   |                |   |    |       |   |   |   |   |   |   |   |   |   |   |
| Obligations of U.S.                              |   |                |      |   |                |   |    |       |   |   |   |   |   |   |   |   |   |   |
| Government corporations and agencies             |   | $                   | 1,997,390 |   |                | $      | (1,415  | )          |   | $ | - |   |   | $ | - |   |   | $ | 1,997,390 |   |   | $ | (1,415 | ) |
| Obligations of states and political subdivisions |   |                | -         |   |                |   | -       |       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Corporate bonds                                  |   |                | -         |   |                |   | -       |       |   |   | 1,333,143 |   |   |   | (3,030,554 | ) |   |   | 1,333,143 |   |   |   | (3,030,554 | ) |
| Subtotal, debt securities                        |   |                | 1,997,390 |   |                |   | (1,415  | )          |   |   | 1,333,143 |   |   |   | (3,030,554 | ) |   |   | 3,330,533 |   |   |   | (3,031,969 | ) |
| Mutual funds                                     |   |                | -         |   |                |   | -       |       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| FHLMC preferred bank stock                       |   |                | 6,500     |   |                |   | (12,000 | )          |   |   | - |   |   |   | - |   |   |   | 6,500 |   |   |   | (12,000 | ) |
| Total                                            |   | $                   | 2,003,890 |   |                | $      | (13,415 | )          |   | $ | 1,333,143 |   |   | $ | (3,030,554 | ) |   | $ | 3,337,033 |   |   | $ | (3,043,969 | ) |
|                                             |   |                |      |   |                |   |    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             |   |                |      |   |                |   |    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                                |   | Less than 12 Months |      |   | 12 Months or More   |   |    | Total      |   |
| Description of Securities                        |   | Fair Value          |      |   | Unrealized (Losses) |   |    | Fair Value |   |   | Unrealized (Losses) |   |   | Fair Value |   |   | Unrealized (Losses) |   |
|                                             |   |                |      |   |                |   |    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Obligations of U.S.                              |   |                |      |   |                |   |    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government corporations and agencies             |   | $                   | 3,030,782 |   |                | $      | (25,592 | )          |   | $ | - |   |   | $ | - |   |   | $ | 3,030,782 |   |   | $ | (25,592 | ) |
| Obligations of states and political subdivisions |   |                | 312,667   |   |                |   | (174    | )          |   |   | 275,475 |   |   |   | (8,584 | ) |   |   | 588,142 |   |   |   | (8,758 | ) |
| Corporate bonds                                  |   |                | -         |   |                |   | -       |       |   |   | 1,912,456 |   |   |   | (3,428,830 | ) |   |   | 1,912,456 |   |   |   | (3,428,830 | ) |
| Subtotal, debt securities                        |   |                | 3,343,449 |   |                |   | (25,766 | )          |   |   | 2,187,931 |   |   |   | (3,437,414 | ) |   |   | 5,531,380 |   |   |   | (3,463,180 | ) |
| Mutual funds                                     |   |                | -         |   |                |   | -       |       |   |   | 312,263 |   |   |   | (3,451 | ) |   |   | 312,263 |   |   |   | (3,451 | ) |
| FHLMC preferred bank stock                       |   |                | 14,700    |   |                |   | (3,800  | )          |   |   | - |   |   |   | - |   |   |   | 14,700 |   |   |   | (3,800 | ) |
| Total                                            |   | $                   | 3,358,149 |   |                | $      | (29,566 | )          |   | $ | 2,500,194 |   |   | $ | (3,440,865 | ) |   | $ | 5,858,343 |   |   | $ | (3,470,431 | ) |

----

Index

| Cost, net of OTTI loss                                               |   | Fair Value |      |   | Percent of Underlying Current Collateral Performing |   |   | Percent of Underlying Collateral in Deferral |   |   | Percent of Underlying Collateral in Default |   | Estimated  incremental defaults required to break yield (1) |   | Current Moody's Rating |   | Cumulative Amount of OTTI Loss |   |   | Cumulative Other Compreshensive Loss, net of tax benefit |   |
|----------------------------------------------------------------------|--------|------------|-----------|--------|-----------------------------------------------------|--------|--------|----------------------------------------------|--------|--------|---------------------------------------------|--------|-----------------------------------------------------------------------|--------|------------------------|--------|--------------------------------|--------|--------|----------------------------------------------------------|--------|
| $          359,294 |   | $          | 91,102    |   |                                                |   | 53.0   | %                                            |   |   | 31.3                                        | %      |                                                                  |   | 15.7                   | %      | broken                         |   | Ca     |                                                     | $      | 640,706 |   |   | $ | 177,006 |   |
| 1,822,050                                                            |   |       | 614,757   |   |                                                |   | 76.3   | %                                            |   |   | 11.7                                        | %      |                                                                  |   | 12.0                   | %      | broken                         |   | Ca     |                                                     |   | 177,950 |   |   | $ | 796,813 |   |
| 1,627,760                                                            |   |       | 544,255   |   |                                                |   | 71.2   | %                                            |   |   | 22.5                                        | %      |                                                                  |   | 6.3                    | %      | broken                         |   | Ca     |                                                     |   | 372,240 |   |   | $ | 715,113 |   |
| 554,593                                                              |   |       | 83,029    |   |                                                |   | 65.0   | %                                            |   |   | 23.0                                        | %      |                                                                  |   | 12.0                   | %      | broken                         |   | Ca     |                                                     |   | 445,407 |   |   | $ | 311,232 |   |
| $       4,363,697                 |   | $          | 1,333,143 |   |                                                |   |   |                                         |   |   |                                        |   |                                                                  |   |                   |   |                           |   |   |                                                     | $      | 1,636,303 |   |   | $ | 2,000,165 |   |

| (1)   | A break in yield for a given tranche investment means that defaults and/or deferrals have reached such a level that the specific tranche would not receive all of the contractual principal and interest cash flow by its maturity, resulting in not a temporary shortfall, but an actual loss. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                                                                                            |   | Available for sale |      |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|
| Beginning balance as of December 31, 2009                                                                                                                                                                                                                                       |   | $                  | 658,714   |   |
|                                                                                                                                                                                                                                                                            |   |               |      |   |
| Add: Amount related to the credit loss for which an other-than- temporary impairment was not previously recognized                                                                                                                                                              |   |               | 372,240   |   |
|                                                                                                                                                                                                                                                                            |   |               |      |   |
| Add: Increases to the amount related to the credit loss for which an other-than temporary impairment was previously recognized                                                                                                                                                  |   |               | 605,349   |   |
|                                                                                                                                                                                                                                                                            |   |               |      |   |
| Less: Realized losses for securities sold                                                                                                                                                                                                                                       |   |               | -         |   |
|                                                                                                                                                                                                                                                                            |   |               |      |   |
| Less: Securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis |   |               | -         |   |
|                                                                                                                                                                                                                                                                            |   |               |      |   |
| Less: Increases in cash flows expected to be collected that are recognized over the remaining life of the security (See FASB ASC 320-10-35-35)                                                                                                                                  |   |               | -         |   |
|                                                                                                                                                                                                                                                                            |   |               |      |   |
| Ending balance as of September 30, 2010                                                                                                                                                                                                                                         |   | $                  | 1,636,303 |   |

