*Internal      Control - Integrated Framework *

----

|                                                                                                                                                                                                                               |   | December                31, |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                                                                                                                                                                               |   | 2006                        |    | 2005 |   |
|                                                                                                                                                                                                                               |   |                        |    |   |   |
| ASSETS                                                                                                                                                                                                                             |   |                        |    |
| Cash                and due from banks                                                                                                                                                                                             |   | $                           | 16,982  |   | $ | 8,771 |   |
| Interest                bearing deposits in other banks                                                                                                                                                                            |   |                        | 709     |   |   | 301 |   |
| Federal                funds sold                                                                                                                                                                                                  |   |                        | 1,024   |   |   | 15,923 |   |
| Cash                and cash equivalents                                                                                                                                                                                           |   |                        | 18,715  |   |   | 24,995 |   |
| Investment                securities held to maturity                                                                                                                                                                              |   |                        | 7,271   |   |   | 8,290 |   |
| Loans                held for sale                                                                                                                                                                                                 |   |                        | 2,970   |   |   | 3,216 |   |
| Loans                  receivable, net of allowance for loan losses of $9,026 and $7,505,                  respectively                                                                                                            |   |                        | 832,507 |   |   | 776,117 |   |
| Premises                and equipment, net                                                                                                                                                                                         |   |                        | 30,411  |   |   | 19,963 |   |
| Federal                Home Loan Bank stock at cost                                                                                                                                                                                |   |                        | 9,468   |   |   | 8,513 |   |
| Accrued                interest receivable and other assets                                                                                                                                                                        |   |                        | 10,574  |   |   | 8,680 |   |
|                                                                                                                                                                                                                               |   |                        |    |   |   |   |   |
| Total                assets                                                                                                                                                                                                        |   | $                           | 911,916 |   | $ | 849,774 |   |
|                                                                                                                                                                                                                               |   |                        |    |   |   |   |   |
| LIABILITIES                AND STOCKHOLDERS' EQUITY                                                                                                                                                                                |   |                        |    |   |   |   |   |
| Liabilities                                                                                                                                                                                                                        |   |                        |    |   |   |   |   |
| Deposits                                                                                                                                                                                                                           |   | $                           | 626,524 |   | $ | 594,893 |   |
| Short-term                borrowings                                                                                                                                                                                               |   |                        | 18,000  |   |   | 26,000 |   |
| Long-term                borrowings                                                                                                                                                                                                |   |                        | 155,000 |   |   | 132,000 |   |
| Subordinated                debentures                                                                                                                                                                                             |   |                        | 20,619  |   |   | 20,619 |   |
| Accrued                interest payable and other liabilities                                                                                                                                                                      |   |                        | 5,331   |   |   | 3,550 |   |
|                                                                                                                                                                                                                               |   |                        |    |   |   |   |   |
| Total                liabilities                                                                                                                                                                                                   |   |                        | 825,474 |   |   | 777,062 |   |
|                                                                                                                                                                                                                               |   |                        |    |   |   |   |   |
|                                                                                                                                                                                                                               |   |                        |    |   |   |   |   |
| Stockholders’                Equity                                                                                                                                                                                          |   |                        |    |   |   |   |   |
| Common                  stock, $0.01 par value, 20,000,000 shares authorized; 9,150,850 and                  8,318,184 shares                  issued and outstanding at December                  31, 2006 and 2005, respectively |   |                        | 92      |   |   | 83 |   |
| Additional                paid-in capital                                                                                                                                                                                          |   |                        | 28,270  |   |   | 11,516 |   |
| Retained                earnings                                                                                                                                                                                                   |   |                        | 58,080  |   |   | 61,113 |   |
|                                                                                                                                                                                                                               |   |                        |    |   |   |   |   |
| Total                stockholders' equity                                                                                                                                                                                          |   |                        | 86,442  |   |   | 72,712 |   |
|                                                                                                                                                                                                                               |   |                        |    |   |   |   |   |
| Total                liabilities and stockholders' equity                                                                                                                                                                          |   | $                           | 911,916 |   | $ | 849,774 |   |