----

Index

|                          |   | September 30, 2010 |      |
|-------------------------------|--------|--------------------|-----------|
|                          |   | AmortizedCost      |      |   | GrossUnrealizedGains |   |   | GrossUnrealized(Losses) |   |   | FairValue |   |
| Restricted investments:       |   |               |      |   |   |   |   |   |   |   |   | - |   |
| Federal Home Loan Bank Stock  |   |               | 3,365,900 |   |   |   | - |   |   |   | - |   |   |   | 3,365,900 |   |
| Federal Reserve Bank Stock    |   |               | 99,000    |   |   |   | - |   |   |   | - |   |   |   | 99,000 |   |
| Community Bankers' Bank Stock |   |               | 50,000    |   |   |   | - |   |   |   | - |   |   |   | 50,000 |   |
|                          |   | $                  | 3,514,900 |   |   | $ | - |   |   | $ | - |   |   | $ | 3,514,900 |   |
|                          |   |               |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   | December 31, 2009  |      |
|                          |   | AmortizedCost      |      |   | GrossUnrealizedGains |   |   | GrossUnrealized(Losses) |   |   | FairValue |   |
| Restricted investments:       |   |               |      |   |   |   |   |   |   |   |   |   |   |   | - |   |
| Federal Home Loan Bank Stock  |   |               | 3,625,700 |   |   |   | - |   |   |   | - |   |   |   | 3,625,700 |   |
| Federal Reserve Bank Stock    |   |               | 99,000    |   |   |   | - |   |   |   | - |   |   |   | 99,000 |   |
| Community Bankers' Bank Stock |   |               | 50,000    |   |   |   | - |   |   |   | - |   |   |   | 50,000 |   |
|                          |   | $                  | 3,774,700 |   |   | $ | - |   |   | $ | - |   |   | $ | 3,774,700 |   |

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

|                                                         |   | September 30, |    |   | December 31, |   |
|--------------------------------------------------------------|--------|---------------|---------|--------|--------------|--------|
|                                                         |   | 2010          |    |   | 2009         |   |
|                                                         |   | (Thousands)   |    |
| Real estate loans:                                           |   |          |    |   |         |   |
| Construction                                                 |   | $             | 27,519  |   |         | $      | 33,003 |   |
| Secured by farmland                                          |   |          | 1,087   |   |         |   | 948 |   |
| Secured by 1 - to - 4 family residential                     |   |          | 189,020 |   |         |   | 193,709 |   |
| Other real estate loans                                      |   |          | 196,987 |   |         |   | 186,463 |   |
| Commercial and industrial loans (not secured by real estate) |   |          | 29,338  |   |         |   | 29,286 |   |
| Consumer installment loans                                   |   |          | 7,535   |   |         |   | 10,390 |   |
| All other loans                                              |   |          | 14,240  |   |         |   | 14,559 |   |
| Total loans                                                  |   | $             | 465,726 |   |         | $      | 468,358 |   |
| Unearned income                                              |   |          | (210    | )      |         |   | (92 | ) |
| Allowance for loan losses                                    |   |          | (5,731  | )      |         |   | (5,482 | ) |
| Net loans                                                    |   | $             | 459,785 |   |         | $      | 462,784 |   |

----

Index

| Note 4. | Allowance for Loan Losses |
|---------|---------------------------|

|                                       |   | Nine Months Ended September 30, 2010 |       |   | Nine Months Ended September 30, 2009 |   |      | Twelve Months Ended December 31, 2009 |   |
|--------------------------------------------|--------|--------------------------------------|------------|--------|--------------------------------------|--------|-----------|---------------------------------------|--------|
| Balance at beginning of year               |   | $                                    | 5,481,963  |   |                                 | $      | 4,779,662 |                                  |   | $ | 4,779,662 |   |
| Provision for loan losses                  |   |                                 | 1,450,000  |   |                                 |   | 920,000   |                                  |   |   | 1,710,000 |   |
| Recoveries of loans previously charged-off |   |                                 | 83,005     |   |                                 |   | 77,096    |                                  |   |   | 81,106 |   |
| Loan losses charged-off                    |   |                                 | (1,284,456 | )      |                                 |   | (555,723  | )                                     |   |   | (1,088,805 | ) |
| Balance at end of year                     |   | $                                    | 5,730,512  |   |                                 | $      | 5,221,035 |                                  |   | $ | 5,481,963 |   |

|                                                                             |   | September 30, 2010                   |      |   | December 31, 2009                     |   |      | September 30, 2009                   |   |
|----------------------------------------------------------------------------------|--------|--------------------------------------|-----------|--------|---------------------------------------|--------|-----------|--------------------------------------|--------|
| Impaired loans for which an allowance has been provided                          |   | $                                    | 965,317   |   |                                  | $      | 3,213,516 |                                 |   | $ | 3,137,846 |   |
| Impaired loans for which no allowance has been provided                          |   |                                 | 547,115   |   |                                  |   | 175,429   |                                 |   |   | 1,832,247 |   |
|                                                                             |   | $                                    | 1,512,432 |   |                                  | $      | 3,388,945 |                                 |   | $ | 4,970,093 |   |
|                                                                             |   |                                 |      |   |                                  |   |      |                                 |   |   |   |   |
| Allowance provided for impaired loans, included in the allowance for loan losses |   | $                                    | 764,800   |   |                                  | $      | 1,163,072 |                                 |   | $ | 1,425,051 |   |
|                                                                             |   |                                 |      |   |                                  |   |      |                                 |   |   |   |
|                                                                             |   |                                 |      |   |                                  |   |      |                                 |   |   |   |
|                                                                             |   | Nine Months Ended September 30, 2010 |      |   | Twelve Months Ended December 31, 2009 |   |      | Nine Months Ended September 30, 2009 |   |
| Average balance in impaired loans                                                |   | $                                    | 1,558,044 |   |                                  | $      | 3,631,937 |                                 |   | $ | 4,978,382 |   |
|                                                                             |   |                                 |      |   |                                  |   |      |                                 |   |   |   |   |
| Interest income recognized on impaired loans                                     |   | $                                    | 46,806    |   |                                  | $      | 148,490   |                                 |   | $ | 171,440 |   |

| (Dollars in thousands)                                     |   | September 30, 2010 |   |   | December 31, 2009 |   |   | September 30, 2009 |   |
|------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|--------|--------------------|--------|
| Non-accrual loans                                          |   | $                  | 2,070  |   |              | $      | 3,410  |               |   | $ | 4,332 |   |
| Restructured loans                                         |   |               | -      |   |              |   | -      |               |   |   | - |   |
| Other real estate owned                                    |   |               | 2,821  |   |              |   | 2,480  |               |   | $ | 2,029 |   |
| Other repossessed assets owned                             |   |               | 21     |   |              |   | 54     |               |   |   | 68 |   |
| Non-performing corporate bond investments, at fair value   |   |               | 1,333  |   |              |   | 1,126  |               |   |   | 634 |   |
| Total non-performing assets                                |   | $                  | 6,245  |   |              | $      | 7,070  |               |   | $ | 7,063 |   |
|                                                       |   |               |   |   |              |   |   |               |   |   |   |   |
| Allowance for loan losses to total loans, period end       |   |               | 1.23   | %      |              |   | 1.17   | %                  |   |   | 1.13 | % |
| Non-accrual loans to total loans, period end               |   |               | 0.44   | %      |              |   | 0.73   | %                  |   |   | 0.94 | % |
| Allowance for loan losses to non-accrual loans, period end |   |               | 276.84 | %      |              |   | 160.76 | %                  |   |   | 120.52 | % |
| Non-performing assets to total assets, period end          |   |               | 1.00   | %      |              |   | 1.24   | %                  |   |   | 1.29 | % |

----

Index

| Note 5. | Company-Obligated Mandatorily Redeemable Capital Securities |
|---------|-------------------------------------------------------------|

| Note 6. | Derivative Instruments and Hedging Activities |
|---------|-----------------------------------------------|

----

Index

| (Dollars in thousands)                        |   | September 30, 2010        |   |
|-----------------------------------------------|--------|---------------------------|--------|
| Derivatives designated as hedging instruments |   | Notional/ Contract Amount |   |   | Estimated Net Fair Value |   | Fair Value Balance Sheet Location | Expiration Date |   | Fixed Rate |   |
| Interest rate swap - 10 year cash flow        |   | $                         | 4,000  |   |   | $ | 3,741 |   | Other liabilities | 9/15/2020 |   |   | 3.21 | % |

|                                           |   |                                                                         |   | September 30, 2010                                                              |           |                                                                           |   |
|------------------------------------------------|--------|------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|----------------|--------------------------------------------------------------------------------|--------|
| Derivatives in cash flow hedging relationships |   | Amount of Gain (Loss) Recognizedin OCI on Derivatives(Effective Portion)2010 |   | Location of Gain or(Loss) Recognizedin Income onDerivative(Ineffective Portion) |           | Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion) |   |
| Interest rate swap - 10 year cash flow         |   | $                                                                            | (259   | )                                                                               | Not applicable |                                                                           | $      | - |   |

| Note 7. | Earnings Per Share |
|---------|--------------------|

----

Index

|                                              |   | Three MonthsEndedSeptember 30, 2010 |      |   | Three MonthsEndedSeptember 30, 2009 |   |
|---------------------------------------------------|--------|-------------------------------------|-----------|--------|-------------------------------------|--------|
|                                              |   | Shares                              |      |   | Per ShareAmount                     |   |   | Shares |   |   | Per ShareAmount |   |
|                                              |   |                                |      |   |                                |   |   |   |   |   |   |   |
| Basic earnings per share                          |   |                                | 3,636,638 |   |                                | $      | 0.27 |   |   |   | 3,597,602 |   |   | $ | 0.27 |   |
|                                              |   |                                |      |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Effect of dilutive securities, stock-based awards |   |                                | 16,960    |   |                                |   |   |   |   |   | 12,558 |   |   |   |   |   |
|                                              |   |                                |      |   |                                |   |   |   |   |   |   |   |   |   |   |   |
|                                              |   |                                | 3,653,598 |   |                                | $      | 0.27 |   |   |   | 3,610,160 |   |   | $ | 0.26 |   |
|                                              |   |                                |      |   |                                |   |   |   |   |   |   |   |   |   |   |   |
|                                              |   | Nine MonthsEndedSeptember 30, 2010  |      |   | Nine MonthsEndedSeptember 30, 2009  |   |
|                                              |   | Shares                              |      |   | Per ShareAmount                     |   |   | Shares |   |   | Per ShareAmount |   |
|                                              |   |                                |      |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share                          |   |                                | 3,623,733 |   |                                | $      | 0.77 |   |   |   | 3,591,796 |   |   | $ | 0.72 |   |
|                                              |   |                                |      |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Effect of dilutive securities, stock-based awards |   |                                | 16,166    |   |                                |   |   |   |   |   | 9,068 |   |   |   |   |   |
|                                              |   |                                |      |   |                                |   |   |   |   |   |   |   |   |   |   |   |
|                                              |   |                                | 3,639,899 |   |                                | $      | 0.77 |   |   |   | 3,600,864 |   |   | $ | 0.72 |   |

| Note 8. | Stock-Based Compensation |
|---------|--------------------------|

----

Index

|                                                                      |   | Nine Months EndedSeptember 30, 2010 |    |
|---------------------------------------------------------------------------|--------|-------------------------------------|---------|
|                                                                      |   | Number ofShares                     |    |   | WeightedAverageExercisePrice |   |   | AverageIntrinsicValue (1) |   |
|                                                                      |   |                                |    |   |   |   |   |   |   |
| Outstanding at January 1, 2010                                            |   |                                | 62,480  |   |   | $ | 9.96 |   |   |   |   |
| Granted                                                                   |   |                                | - -     |   |   |   |   |   |   |   |   |
| Exercised                                                                 |   |                                | (20,214 | ) |   |   | 8.12 |   |   |   |   |
| Forfeited                                                                 |   |                                | - -     |   |   |   |   |   |   |   |   |
| Outstanding at September 30, 2010                                         |   |                                | 42,266  |   |   | $ | 10.84 |   |   |   |   |
|                                                                      |   |                                |    |   |   |   |   |   |   |   |   |
| Exercisable at end of quarter                                             |   |                                | 42,266  |   |   |   |   |   |   | $         91,373 |   |
| Weighted-average fair value per option of options granted during the year |   |                                | -       |   |   |   |   |   |   | ` |   |

|   | (1) | The aggregate intrinsic value of stock options in the table above reflects the pre-tax intrinsic value (the amount by which the    September 30, 2010 market value of the underlying stock option exceeded the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on September 30, 2010.  This amount changes based on the changes in the market value of the Company’s stock. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                             |   | Nine Months Ended  |    |
|----------------------------------|--------|--------------------|---------|
|                             |   | September 30, 2010 |    |
|                             |   | Number ofShares    |    |   | WeightedAveragePrice |   |
|                             |   |               |    |   |   |   |
| Non-vested at January 1, 2010    |   |               | 47,282  |   |   |   |   |
| Granted                          |   |               | 15,337  |   |   | $ | 13.78 |   |
| Vested                           |   |               | (28,847 | ) |   |   |   |   |
| Non-vested at September 30, 2010 |   |               | 33,772  |   |   |   |   |   |

----

Index

| Note 9. | Employee Benefit Plan |
|---------|-----------------------|

|                                 |   | Three Months EndedSeptember 30, |     |
|--------------------------------------|--------|---------------------------------|----------|
|                                 |   | 2010                            |     |   | 2009 |   |
|                                 |   |                            |     |   |   |   |
| Service cost                         |   | $                               | -        |   |   | $ | 62,707 |   |
| Interest cost                        |   |                            | 79,523   |   |   |   | 73,827 |   |
| Expected return on plan assets       |   |                            | (64,176  | ) |   |   | (65,839 | ) |
| Amortization of transition (asset)   |   |                            | -        |   |   |   | - |   |
| Amortization of prior service cost   |   |                            | -        |   |   |   | - |   |
| Recognized net actuarial (gain) loss |   |                            | 382,347  |   |   |   | - |   |
| Net periodic benefit cost            |   | $                               | 397,694  |   |   | $ | 70,695 |   |
|                                 |   |                            |     |   |   |   |   |   |
|                                 |   |                            |     |   |   |   |   |   |
|                                 |   | Nine Months EndedSeptember 30,  |     |
|                                 |   |                            | 2010     |   |   |   | 2009 |   |
|                                 |   |                            |     |   |   |   |   |   |
| Service cost                         |   | $                               | -        |   |   | $ | 188,121 |   |
| Interest cost                        |   |                            | 238,569  |   |   |   | 221,481 |   |
| Expected return on plan assets       |   |                            | (192,528 | ) |   |   | (197,517 | ) |
| Amortization of transition (asset)   |   |                            | -        |   |   |   | - |   |
| Amortization of prior service cost   |   |                            | -        |   |   |   | - |   |
| Recognized net actuarial (gain) loss |   |                            | 568,960  |   |   |   | - |   |
| Net periodic benefit cost            |   | $                               | 615,001  |   |   | $ | 212,085 |   |

----

Index

| Note 10. | Fair Value Measurement |
|----------|------------------------|

|   | Level 1 – | Valuation is based on quoted prices in active markets for identical assets and liabilities. |
|--------|-----------------|---------------------------------------------------------------------------------------------|