----

|                                                               |   | Years                Ended December 31, |   |
|--------------------------------------------------------------------|--------|-----------------------------------------|--------|
| Interest                Income                                     |   | 2006                                    |   | 2005 |   | 2004 |   |
| Loans                                                              |   | $                                       | 68,610 |   | $ | 56,120 |   | $ | 44,091 |   |
| Securities,                taxable                                 |   |                                    | 266    |   |   | 327 |   |   | 419 |   |
| Other                                                              |   |                                    | 1,299  |   |   | 688 |   |   | 319 |   |
| Total                interest income                               |   |                                    | 70,175 |   |   | 57,135 |   |   | 44,829 |   |
|                                                               |   |                                    |   |   |   |   |   |   |   |   |
| Interest                Expense                                    |   |                                    |   |   |   |   |   |   |   |   |
| Deposits                                                           |   |                                    | 23,706 |   |   | 16,274 |   |   | 11,292 |   |
| Short-term                borrowings                               |   |                                    | 438    |   |   | 853 |   |   | 259 |   |
| Long-term                borrowings and subordinated debentures    |   |                                    | 7,916  |   |   | 4,828 |   |   | 3,080 |   |
| Total                interest expense                              |   |                                    | 32,060 |   |   | 21,955 |   |   | 14,631 |   |
|                                                               |   |                                    |   |   |   |   |   |   |   |   |
| Net                interest income                                 |   |                                    | 38,115 |   |   | 35,180 |   |   | 30,198 |   |
| Provision                for loan losses                           |   |                                    | 1,561  |   |   | 1,570 |   |   | 1,200 |   |
| Net                interest income after provision for loan losses |   |                                    | 36,554 |   |   | 33,610 |   |   | 28,998 |   |
|                                                               |   |                                    |   |   |   |   |   |   |   |   |
| Other                Income                                        |   |                                    |   |   |   |   |   |   |   |   |
| Mortgage                banking activities                         |   |                                    | 817    |   |   | 1,416 |   |   | 1,435 |   |
| Real                estate commissions                             |   |                                    | 2,018  |   |   | 545 |   |   | 1,234 |   |
| Real                estate management fees                         |   |                                    | 578    |   |   | 426 |   |   | 404 |   |
| Other                income                                        |   |                                    | 454    |   |   | 361 |   |   | 329 |   |
| Total                other income                                  |   |                                    | 3,867  |   |   | 2,748 |   |   | 3,402 |   |
|                                                               |   |                                    |   |   |   |   |   |   |   |   |
| Non-Interest                Expenses                               |   |                                    |   |   |   |   |   |   |   |   |
| Compensation                and related expenses                   |   |                                    | 10,334 |   |   | 9,080 |   |   | 8,167 |   |
| Occupancy                                                          |   |                                    | 706    |   |   | 719 |   |   | 610 |   |
| Other                                                              |   |                                    | 3,025  |   |   | 3,079 |   |   | 2,434 |   |
| Total                non-interest expenses                         |   |                                    | 14,065 |   |   | 12,878 |   |   | 11,211 |   |
|                                                               |   |                                    |   |   |   |   |   |   |   |   |
| Income                before income tax provision                  |   |                                    | 26,356 |   |   | 23,480 |   |   | 21,189 |   |
| Income                tax provision                                |   |                                    | 10,608 |   |   | 8,926 |   |   | 8,258 |   |
|                                                               |   |                                    |   |   |   |   |   |   |   |   |
| Net                income                                          |   | $                                       | 15,748 |   | $ | 14,554 |   | $ | 12,931 |   |
| Basic                earnings per share                            |   | $                                       | 1.72   |   | $ | 1.59 |   | $ | 1.42 |   |
| Diluted                earnings per share                          |   | $                                       | 1.72   |   | $ | 1.59 |   | $ | 1.42 |   |

----

|                                                                     |   | CommonStock |   | Additional                Paid-In Capital |   | RetainedEarnings |   | Total                Stockholders’ Equity |    |
|--------------------------------------------------------------------------|--------|-------------|--------|-------------------------------------------|--------|------------------|--------|-------------------------------------------------|---------|
|                                                                     |   |        |   |                                      |   |             |   |                                            |    |
| Balance                - December 31, 2003                               |   | $           | 42     |                                      | $      | 11,516           |   | $                                               | 37,412  |   | $ | 48,970 |   |
|                                                                     |   |        |   |                                      |   |             |   |                                            |    |   |   |   |   |
| Comprehensive                Income                                      |   |        |   |                                      |   |             |   |                                            |    |   |   |   |   |
| Net                income                                                |   |        | -      |                                      |   | -                |   |                                            | 12,931  |   |   | 12,931 |   |
| Two-for-one                stock split in the                            |   |        |   |                                      |   |             |   |                                            |    |   |   |  |   |
| form                of a 100% dividend (4,159,092                shares) |   |        | 41     |                                      |   | -                |   |                                            | (41     | ) |   | - |   |
| Dividends                on common stock                                 |   |        |   |                                      |   |             |   |                                            |    |   |   |   |   |
| ($.19                per share)                                          |   |        | -      |                                      |   | -                |   |                                            | (1,747  | ) |   | (1,747 | ) |
|                                                                     |   |        |   |                                      |   |             |   |                                            |    |   |   |   |   |
| Balance                - December 31, 2004                               |   |        | 83     |                                      |   | 11,516           |   |                                            | 48,555  |   |   | 60,154 |   |
|                                                                     |   |        |   |                                      |   |             |   |                                            |    |   |   |   |   |
| Comprehensive                Income                                      |   |        |   |                                      |   |             |   |                                            |    |   |   |   |   |
| Net                income                                                |   |        | -      |                                      |   | -                |   |                                            | 14,554  |   |   | 14,554 |   |
| Dividends                on common stock                                 |   |        |   |                                      |   |             |   |                                            |    |   |   |   |   |
| ($.22                per share)                                          |   |        | -      |                                      |   | -                |   |                                            | (1,996  | ) |   | (1,996 | ) |
|                                                                     |   |        |        |                                      |   |                  |   |                                            |         |   |   |  |   |
| Balance                - December 31, 2005                               |   |        | 83     |                                      |   | 11,516           |   |                                            | 61,113  |   |   | 72,712 |   |
|                                                                     |   |        |   |                                      |   |             |   |                                            |    |   |   |   |   |
| Comprehensive                Income                                      |   |        |   |                                      |   |             |   |                                            |    |   |   |   |   |
| Net                income                                                |   |        | -      |                                      |   | -                |   |                                            | 15,748  |   |   | 15,748 |   |
| 10%                Stock dividend (831,766 shares)                       |   |        | 9      |                                      |   | 16,576           |   |                                            | (16,585 | ) |   | - |   |
| Stock-based                compensation                                  |   |        | -      |                                      |   | 163              |   |                                            | -       |   |   | 163 |   |
| Dividends                on common stock                                 |   |        |   |                                      |   |             |   |                                            |    |   |   |   |   |
| ($.24                per share)                                          |   |        | -      |                                      |   | -                |   |                                            | (2,196  | ) |   | (2,196 | ) |
| Exercise                of stock options (900 shares)                    |   |        | -      |                                      |   | 15               |   |                                            | -       |   |   | 15 |   |
| Balance                - December 31, 2006                               |   | $           | 92     |                                      | $      | 28,270           |   | $                                               | 58,080  |   | $ | 86,442 |   |