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

|   | Level 3 – | Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. |
|--------|-----------------|------------------------------------------------------------------------------------------------------------------------------------------|

|                                                     |   |    |   |   | Fair Value Measurements at Using                                    |    |
|----------------------------------------------------------|--------|---------|--------|--------|---------------------------------------------------------------------|---------|
| (In Thousands)                                           |   |    |   |   |                                                                |    |   |   |   |   |   |   |
| Description                                              |   | Balance |   |   | Quoted Prices in Active Markets for Identical Assets (Level 1) |    |   | Significant Other Obervable Inputs (Level 2) |   |   | Signicant Unobservable Inputs (Level 3) |   |
| Assets at September 30, 2010                             |   |    |   |   |                                                                |    |   |   |   |   |   |   |
| Available-for-sale securities:                           |   |    |   |   |                                                                |    |   |   |   |   |   |   |
| Obligations of U.S. Government corporations and agencies |   | $       | 39,409 |   |                                                                | $       | - |   |   | $ | 39,409 |   |   | $ | - |   |
| Obligations of states and political subdivisions         |   |    | 5,906  |   |                                                                |    | - |   |   |   | 5,906 |   |   |   | - |   |
| Corporate bonds                                          |   |    | 1,333  |   |                                                                |    | - |   |   |   | - |   |   |   | 1,333 |   |
| Mutual funds                                             |   |    | 331    |   |                                                                |    | 331 |   |   |   | - |   |   |   | - |   |
| FHLMC Preferred                                          |   |    | 7      |   |                                                                |    | - |   |   |   | 7 |   |   |   | - |   |
| Total assets at fair value                               |   | $       | 46,986 |   |                                                                | $       | 331 |   |   | $  | 45,322 |   |   | $  | 1,333 |   |
|                                                     |   |    |   |   |                                                                |    |   |   |   |   |   |   |   |   |   |   |
| Liabilities at September 30, 2010                        |   |    |   |   |                                                                |    |   |   |   |   |   |   |   |   |   |   |
| Interest rate swaps                                      |   | $       | 3,741  |   |                                                                | $       | - |   |   | $  |  3,741 |   |   | $  |  - |   |
| Total liabilities at fair value                          |   | $       | 3,741  |   |                                                                | $  |  - |   |   | $  | 3,741 |   |   | $ |  - |   |
|                                                     |   |    |   |   |                                                                |    |   |   |   |   |   |   |   |   |   |   |
| Assets at December 31, 2009                              |   |    |   |   |                                                                |    |   |   |   |   |   |   |   |   |   |   |
| Available-for-sale securities:                           |   |    |   |   |                                                                |    |   |   |   |   |   |   |   |   |   |   |
| Obligations of U.S. Government corporations and agencies |   | $       | 28,729 |   |                                                                | $       | - |   |   | $ | 28,729 |   |   | $ | - |   |
| Obligations of states and political subdivisions         |   |    | 5,724  |   |                                                                |    | - |   |   |   | 5,724 |   |   |   | - |   |
| Corporate bonds                                          |   |    | 1,912  |   |                                                                |    | - |   |   |   | - |   |   |   | 1,912 |   |
| Mutual funds                                             |   |    | 312    |   |                                                                |    | 312 |   |   |   | - |   |   |   | - |   |
| FHLMC Preferred                                          |   |    | 15     |   |                                                                |    | - |   |   |   | 15 |   |   |   | - |   |
| Total assets at fair value                               |   | $  | 36,692 |   |                                                                | $       | 312 |   |   | $ | 34,468 |   |   | $  | 1,912 |   |

----

Index

| (In Thousands)                 |   |                    |   |   | Total Gains (Losses) Realized/Unrealized |   |   |                                   |   |   |                               |   |
|--------------------------------|--------|-------------------------|--------|--------|------------------------------------------|--------|--------|----------------------------------------|--------|--------|------------------------------------|--------|
| Description                    |   | Balance January 1, 2010 |   |   | Included in earnings                     |   |   | Included in Other Comprehensive Income |   |   | Transfers in and/or out of Level 3 |   |   | Balance September 30, 2010 |   |
| Assets at September 30, 2010   |   |                    |   |   |                                     |   |   |                                   |   |   |                               |   |   |   |   |
| Available-for-sale securities: |   |                    |   |   |                                     |   |   |                                   |   |   |                               |   |   |   |   |
| Corporate bonds                |   | $                       | 1,912  |   |                                     | $      | (978   | )                                      |   | $      | (579                               | )      |   | $ | 978 |   |   | $ | 1,333 |   |

----

Index

|                      |   |                           |   |   | Carrying value at September 30, 2010                      |   |
|---------------------------|--------|--------------------------------|--------|--------|-----------------------------------------------------------|--------|
| (In Thousands)Description |   | Balance as ofSeptember 30,2010 |   |   | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |   |   | SignificantOtherObservableInputs(Level 2) |   |   | SignificantUnobservableInputs(Level 3) |   |
| Assets:                   |   |                           |   |   |                                                      |   |   |   |   |   |   |   |
| Impaired loans, net       |   | $                              | 201    |   |                                                      |   | - |   |   | $ | 108 |   |   | $ | 93 |   |
| Other real estate owned   |   |                           | 2,821  |   |                                                      |   | - |   |   |   | 2,821 |   |   |   | - |   |

|                      |   |                          |   |   | Carrying value at December 31, 2009                       |   |
|---------------------------|--------|-------------------------------|--------|--------|-----------------------------------------------------------|--------|
| (In Thousands)Description |   | Balance as ofDecember 31,2009 |   |   | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |   |   | SignificantOtherObservableInputs(Level 2) |   |   | SignificantUnobservableInputs(Level 3) |   |
| Assets:                   |   |                          |   |   |                                                      |   |   |   |   |   |   |   |
| Impaired loans, net       |   | $                             | 2,050  |   |                                                      |   | - |   |   | $ | 794 |   |   | $ | 1,256 |   |
| Other real estate owned   |   |                          | 2,480  |   |                                                      |   | - |   |   |   | 2,480 |   |   |   | - |   |

----

Index

----

Index

|                                                        |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-------------------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
| (In Thousands)                                              |   | CarryingAmount     |    |   | FairValue         |   |   | CarryingAmount |   |   | FairValue |   |
|                                                        |   |               |    |   |              |   |
| Financial assets:                                           |   |               |    |   |              |   |   |   |   |   |   |   |
| Cash and short-term investments                             |   | $                  | 73,775  |   |              | $      | 73,775 |   |   | $ | 26,199 |   |   | $ | 26,199 |   |
| Federal funds sold                                          |   |               | 7       |   |              |   | 7 |   |   |   | 9 |   |   |   | 9 |   |
| Securities                                                  |   |               | 46,986  |   |              |   | 46,986 |   |   |   | 36,692 |   |   |   | 36,692 |   |
| Restricted securities                                       |   |               | 3,515   |   |              |   | 3,515 |   |   |   | 3,775 |   |   |   | 3,775 |   |
|                                                        |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Loans, net                                                  |   |               | 459,785 |   |              |   | 484,071 |   |   |   | 462,784 |   |   |   | 477,100 |   |
| Accrued interest receivable                                 |   |               | 1,593   |   |              |   | 1,593 |   |   |   | 1,495 |   |   |   | 1,495 |   |
|                                                        |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                                      |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                    |   | $                  | 545,323 |   |              | $      | 540,739 |   |   | $ | 465,987 |   |   | $ | 467,600 |   |
| FHLB advances                                               |   |               | 25,000  |   |              |   | 26,580 |   |   |   | 50,000 |   |   |   | 50,477 |   |
| Federal funds purchased                                     |   |               | -       |   |              |   | - |   |   |   | - |   |   |   | - |   |
| Company obligated mandatorily redeemable capital securities |   |               | 4,124   |   |              |   | 4,123 |   |   |   | 4,124 |   |   |   | 2,673 |   |
| Interest rate swap                                          |   |               | 3,741   |   |              |   |  3,741 |   |   |   |  - |   |   |   |  - |   |
| Accrued interest payable                                    |   |               | 546     |   |              |   | 546 |   |   |   | 613 |   |   |   | 613 |   |

| Note 11. | Subsequent Events |
|----------|-------------------|

----

Index

I

----

Index

----

Index

----

Index

----

Index

----

Index

| AVERAGE BALANCES, INCOME AND EXPENSES, AND AVERAGE YIELDS AND RATES |   |
|---------------------------------------------------------------------|--------|
| (Dollars in Thousands)                                              |   |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |   | Three Months Ended September 30, 2010 |   |   | Three Months Ended September 30, 2009 |   |
|                                                                |   | Average |   |   | Income/ |   |   | Average |   |   | Average |   |   | Income/ |   |   | Average |   |
| ASSETS:                                                             |   | Balances |   |   | Expense |   |   | Rate |   |   | Balances |   |   | Expense |   |   | Rate |   |
| Loans                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                             |   | $ | 452,232 |   |   | $ | 6,597 |   |   |   | 5.79 | % |   | $ | 446,344 |   |   | $ | 6,599 |   |   |   | 5.87 | % |
| Tax-exempt (1)                                                      |   |   | 13,875 |   |   |   | 244 |   |   |   | 6.99 | % |   |   | 8,252 |   |   |   | 150 |   |   |   | 7.19 | % |
| Nonaccrual (2)                                                      |   |   | 2,800 |   |   |   | - |   |   |   | - |   |   |   | 2,048 |   |   |   | - |   |   |   | - |   |
| Total Loans                                                         |   |   | 468,907 |   |   |   | 6,841 |   |   |   | 5.79 | % |   |   | 456,644 |   |   |   | 6,749 |   |   |   | 5.86 | % |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                             |   |   | 41,304 |   |   |   | 299 |   |   |   | 2.90 | % |   |   | 31,954 |   |   |   | 330 |   |   |   | 4.13 | % |
| Tax-exempt (1)                                                      |   |   | 5,808 |   |   |   | 85 |   |   |   | 5.88 | % |   |   | 5,575 |   |   |   | 90 |   |   |   | 6.45 | % |
| Total securities                                                    |   |   | 47,112 |   |   |   | 384 |   |   |   | 3.26 | % |   |   | 37,529 |   |   |   | 420 |   |   |   | 4.48 | % |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits in banks                                                   |   |   | 28,422 |   |   |   | 14 |   |   |   | 0.19 | % |   |   | 8,506 |   |   |   | 5 |   |   |   | 0.21 | % |
| Federal funds sold                                                  |   |   | 7 |   |   |   | - |   |   |   | 0.25 | % |   |   | 64 |   |   |   | - |   |   |   | 0.25 | % |
| Total earning assets                                                |   |   | 544,448 |   |   |   | 7,239 |   |   |   | 5.28 | % |   |   | 502,743 |   |   |   | 7,174 |   |   |   | 5.66 | % |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Less: Reserve for loan losses                                       |   |   | (5,616 | ) |   |   |   |   |   |   |   |   |   |   | (5,204 | ) |   |   |   |   |   |   |   |   |
| Cash and due from banks                                             |   |   | 5,479 |   |   |   |   |   |   |   |   |   |   |   | 5,863 |   |   |   |   |   |   |   |   |   |
| Bank premises and equipment, net                                    |   |   | 14,597 |   |   |   |   |   |   |   |   |   |   |   | 11,994 |   |   |   |   |   |   |   |   |   |
| Other real estate owned                                             |   |   | 2,391 |   |   |   |   |   |   |   |   |   |   |   | 2,029 |   |   |   |   |   |   |   |   |   |
| Other assets                                                        |   |   | 22,627 |   |   |   |   |   |   |   |   |   |   |   | 21,585 |   |   |   |   |   |   |   |   |   |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Assets                                                        |   | $ | 583,926 |   |   |   |   |   |   |   |   |   |   | $ | 539,010 |   |   |   |   |   |   |   |   |   |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES & SHAREHOLDERS' EQUITY:                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                                     |   | $ | 67,205 |   |   |   |   |   |   |   |   |   |   | $ | 63,139 |   |   |   |   |   |   |   |   |   |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW accounts                                                        |   |   | 121,950 |   |   |   | 173 |   |   |   | 0.56 | % |   |   | 78,102 |   |   |   | 93 |   |   |   | 0.47 | % |
| Money market accounts                                               |   |   | 66,848 |   |   |   | 115 |   |   |   | 0.68 | % |   |   | 62,894 |   |   |   | 91 |   |   |   | 0.57 | % |
| Savings accounts                                                    |   |   | 50,423 |   |   |   | 45 |   |   |   | 0.36 | % |   |   | 42,054 |   |   |   | 69 |   |   |   | 0.65 | % |
| Time deposits                                                       |   |   | 194,145 |   |   |   | 946 |   |   |   | 1.93 | % |   |   | 184,797 |   |   |   | 1,057 |   |   |   | 2.27 | % |
| Total interest-bearing deposits                                     |   |   | 433,366 |   |   |   | 1,279 |   |   |   | 1.17 | % |   |   | 367,847 |   |   |   | 1,310 |   |   |   | 1.41 | % |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal  funds purchased                                  |   |   | 609 |   |   |   | 1 |   |   |   | 0.83 | % |   |   | 5,624 |   |   |   | 16 |   |   |   | 1.11 | % |
| Federal Home Loan Bank advances                                     |   |   | 28,152 |   |   |   | 255 |   |   |   | 3.58 | % |   |   | 49,511 |   |   |   | 274 |   |   |   | 2.20 | % |
| Capital securities of subsidiary trust                              |   |   | 4,124 |   |   |   | 27 |   |   |   | 2.63 | % |   |   | 4,124 |   |   |   | 24 |   |   |   | 2.26 | % |
| Total interest-bearing liabilities                                  |   |   | 466,251 |   |   |   | 1,562 |   |   |   | 1.33 | % |   |   | 427,106 |   |   |   | 1,624 |   |   |   | 1.51 | % |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                   |   |   | 6,027 |   |   |   |   |   |   |   |   |   |   |   | 6,027 |   |   |   |   |   |   |   |   |   |
| Shareholders'  equity                                     |   |   | 44,443 |   |   |   |   |   |   |   |   |   |   |   | 42,738 |   |   |   |   |   |   |   |   |   |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Liabilities & Shareholders' Equity                        |   | $ | 583,926 |   |   |   |   |   |   |   |   |   |   | $ | 539,010 |   |   |   |   |   |   |   |   |   |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest spread                                                 |   |   |   |   |   | $ | 5,677 |   |   |   | 3.95 | % |   |   |   |   |   | $ | 5,550 |   |   |   | 4.16 | % |
|                                                                |   |   |   |   |   |   |   |   |   |   | 1.14 | % |   |   |   |   |   |   |   |   |   |   | 1.28 | % |
| Interest expense as a percent of average earning assets             |   |   |   |   |   |   |   | 4.14 | % |   |   |   |   |   |   |   |   |   |   | 4.38 | % |
| Net interest margin                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Index