----

|                                                             |   | Years                Ended December 31, |    |
|------------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                             |   | 2006                                    |    | 2005 |   | 2004 |   |
| Cash                Flows from Operating Activities              |   |                                    |    |   |   |   |   |
|                                                             |   |                                    |    |   |   |   |   |
| Net                income                                        |   | $                                       | 15,748  |   | $ | 14,554 |   | $ | 12,931 |   |
| Adjustments                to reconcile net income to net        |   |                                    |    |   |   |   |   |   |   |   |
|  cash                provided by operating activities:      |   |                                    |    |   |   |   |   |   |   |   |
| Amortization                of deferred loan fees                |   |                                    | (4,211  | ) |   | (3,927 | ) |   | (3,390 | ) |
| Net                  amortization of premiums and discounts      |   |                                    | 31      |   |   | 31 |   |   | 33 |   |
| Provision                for loan losses                         |   |                                    | 1,561   |   |   | 1,570 |   |   | 1,200 |   |
| Provision                for depreciation                        |   |                                    | 362     |   |   | 377 |   |   | 329 |   |
| Gain                on sale of loans                             |   |                                    | (357    | ) |   | (804 | ) |   | (791 | ) |
| Proceeds                from loans sold to others                |   |                                    | 31,925  |   |   | 78,008 |   |   | 71,664 |   |
| Loans                originated for sale                         |   |                                    | (31,322 | ) |   | (73,766 | ) |   | (74,352 | ) |
| Stock-based                compensation expense                  |   |                                    | 163     |   |   | - |   |   | - |   |
| Increase                in accrued interest receivable           |   |                                    |    |   |   |   |   |   |   |   |
| and                other assets                                  |   |                                    | (924    | ) |   | (2,111 | ) |   | (1,848 | ) |
| Increase                (Decrease) in accrued interest payable   |   |                                    |    |   |   |   |   |   |   |   |
| and                other liabilities                             |   |                                    | 1,781   |   |   | 1,120 |   |   | (346 | ) |
|                                                             |   |                                    |    |   |   |   |   |   |   |   |
| Net                cash provided by operating activities         |   |                                    | 14,757  |   |   | 15,052 |   |   | 5,430 |   |
|                                                             |   |                                    |    |   |   |   |   |   |   |   |
| Cash                Flows from Investing Activities              |   |                                    |    |   |   |   |   |   |   |   |
|                                                             |   |                                    |    |   |   |   |   |   |   |   |
| Proceeds                from maturing investment securities      |   |                                    | -       |   |   | - |   |   | 1,000 |   |
| Principal                collected on mortgage backed securities |   |                                    | 988     |   |   | 1,634 |   |   | 1,733 |   |
| Net                increase in loans                             |   |                                    | (54,710 | ) |   | (123,447 | ) |   | (145,271 | ) |
| Investment                in premises and equipment              |   |                                    | (10,813 | ) |   | (13,336 | ) |   | (2,006 | ) |
| Proceeds                from disposal of premises and            |   |                                    |    |   |   |   |   |   |   |   |
| equipment                                                        |   |                                    | 3       |   |   | - |   |   | - |   |
| Purchase                of FHLB stock                            |   |                                    | (955    | ) |   | (3,430 | ) |   | (1,833 | ) |
|                                                             |   |                                    |    |   |   |   |   |   |   |   |
| Net                cash used in investing activities             |   |                                    | (65,487 | ) |   | (138,579 | ) |   | (146,377 | ) |