|                                                                       |   |   |   |   | Due to |   |   | Due to |   |
|----------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                       |   | Change |   |   | Volume |   |   | Rate   |   |
| INTEREST INCOME                                                            |   |   |   |   |   |   |   |   |   |   |
| Loans; taxable                                                             |   | $      | (2     | )      |   | $      | 87     |   |   |   | (89 | ) |
| Loans; tax-exempt (1)                                                      |   |   | 94     |   |   |   | 102    |   |   |   | (8 | ) |
| Securities; taxable                                                        |   |   | (31    | )      |   |   | 97     |   |   |   | (128 | ) |
| Securities; tax-exempt (1)                                                 |   |   | (5     | )      |   |   | 4      |   |   |   | (9 | ) |
| Deposits in banks                                                          |   |   | 9      |   |   |   | 12     |   |   |   | (3 | ) |
| Federal funds sold                                                         |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Total Interest Income                                                      |   |   | 65     |   |   |   | 302    |   |   |   | (237 | ) |
|                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST EXPENSE                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW accounts                                                               |   |   | 80     |   |   |   | 52     |   |   |   | 28 |   |
| Money market accounts                                                      |   |   | 24     |   |   |   | 6      |   |   |   | 18 |   |
| Savings accounts                                                           |   |   | (24    | )      |   |   | 14     |   |   |   | (38 | ) |
| Time deposits                                                              |   |   | (111   | )      |   |   | 54     |   |   |   | (165 | ) |
| Federal funds purchased and securities sold under agreements to repurchase |   |   | (14    | )      |   |   | (14    | )      |   |   | - |   |
| Federal Home Loan Bank advances                                            |   |   | (20    | )      |   |   | (118   | )      |   |   | 98 |   |
| Capital securities of subsidiary trust                                     |   |   | 3      |   |   |   | -      |   |   |   | 3 |   |
| Total Interest Expense                                                     |   |   | (62    | )      |   |   | (6     | )      |   |   | (56 | ) |
| Net Interest Income                                                        |   | $      | 127    |   |   | $      | 308    |   |   | $ | (181 | ) |

----

Index

----

Index

----

Index

----

Index

|                                                                                              |   | Nine Months Ended September 30, 2010 |    |   | Nine Months Ended September 30, 2009 |   |
|---------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|--------|--------------------------------------|--------|
|                                                                                              |   | Average                              |    |   | Income/                              |   |   | Average |   |   | Average |   |   | Income/ |   |   | Average |   |
| ASSETS:                                                                                           |   | Balances                             |    |   | Expense                              |   |   | Rate |   |   | Balances |   |   | Expense |   |   | Rate |   |
| Loans                                                                                             |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                           |   | $                                    | 451,170 |   |                                 | $      | 19,687 |   |   |   | 5.83 | % |   | $ | 439,632 |   |   | $ | 19,254 |   |   |   | 5.86 | % |
| Tax-exempt (1)                                                                                    |   |                                 | 14,010  |   |                                 |   | 736 |   |   |   | 7.04 | % |   |   | 8,411 |   |   |   | 441 |   |   |   | 6.94 | % |
| Nonaccrual (2)                                                                                    |   |                                 | 3,207   |   |                                 |   | - |   |   |   | - |   |   |   | 1,719 |   |   |   | - |   |   |   | - |   |
| Total Loans                                                                                       |   |                                 | 468,387 |   |                                 |   | 20,423 |   |   |   | 5.83 | % |   |   | 449,762 |   |   |   | 19,695 |   |   |   | 5.85 | % |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities                                                                                        |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                           |   |                                 | 37,869  |   |                                 |   | 918 |   |   |   | 3.23 | % |   |   | 31,061 |   |   |   | 1,023 |   |   |   | 4.39 | % |
| Tax-exempt (1)                                                                                    |   |                                 | 5,735   |   |                                 |   | 261 |   |   |   | 6.07 | % |   |   | 5,537 |   |   |   | 271 |   |   |   | 6.52 | % |
| Total securities                                                                                  |   |                                 | 43,604  |   |                                 |   | 1,179 |   |   |   | 3.61 | % |   |   | 36,598 |   |   |   | 1,294 |   |   |   | 4.71 | % |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits in banks                                                                                 |   |                                 | 27,039  |   |                                 |   | 38 |   |   |   | 0.19 | % |   |   | 6,535 |   |   |   | 11 |   |   |   | 0.24 | % |
| Federal funds sold                                                                                |   |                                 | 8       |   |                                 |   | - |   |   |   | 0.25 | % |   |   | 102 |   |   |   | - |   |   |   | 0.25 | % |
| Total earning assets                                                                              |   |                                 | 539,038 |   |                                 |   | 21,640 |   |   |   | 5.37 | % |   |   | 492,997 |   |   |   | 21,000 |   |   |   | 5.69 | % |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Less: Reserve for loan losses                                                                     |   |                                 | (5,545  | )      |                                 |   |   |   |   |   |   |   |   |   | (5,034 | ) |   |   |   |   |   |   |   |   |
| Cash and due from banks                                                                           |   |                                 | 5,841   |   |                                 |   |   |   |   |   |   |   |   |   | 8,041 |   |   |   |   |   |   |   |   |   |
| Bank premises and equipment, net                                                                  |   |                                 | 14,539  |   |                                 |   |   |   |   |   |   |   |   |   | 10,154 |   |   |   |   |   |   |   |   |   |
| Other real estate owned                                                                           |   |                                 | 2,403   |   |                                 |   |   |   |   |   |   |   |   |   | 2,357 |   |   |   |   |   |   |   |   |   |
| Other assets                                                                                      |   |                                 | 22,499  |   |                                 |   |   |   |   |   |   |   |   |   | 19,081 |   |   |   |   |   |   |   |   |   |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Assets                                                                                      |   | $                                    | 578,775 |   |                                 |   |   |   |   |   |   |   |   | $ | 527,596 |   |   |   |   |   |   |   |   |   |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES &                                                                                 |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     SHAREHOLDERS' EQUITY:                                                     |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                          |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                                                                   |   | $                                    | 66,457  |   |                                 |   |   |   |   |   |   |   |   | $ | 63,623 |   |   |   |   |   |   |   |   |   |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits                                                                         |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW accounts                                                                                      |   |                                 | 106,605 |   |                                 |   | 490 |   |   |   | 0.61 | % |   |   | 77,359 |   |   |   | 252 |   |   |   | 0.43 | % |
| Money market accounts                                                                             |   |                                 | 63,448  |   |                                 |   | 345 |   |   |   | 0.73 | % |   |   | 68,145 |   |   |   | 401 |   |   |   | 0.79 | % |
| Savings accounts                                                                                  |   |                                 | 49,751  |   |                                 |   | 163 |   |   |   | 0.44 | % |   |   | 36,052 |   |   |   | 117 |   |   |   | 0.43 | % |
| Time deposits                                                                                     |   |                                 | 197,133 |   |                                 |   | 2,893 |   |   |   | 1.96 | % |   |   | 171,397 |   |   |   | 3,540 |   |   |   | 2.76 | % |
|            Total interest-bearing deposits |   |                                 | 416,937 |   |                                 |   | 3,891 |   |   |   | 1.25 | % |   |   | 352,953 |   |   |   | 4,310 |   |   |   | 1.63 | % |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal  funds purchased                                                                |   |                                 | 223     |   |                                 |   | 1 |   |   |   | 0.79 | % |   |   | 4,207 |   |   |   | 38 |   |   |   | 1.22 | % |
| Federal Home Loan Bank advances                                                                   |   |                                 | 41,319  |   |                                 |   | 721 |   |   |   | 2.33 | % |   |   | 54,795 |   |   |   | 771 |   |   |   | 1.88 | % |
| Capital securities of subsidiary trust                                                            |   |                                 | 4,124   |   |                                 |   | 67 |   |   |   | 2.18 | % |   |   | 4,124 |   |   |   | 89 |   |   |   | 2.88 | % |
| Total interest-bearing liabilities                                                                |   |                                 | 462,603 |   |                                 |   | 4,680 |   |   |   | 1.35 | % |   |   | 416,079 |   |   |   | 5,208 |   |   |   | 1.67 | % |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                                                 |   |                                 | 5,849   |   |                                 |   |   |   |   |   |   |   |   |   | 5,764 |   |   |   |   |   |   |   |   |   |
| Shareholders'  equity                                                                   |   |                                 | 43,866  |   |                                 |   |   |   |   |   |   |   |   |   | 42,130 |   |   |   |   |   |   |   |   |   |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Liabilities & Shareholders' Equity                                                      |   | $                                    | 578,775 |   |                                 |   |   |   |   |   |   |   |   | $ | 527,596 |   |   |   |   |   |   |   |   |   |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest spread                                                                               |   |                                 |    |   |                                 | $      | 16,960 |   |   |   | 4.01 | % |   |   |   |   |   | $ | 15,792 |   |   |   | 4.02 | % |
|                                                                                              |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense as a percent of average earning assets                                           |   |                                 |    |   |                                 |   |   | 1.16 | % |   |   |   |   |   |   |   |   |   |   | 1.41 | % |
| Net interest margin                                                                               |   |                                 |    |   |                                 |   |   |   |   |   | 4.21 | % |   |   |   |   |   |   |   |   |   |   | 4.28 | % |