----

|                                                              |   | For                the Years Ended December 31, |    |
|-------------------------------------------------------------------|--------|-------------------------------------------------|---------|
|                                                              |   | 2006                                            |    | 2005 |   | 2004 |   |
|                                                              |   |                                            |    |   |   |   |   |
| Cash                Flows from Financing Activities               |   |                                            |    |   |   |   |   |
|                                                              |   |                                            |    |   |   |   |   |
| Net                increase in deposits                           |   | $                                               | 31,631  |   | $ | 67,480 |   | $ | 107,687 |   |
| Net                increase (decrease) in short term borrowings   |   |                                            | (8,000  | ) |   | 26,000 |   |   | (6,000 | ) |
| Additional                borrowed funds, long term               |   |                                            | 73,000  |   |   | 50,000 |   |   | 35,000 |   |
| Repayment                of borrowed funds, long term             |   |                                            | (50,000 | ) |   | (7,000 | ) |   | (5,000 | ) |
| Redemption                of preferred securities of subsidiary   |   |                                            | -       |   |   | (4,000 | ) |   | - |   |
| Cash                dividends paid                                |   |                                            | (2,196  | ) |   | (1,996 | ) |   | (1,747 | ) |
| Proceeds                from exercise of options                  |   |                                            | 15      |   |   | - |   |   | - |   |
| Proceeds                from issuance of subordinated debentures  |   |                                            | -       |   |   | - |   |   | 20,619 |   |
|                                                              |   |                                            |    |   |   |   |   |   |   |   |
| Net                cash provided by financing activities          |   |                                            | 44,450  |   |   | 130,484 |   |   | 150,559 |   |
|                                                              |   |                                            |    |   |   |   |   |   |   |   |
| Increase                (Decrease) in cash and cash equivalents   |   |                                            | (6,280  | ) |   | 6,957 |   |   | 9,612 |   |
| Cash                and cash equivalents at beginning of year     |   |                                            | 24,995  |   |   | 18,038 |   |   | 8,426 |   |
|                                                              |   |                                            |    |   |   |   |   |   |   |   |
| Cash                and cash equivalents at end of year           |   | $                                               | 18,715  |   | $ | 24,995 |   | $ | 18,038 |   |
|                                                              |   |                                            |    |   |   |   |   |   |   |   |
|                                                              |   |                                            |    |   |   |   |   |   |   |   |
| Supplemental                disclosure of cash flows information: |   |                                            |    |   |   |   |   |   |   |   |
| Cash                paid during year for:                         |   |                                            |    |   |   |   |   |   |   |   |
|                                                              |   |                                            |    |   |   |   |   |   |   |   |
| Interest                                                          |   | $                                               | 32,464  |   | $ | 21,693 |   | $ | 14,587 |   |
|                                                              |   |                                            |    |   |   |   |   |   |   |   |
| Income                taxes                                       |   | $                                               | 11,323  |   | $ | 9,624 |   | $ | 8,559 |   |
|                                                              |   |                                            |    |   |   |   |   |   |   |   |
| Transfer                of loans to foreclosed real estate        |   | $                                               | 970     |   | $ | - |   | $ | - |   |

----

**Note      1 - **
**Summary      of Significant Accounting Policies**

**A**
**.       **
**Principles      of Consolidation -**

| **B.  ** | **Business                -**                The Bank's primary business activity is the acceptance of                deposits from                the general public and the use of the proceeds for investments and                loan                originations. The Bank is subject to competition from other financial                institutions. In addition, the Bank is subject to the regulations                of                certain federal agencies and undergoes periodic examinations by those                regulatory authorities. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**C.      **
**Estimates      -**

**D.      Investment Securities Held to Maturity -**

----

**Note      1 - **
**Summary      of Significant Accounting Policies**
**      - Continued**

**E.       Loans Held for Sale -**

| **F.  ** | **Loans                -**                Loans that management has the intent and ability to hold for the                foreseeable future or until maturity or pay-off generally are reported                at                their outstanding unpaid principal balances adjusted for charge-offs,                the                allowance for loan losses, and any deferred fees or costs on originated                loans. Interest income is accrued on the unpaid principal balance.                Loan                origination fees, net of certain direct origination costs, are deferred                and recognized as an adjustment of the related loan yield using the                interest method. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **G.  ** | **Allowance                for Loan Losses -**                An                allowance for loan losses is provided through charges to income in                an                amount that management believes will be adequate to absorb losses                on                existing loans that may become uncollectible, based on evaluations                of the                collectibility of loans and prior loan loss experience. The evaluations                take into consideration such factors as changes in the nature and                volume                of the loan portfolio, overall portfolio quality, review of specific                problem loans, and current economic conditions that may affect the                borrowers' ability to pay. Determining the amount of the allowance                for                loan losses requires the use of estimates and assumptions, which                is                permitted under generally accepted accounting principles. Actual                results                could differ significantly from those estimates. Management believes                the                allowance for losses on loans is adequate. While management uses                available                information to estimate losses on loans, future additions to the                allowances may be necessary based on changes in economic conditions,                particularly in the State of Maryland. In addition, various regulatory                agencies, as an integral part of their examination process, periodically                review the Bank's allowance for losses on loans. Such agencies may                require                the Bank to recognize additions to the allowance based on their judgments                about information available to them at the time of their examination. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Note      1 - **
**Summary      of Significant Accounting Policies**
**      - Continued**

|   | **H.** | **Foreclosed                Real Estate -**                Real estate acquired through or in the process of foreclosure is                recorded                at fair value. Management periodically evaluates the recoverability                of the                carrying value of the real estate acquired through foreclosure using                estimates as described under the caption "Allowance for Loan Losses".                In                the event of a subsequent decline, management provides an additional                allowance, to reduce real estate acquired through foreclosure to                fair                value less estimated disposal cost. Expenses incurred on foreclosed                real                estate prior to disposition are charged to expense. Gains or losses                on the                sale of foreclosed real estate are recognized upon disposition of                the                property. Foreclosed real estate totaled $970,000 and $0 as of December                31, 2006 and 2005, respectively and is included in other                assets. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Note      1 - **
**Summary      of Significant Accounting Policies**
**      - Continued**

| **I.  ** | **Transfers                of Financial Assets -**Transfers                of financial assets, including loan and loan participation sales,                are                accounted for as sales when control over the assets has been surrendered.                Control over transferred assets is deemed to be surrendered when                (1) the                assets have been isolated from Bancorp, (2) the transferee obtains                the                right (free of conditions that constrain it from taking advantage                of that                right) to pledge or exchange the transferred assets and (3) Bancorp                does                not maintain effective control over the transferred assets through                an                agreement to repurchase them before their                maturity. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**J.       **
**Premises      and Equipment -**

|   | **K.** | **Income                Taxes -**                Deferred income taxes are recognized for temporary differences between                the                financial reporting basis and income tax basis of assets and liabilities                based on enacted tax rates expected to be in effect when such amounts                are                realized or settled. Deferred tax assets are recognized only to the                extent                that it is more likely than not that such amounts will be realized                based                on consideration of available evidence. The effect on deferred tax                assets                and liabilities of a change in tax rates is recognized in income                in the                period that includes the enactment date. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **L.** | **Statement                of Cash Flows -**                In                the statement of cash flows, cash and cash equivalents include cash                on                hand, amounts due from banks, Federal Home Loan Bank of Atlanta overnight                deposits, and federal funds sold. Generally, federal funds are sold                for                one day periods. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**M.      **
**Earnings      Per Share -**

----

**Note      1 - **
**Summary      of Significant Accounting Policies**
**      - Continued**

**N.       **
**Employee      Stock Ownership Plan -**

**O.       **
**Advertising      Cost - **

| **P.  ** | **Reclassifications                -**                Certain prior year amounts have been reclassified to conform to the                current year's method of presentation. These reclassifications had                no                effect on net income. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **Q.** | **Recent                Accounting Pronouncements -**In                February 2006, the Financial Accounting Standards Board (“FASB”) issued                SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”. SFAS                No. 155 amends FASB Statement No. 133 and FASB Statement No. 140,                and                improves the financial reporting of certain hybrid financial instruments                by requiring more consistent accounting that eliminates exemptions                and                provides a means to simplify the accounting for these instruments.                Specifically, SFAS No.155 allows financial instruments that have                embedded                derivatives to be accounted for as a whole (eliminating the need                to                bifurcate the derivative from its host) if the holder elects to account                for the whole instrument on a fair value basis. SFAS No. 155 is effective                for all financial instruments acquired or issued after the beginning                of an                entity’s first fiscal year that begins after September 15, 2006. The                Company is required to adopt the provisions of SFAS No. 155, as                applicable, beginning in fiscal year 2007. Management                does not believe the adoption of SFAS No. 155 will have any impact                on the                Company’s financial statements. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Note      1 - **
**Summary      of Significant Accounting Policies**
**      - Continued**

*Fair      Value Measurements*

----

**Note      2 - **
**Investment      Securities**
** **

|                                      |   |  AmortizedCost                   |   | Gross                Unrealized Gains |   | Gross                Unrealized Losses |   |  Fair                Value |   |
|-------------------------------------------|--------|---------------------------------------|--------|---------------------------------------|--------|----------------------------------------|--------|---------------------------------|--------|
|                                      |   | (dollars                in thousands) |   |
| December                31, 2006:         |   |                                  |   |                                  |   |                                   |   |                            |   |
|                                      |   |                                  |   |                                  |   |                                   |   |                            |   |
| Federal                Home Loan Bank     |   |                                  |   |                                  |   |                                   |   |                            |   |   |   |   |   |
| (“FHLB”)                Notes |   | $                                     | 5,000  |                                  | $      | -                                      |   | $                               | 75     |   | $ | 4,925 |   |
| Mortgage                backed securities |   |                                  | 2,271  |                                  |   | 3                                      |   |                            | 82     |   |   | 2,192 |   |
|                                      |   | $                                     | 7,271  |                                  | $      | 3                                      |   | $                               | 157    |   | $ | 7,117 |   |
| December                31, 2005:         |   |                                  |   |                                  |   |                                   |   |                            |   |   |   |   |   |
|                                      |   |                                  |   |                                  |   |                                   |   |                            |   |   |   |   |   |
| Federal                Home Loan Bank     |   |                                  |   |                                  |   |                                   |   |                            |   |   |   |   |   |
| (“FHLB”)                Notes |   | $                                     | 5,000  |                                  | $      | -                                      |   | $                               | 158    |   | $ | 4,842 |   |
| Mortgage                backed securities |   |                                  | 3,290  |                                  |   | 4                                      |   |                            | 144    |   |   | 3,150 |   |
|                                      |   | $                                     | 8,290  |                                  | $      | 4                                      |   | $                               | 302    |   | $ | 7,992 |   |