----

Index

|                                                                       |   | RATE / VOLUME VARIANCE                           |   |
|----------------------------------------------------------------------------|--------|--------------------------------------------------|--------|
|                                                                       |   | (In Thousands)                                   |   |
|                                                                       |   | Nine Months Ended September 30, 2010 Compared to |   |
|                                                                       |   | Nine Months Ended September 30, 2009             |   |
|                                                                       |   |                                             |   |   | Due to |   |   | Due to |   |
|                                                                       |   | Change                                           |   |   | Volume |   |   | Rate |   |
| INTEREST INCOME                                                            |   |                                             |   |   |   |   |   |   |   |   |
| Loans; taxable                                                             |   | $                                                | 433    |   |   | $ | 505 |   |   |   | (72 | ) |
| Loans; tax-exempt (1)                                                      |   |                                             | 295    |   |   |   | 294 |   |   |   | 1 |   |
| Securities; taxable                                                        |   |                                             | (105   | ) |   |   | 224 |   |   |   | (329 | ) |
| Securities; tax-exempt (1)                                                 |   |                                             | (10    | ) |   |   | 10 |   |   |   | (20 | ) |
| Deposits in banks                                                          |   |                                             | 27     |   |   |   | 35 |   |   |   | (8 | ) |
| Federal funds sold                                                         |   |                                             | -      |   |   |   | - |   |   |   | - |   |
| Total Interest Income                                                      |   |                                             | 640    |   |   |   | 1,068 |   |   |   | (428 | ) |
|                                                                       |   |                                             |   |   |   |   |   |   |   |   |   |   |
| INTEREST EXPENSE                                                           |   |                                             |   |   |   |   |   |   |   |   |   |   |
| NOW accounts                                                               |   |                                             | 238    |   |   |   | 95 |   |   |   | 143 |   |
| Money market accounts                                                      |   |                                             | (56    | ) |   |   | (28 | ) |   |   | (28 | ) |
| Savings accounts                                                           |   |                                             | 46     |   |   |   | 44 |   |   |   | 2 |   |
| Time deposits                                                              |   |                                             | (647   | ) |   |   | 532 |   |   |   | (1,179 | ) |
| Federal funds purchased and securities sold under agreements to repurchase |   |                                             | (37    | ) |   |   | (37 | ) |   |   | - |   |
| Federal Home Loan Bank advances                                            |   |                                             | (50    | ) |   |   | (190 | ) |   |   | 140 |   |
| Capital securities of subsidiary trust                                     |   |                                             | (22    | ) |   |   | - |   |   |   | (22 | ) |
| Total Interest Expense                                                     |   |                                             | (528   | ) |   |   | 416 |   |   |   | (944 | ) |
| Net Interest Income                                                        |   | $                                                | 1,168  |   |   | $ | 652 |   |   | $ | 516 |   |

----

Index

----

Index

----

Index

| At September 30, 2010     |   |                |   |   |
|---------------------------|--------|---------------------|--------|--------|
|                      |   | 30-59 Days Past Due |   |   | 60-89 Days Past Due |   |   | Greater than 90 Days |   |   | Total Past Due |   |   | Total Loans |   |   | Past due as Percentage of Loans |   |
| Secured by real estate:   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction              |   | $                   | -      |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 27,519 |   |   |   | 0.00 | % |
| Farmland                  |   |                | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,087 |   |   |   | 0.00 | % |
| 1-4 Family Residential    |   |                | 1,647  |   |   |   | 959 |   |   |   | 1,150 |   |   |   | 3,756 |   |   |   | 189,020 |   |   |   | 1.99 | % |
| Commercial Real Estate    |   |                | 147    |   |   |   | 1,533 |   |   |   | 102 |   |   |   | 1,782 |   |   |   | 196,987 |   |   |   | 0.90 | % |
| Commercial and Industrial |   |                | 339    |   |   |   | 209 |   |   |   | 873 |   |   |   | 1,421 |   |   |   | 29,338 |   |   |   | 4.84 | % |
| Consumer                  |   |                | 50     |   |   |   | 116 |   |   |   | - |   |   |   | 166 |   |   |   | 7,535 |   |   |   | 2.20 | % |
| Other                     |   |                | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 14,240 |   |   |   | 0.00 | % |
| Total                     |   | $                   | 2,183  |   |   | $ | 2,817 |   |   | $ | 2,125 |   |   | $ | 7,125 |   |   | $ | 465,726 |   |   |   | 1.53 | % |
|                      |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                      |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| At December 31, 2009      |   |                |   |   |   |
|                      |   | 30-59 Days Past Due |   |   | 60-89 Days Past Due |   |   | Greater than 90 Days |   |   | Total Past Due |   |   | Total Loans |   |   | Past due as Percentage of Loans |   |
| Secured by real estate:   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction              |   | $                   | -      |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 33,003 |   |   |   | 0.00 | % |
| Farmland                  |   |                | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 948 |   |   |   | 0.00 | % |
| 1-4 Family Residential    |   |                | 1,978  |   |   |   | 469 |   |   |   | 432 |   |   |   | 2,879 |   |   |   | 193,709 |   |   |   | 1.49 | % |
| Commercial Real Estate    |   |                | 354    |   |   |   | 123 |   |   |   | 1,720 |   |   |   | 2,197 |   |   |   | 186,463 |   |   |   | 1.18 | % |
| Commercial and Industrial |   |                | 781    |   |   |   | 168 |   |   |   | 764 |   |   |   | 1,713 |   |   |   | 29,286 |   |   |   | 5.85 | % |
| Consumer                  |   |                | 137    |   |   |   | 30 |   |   |   | 41 |   |   |   | 208 |   |   |   | 10,390 |   |   |   | 2.00 | % |
| Other                     |   |                | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 14,559 |   |   |   | 0.00 | % |
| Total                     |   | $                   | 3,250  |   |   | $ | 790 |   |   | $ | 2,957 |   |   | $ | 6,997 |   |   | $ | 468,358 |   |   |   | 1.49 | % |
|                      |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                      |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| At September 30, 2009     |   |                |   |   |   |
|                      |   | 30-59 Days Past Due |   |   | 60-89 Days Past Due |   |   | Greater than 90 Days |   |   | Total Past Due |   |   | Total Loans |   |   | Past due as Percentage of Loans |   |
| Secured by real estate:   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction              |   | $                   | -      |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 38,223 |   |   |   | 0.00 | % |
| Farmland                  |   |                | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 950 |   |   |   | 0.00 | % |
| 1-4 Family Residential    |   |                | 2,414  |   |   |   | 521 |   |   |   | 955 |   |   |   | 3,890 |   |   |   | 187,852 |   |   |   | 2.07 | % |
| Commercial Real Estate    |   |                | 349    |   |   |   | - |   |   |   | 2,067 |   |   |   | 2,416 |   |   |   | 183,431 |   |   |   | 1.32 | % |
| Commercial and Industrial |   |                | 1,381  |   |   |   | 59 |   |   |   | 964 |   |   |   | 2,404 |   |   |   | 37,954 |   |   |   | 6.33 | % |
| Consumer                  |   |                | 315    |   |   |   | 34 |   |   |   | 134 |   |   |   | 483 |   |   |   | 11,632 |   |   |   | 4.15 | % |
| Other                     |   |                | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 776 |   |   |   | 0.00 | % |
| Total                     |   | $                   | 4,459  |   |   | $ | 614 |   |   | $ | 4,120 |   |   | $ | 9,193 |   |   | $ | 460,818 |   |   |   | 1.99 | % |