----

**Note      2 - **
**Investment      Securities**
**      - Continued**

|                                       |   | AmortizedCost                         |   | FairValue |   |
|--------------------------------------------|--------|---------------------------------------|--------|-----------|--------|
|                                       |   | (dollars                in thousands) |   |
|                                       |   |                                  |   |      |   |
| Due                less than one year      |   | $                                     | 4,796  |      | $      | 4,731 |   |
| More                than five to ten years |   |                                  | 1,000  |      |   | 982 |   |
| Greater                than ten years      |   |                                  | 1,475  |      |   | 1,404 |   |
|                                       |   | $                                     | 7,271  |      | $      | 7,117 |   |

| 2006                                                 |   | Less                than 12 months    |   | 12                Months or More |   | Total                     |   |
|------------------------------------------------------|--------|---------------------------------------|--------|----------------------------------|--------|---------------------------|--------|
|                                                 |   |                                  |   | Unrealized                       |   |                      |   | Unrealized |   |   |   | Unrealized |   |
|                                                 |   | Fair                Value             |   | Losses                           |   | Fair                Value |   | Losses |   | Fair                Value |   | Losses |   |
|                                                 |   | (dollars                in thousands) |   |
|                                                 |   |                                  |   |                             |   |                      |   |   |   |   |   |   |   |
| Federal                Home Loan Bank Notes          |   | $                                     | -      |                             | $      | -                         |   | $ | 4,925 |   | $ | 75 |   | $ | 4,925 |   | $ | 75 |   |
| Mortgage                Backed Securities            |   |                                  | -      |                             |   | -                         |   |   | 2,181 |   |   | 82 |   |   | 2,181 |   |   | 82 |   |
|                                                 |   |                                  |   |                             |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                temporarily impaired securities |   | $                                     | -      |                             | $      | -                         |   | $ | 7,106 |   | $ | 157 |   | $ | 7,106 |   | $ | 157 |   |

----

**Note      2 - **
**Investment      Securities**
** **
**-**
**      Continued**

| 2005                                                 |   | Less                than 12 months    |   | 12                Months or More |   | Total                     |   |
|------------------------------------------------------|--------|---------------------------------------|--------|----------------------------------|--------|---------------------------|--------|
|                                                 |   |                                  |   | Unrealized                       |   |                      |   | Unrealized |   |   |   | Unrealized |   |
|                                                 |   | Fair                Value             |   | Losses                           |   | Fair                Value |   | Losses |   | Fair                Value |   | Losses |   |
|                                                 |   | (dollars                in thousands) |   |
|                                                 |   |                                  |   |                             |   |                      |   |   |   |   |   |   |   |
| Federal                Home Loan Bank Notes          |   | $                                     | 973    |                             | $      | 27                        |   | $ | 3,869 |   | $ | 131 |   | $ | 4,842 |   | $ | 158 |   |
| Mortgage                Backed Securities            |   |                                  | 500    |                             |   | 15                        |   |   | 2,635 |   |   | 129 |   |   | 3,135 |   |   | 144 |   |
|                                                 |   |                                  |   |                             |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                temporarily impaired securities |   | $                                     | 1,473  |                             | $      | 42                        |   | $ | 6,504 |   | $ | 260 |   | $ | 7,977 |   | $ | 302 |   |

----

**Note      3 - **
**Loans      Receivable**

|                                                         |   | December                31,           |     |
|--------------------------------------------------------------|--------|---------------------------------------|----------|
|                                                         |   | 2006                                  |     | 2005 |   |
|                                                         |   | (dollars                in thousands) |     |
|                                                         |   |                                  |     |   |   |
| Residential                mortgage                          |   | $                                     | 249,448  |   | $ | 219,988 |   |
| Construction,                land acquisition and            |   |                                  |     |   |   |   |   |
| development                                                  |   |                                  | 339,122  |   |   | 390,376 |   |
| Land                                                         |   |                                  | 90,747   |   |   | 77,319 |   |
| Lines                of credit                               |   |                                  | 40,733   |   |   | 35,491 |   |
| Commercial                real estate                        |   |                                  | 193,299  |   |   | 163,449 |   |
| Commercial                non-real estate                    |   |                                  | 3,348    |   |   | 3,412 |   |
| Home                equity                                   |   |                                  | 32,758   |   |   | 32,974 |   |
| Consumer                                                     |   |                                  | 1,537    |   |   | 1,768 |   |
|                                                         |   |                                  | 950,992  |   |   | 924,777 |   |
| Less                                                         |   |                                  |     |   |   |   |   |
| Loans                in process                              |   |                                  | (104,747 | ) |   | (136,239 | ) |
| Allowance                for loan losses                     |   |                                  | (9,026   | ) |   | (7,505 | ) |
| Deferred                loan origination fees and costs, net |   |                                  | (4,712   | ) |   | (4,916 | ) |
|                                                         |   |                                  |     |   |   |   |   |
|                                                         |   | $                                     | 832,507  |   | $ | 776,117 |   |