----

Index

|                                                                |   | September 30, |    |   | December 31, |   |
|---------------------------------------------------------------------|--------|---------------|---------|--------|--------------|--------|
|                                                                |   | 2010          |    |   | 2009         |   |
|                                                                |   |          |    |   |         |   |
| Tier 1 Capital:                                                     |   |          |    |   |         |   |
| Shareholders' Equity                                                |   | $             | 44,109  |   |         | $      | 42,639 |   |
| Plus: Unrealized loss on securities available for sale/FAS 158, net |   |          | 1,437   |   |         |   | 1,919 |   |
| Less: Unrealized loss on equity securities, net                     |   |          | (3      | )      |         |   | (4 | ) |
| Plus: Accumulated net losses on cash flow hedges                    |   |          | 171     |   |         |   | - |   |
| Plus: Company-obligated madatorily                                  |   |          |    |   |         |   |   |   |
| redeemable capital securities                                       |   |          | 4,000   |   |         |   | 4,000 |   |
| Total Tier 1 Capital                                                |   |          | 49,714  |   |         |   | 48,554 |   |
|                                                                |   |          |    |   |         |   |   |   |
| Tier 2 Capital:                                                     |   |          |    |   |         |   |   |   |
| Allowable Allowance for Loan Losses                                 |   |          | 5,604   |   |         |   | 5,482 |   |
|                                                                |   |          |    |   |         |   |   |   |
| Total Capital:                                                      |   |          | 55,318  |   |         |   | 54,036 |   |
|                                                                |   |          |    |   |         |   |   |   |
| Risk Weighted Assets:                                               |   | $             | 448,189 |   |         | $      | 442,658 |   |
|                                                                |   |          |    |   |         |   |   |   |
| Regulatory Capital Ratios:                                          |   |          |    |   |         |   |   |   |
| Leverage Ratio                                                      |   |          | 8.51    | %      |         |   | 8.68 | % |
| Tier 1 to Risk Weighted Assets                                      |   |          | 11.09   | %      |         |   | 10.97 | % |
| Total Capital to Risk Weighted Assets                               |   |          | 12.34   | %      |         |   | 12.21 | % |

----

Index

----

Index

|                                                                                    |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-----------------------------------------------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                                                                                    |   | Total              |    |   | In Use            |   |   | Available |   |   | Total |   |   | In Use |   |   | Available |   |
| Sources:                                                                                |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds borrowing lines of credit                                                 |   | $                  | 60,013  |   |              | $      | - |   |   | $ | 60,013 |   |   | $ | 72,563 |   |   | $ | - |   |   | $ | 72,563 |   |
| Federal Home Loan Bank advances                                                         |   |               | 124,636 |   |              |   | 25,000 |   |   |   | 99,636 |   |   |   | 108,310 |   |   |   | 50,000 |   |   |   | 58,310 |   |
| Federal funds sold and interest-bearing deposits in other banks, excluding requirements |   |               |    |   |              |   |   |   |   |   | 57,688 |   |   |   |   |   |   |   |   |   |   |   | 13,617 |   |
| Securities, available for sale and unpledged at fair value                              |   |               |    |   |              |   |   |   |   |   | 8,515 |   |   |   |   |   |   |   |   |   |   |   | 10,730 |   |
| Total short-term funding sources                                                        |   |               |    |   |              |   |   |   |   | $ | 225,852 |   |   |   |   |   |   |   |   |   |   | $ | 155,220 |   |
|                                                                                    |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Uses:                                                                                   |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unfunded loan commitments and lending lines of credit                                   |   |               |    |   |              |   |   |   |   | $ | 67,972 |   |   |   |   |   |   |   |   |   |   | $ | 71,523 |   |
| Letters of credit                                                                       |   |               |    |   |              |   |   |   |   |   | 5,164 |   |   |   |   |   |   |   |   |   |   |   | 8,585 |   |
| Total potential short-term funding uses                                                 |   |               |    |   |              |   |   |   |   | $ | 73,136 |   |   |   |   |   |   |   |   |   |   | $ | 80,108 |   |
|                                                                                    |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of short-term funding sources to potential short-term funding uses                |   |               |    |   |              |   |   |   |   |   | 308.8 | % |   |   |   |   |   |   |   |   |   |   | 193.8 | % |

T

----

Index

IT

IT

I

IT

IT

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Index

I

I

ITE

| Exhibit |   | Exhibit                                                                                                                                         |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| Number  |   | Description                                                                                                                                     |
| 3.1     |   | Articles of Incorporation of Fauquier Bankshares, Inc., as amended, incorporated by reference to Exhibit 3.1 to Form 10-K filed March 15, 2010. |
|    |   |                                                                                                                                            |
| 3.2     |   | Bylaws of Fauquier Bankshares, Inc., as amended and restated, incorporated by reference to Exhibit 3.2 to Form 10-Q filed August 9, 2010.  |
|    |   |                                                                                                                                            |
| 10.15   |   | Fauquier Bankshares, Inc. Supplemental Executive Retirement Plan, as amended and restated October 21, 2010.                                     |
|    |   |                                                                                                                                            |
| 10.15.1 |   | Form of Participation Agreement for Fauquier Bankshares, Inc. Supplemental Executive Retirement Plan.                                           |
|    |   |                                                                                                                                            |
| 31.1    |   | Certification of CEO pursuant to Rule 13a-14(a).                                                                                                |
|    |   |                                                                                                                                            |
| 31.2    |   | Certification of CFO pursuant to Rule 13a-14(a).                                                                                                |
|    |   |                                                                                                                                            |
| 32.1    |   | Certification of CEO pursuant to 18 U.S.C. Section 1350.                                                                                        |
|    |   |                                                                                                                                            |
| 32.2    |   | Certification of CFO pursuant to 18 U.S.C. Section 1350.                                                                                        |

SI

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