----

**Note      3 - **
**Loans      Receivable**
**      - Continued**

|                                        |   | 2006                                  |   | 2005   |   | 2004   |   |
|---------------------------------------------|--------|---------------------------------------|--------|--------|--------|--------|--------|
|                                        |   | (dollars                in thousands) |   |
|                                        |   |                                  |   |   |   |   |   |
| Balance                at beginning of year |   | $                                     | 7,505  |   | $      | 5,935  |   | $ | 4,832 |   |
| Provision                for loan losses    |   |                                  | 1,561  |   |   | 1,570  |   |   | 1,200 |   |
| Charge-offs                                 |   |                                  | (40    | )      |   | -      |   |   | (97 | ) |
| Balance                at end of year       |   | $                                     | 9,026  |   | $      | 7,505  |   | $ | 5,935 |   |

|                                                             |   | 2006                                    |   | 2005   |   | 2004   |   |
|------------------------------------------------------------------|--------|-----------------------------------------|--------|--------|--------|--------|--------|
|                                                             |   | (dollars                  in thousands) |   |
|                                                             |   |                                    |   |   |   |   |   |
| Interest                    income that would have been recorded |   | $                                       | 416    |   | $      | 147    |   | $ | 70 |   |
| Interest                    income recognized                    |   |                                    | 188    |   |   | 64     |   |   | 37 |   |
| Interest                    income not recognized                |   | $                                       | 228    |   | $      | 83     |   | $ | 33 |   |

----

**Note      3 - **
**Loans      Receivable**
**      - Continued**

| Financial                Instruments Whose ContractAmounts                Represent Credit Risk |   | Contract                AmountAt                December 31, |    |
|-------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|---------|
|                                                                                            |   | 2006                                                         |    | 2005 |   |
|                                                                                            |   | (dollars                in thousands)                        |    |
| Standby                letters of credit                                                        |   | $                                                            | 6,032   |   | $ | 6,617 |   |
| Home                equity lines of credit                                                      |   |                                                         | 25,084  |   |   | 19,802 |   |
| Unadvanced                construction commitments                                              |   |                                                         | 104,747 |   |   | 136,239 |   |
| Loan                commitments                                                                 |   |                                                         | 14,815  |   |   | 19,515 |   |
| Lines                of credit                                                                  |   |                                                         | 33,495  |   |   | 33,782 |   |
| Loans                sold with limited                                                          |   |                                                         |    |   |   |   |   |
| repurchase                provisions                                                            |   | $                                                            | 6,089   |   | $ | 11,048 |   |

----

**Note      3 - **
**Loans      Receivable**
**      - Continued**

----

**Note      4 - **
**Premises      and Equipment**

|                                             |   | December                31,           |   | Estimated |   |
|--------------------------------------------------|--------|---------------------------------------|--------|-----------|--------|
|                                             |   | 2006                                  |   | 2005      |   | Useful                Lives |   |
|                                             |   | (dollars                in thousands) |   |      |   |
| Land                                             |   | $                                     | 1,924  |      | $      | 1,924 |   |   | - |   |
| Building                                         |   |                                  | 2,290  |      |   | 2,290 |   |   | 39                Years |   |
| Leasehold                improvements            |   |                                  | 600    |      |   | 597 |   |   | 15-27.5                Years |   |
| Furniture,                fixtures and equipment |   |                                  | 2,325  |      |   | 2,276 |   |   | 3-10                Years |   |
| Construction                in progress          |   |                                  | 25,787 |      |   | 15,068 |   |   | - |   |
| Total                at cost                     |   |                                  | 32,926 |      |   | 22,155 |   |   |   |   |
| Accumulated                depreciation          |   |                                  | (2,515 | )         |   | (2,192 | ) |   |   |   |
|                                             |   | $                                     | 30,411 |      | $      | 19,963 |   |   |   |   |

| Years                Ended December 31, (in thousands) |   |
|--------------------------------------------------------|--------|
| 2007                                                   |   | $ | 60 |   |
| 2008                                                   |   |   | 60 |   |
| 2009                                                   |   |   | 60 |   |
| 2010                                                   |   |   | 34 |   |

----

**Note      5 - **
**Investment      in Federal Home Loan Bank of Atlanta Stock**

**Note      6 - **
**Deposits**

|                                         |   | 2006                                  |    | 2005    |   |
|----------------------------------------------|--------|---------------------------------------|---------|---------|--------|
| Category                                     |   | Amount                                |    | Percent |   | Amount |   | Percent |   |
|                                         |   | (dollars                in thousands) |    |
|                                         |   |                                  |    |    |   |   |   |   |   |
| NOW                accounts                  |   | $                                     | 9,314   |    |   | 1.49 | % | $ | 7,683 |   |   | 1.30 | % |
| Money                market accounts         |   |                                  | 89,120  |    |   | 14.22 | % |   | 99,911 |   |   | 16.79 | % |
| Passbooks                                    |   |                                  | 18,526  |    |   | 2.96 | % |   | 17,505 |   |   | 2.94 | % |
| Certificates                of deposit       |   |                                  | 490,865 |    |   | 78.35 | % |   | 445,592 |   |   | 74.90 | % |
| Non-interest                bearing accounts |   |                                  | 18,699  |    |   | 2.98 | % |   | 24,202 |   |   | 4.07 | % |
|                                         |   |                                  |    |    |   |   |   |   |   |   |   |   |   |
| Total                deposits                |   | $                                     | 626,524 |    |   | 100.00 | % | $ | 594,893 |   |   | 100.00 | % |

----

**Note      6 - **
**Deposits**
**      - Continued**

|                                        |   | Amount                                |    |
|---------------------------------------------|--------|---------------------------------------|---------|
|                                        |   | (dollars                in thousands) |    |
| One                year or less             |   | $                                     | 409,469 |   |
| More                than 1 year to 2 years  |   |                                  | 42,380  |   |
| More                than 2 years to 3 years |   |                                  | 8,462   |   |
| More                than 3 years to 4 years |   |                                  | 14,764  |   |
| More                than 4 years to 5 years |   |                                  | 15,745  |   |
| More                than 5 years            |   |                                  | 45      |   |
|                                        |   | $                                     | 490,865 |   |

|                                   |   | For                Years Ended December 31, |   |
|----------------------------------------|--------|---------------------------------------------|--------|
|                                   |   | 2006                                        |   | 2005 |   | 2004 |   |
|                                   |   | (dollars                in thousands)       |   |
|                                   |   |                                        |   |   |   |   |   |
| NOW                accounts            |   | $                                           | 57     |   | $ | 55 |   | $ | 59 |   |
| Money                market accounts   |   |                                        | 3,076  |   |   | 2,250 |   |   | 2,350 |   |
| Passbooks                              |   |                                        | 573    |   |   | 289 |   |   | 283 |   |
| Certificates                of deposit |   |                                        | 20,000 |   |   | 13,680 |   |   | 8,600 |   |
|                                   |   | $                                           | 23,706 |   | $ | 16,274 |   | $ | 11,292 |   |

----

**Note      7 - **
**Federal      Home Loan Bank Advances**

| Description                  |   | Rate   |                          | Amount |   | Maturity |   |
|------------------------------|--------|--------|-------------------------------|--------|--------|----------|--------|
| FHLB                advances |   |   | 2.89%                to 4.01  | %      |   | 15,000   |   |   | 2007 |   |
| FHLB                advances |   |   | 3.33%                to 5.395 | %      |   | 30,000   |   |   | 2008 |   |
| FHLB                advances |   |   | 3.09                          | %      |   | 5,000    |   |   | 2009 |   |
| FHLB                advances |   |   | 5.00                          | %      |   | 10,000   |   |   | 2010 |   |
| FHLB                advances |   |   | -                             | %      |   | -        |   |   | 2011 |   |
| FHLB                advances |   |   | 2.64%                to 4.934 | %      |   | 95,000   |   |   | Thereafter |   |
|                         |   |   |                          |   | $      | 155,000  |   |   |   |   |

**Note      8 - **
**Subordinated      Debentures**

----

**Note      9 - **
**Employee      Benefit Plans**

**Note      10- **
**Stockholders’      Equity**

**Note      11- **
**Stock-Based      Compensation**

----

**Note      11- **
**Stock-Based      Compensation**
**      - Continued**

|                                    |   | 2006  |   |
|-----------------------------------------|--------|------------|--------|
| Expected                life (in years) |   |       | 4.83   |   |
| Risk-free                interest rate  |   |       | 4.59   | % |
| Expected                volatility      |   |       | 53.66  | % |
| Expected                dividend yield  |   |       | 4.54   | % |

----

**Note      11- **
**Stock-Based      Compensation **
**-      Continued**

|                                                    |   |   |    |     |   | Weighted                               |   |      |   |
|---------------------------------------------------------|--------|--------|---------|----------|--------|----------------------------------------|--------|-----------|--------|
|                                                    |   |   |    | Weighted |   | Average                                |   | Aggregate |   |
|                                                    |   |   |    | Average  |   | Remaining                              |   | Intrinsic |   |
|                                                    |   | Shares |    | Price    |   | Life                                   |   | Value     |   |
| Options                  outstanding, beginning of year |   |   | -       |     | $      | -                                      |   |      |   |   |   |   |   |
| Options                  granted                        |   |   | 113,300 |     |   | 17.43                                  |   |      |   |   |   |   |   |
| Options                  exercised                      |   |   | (900    | )        |   | 17.18                                  |   |      |   |   |   |   |   |
| Options                  outstanding, end of period     |   |   | 112,400 |     | $      | 17.43                                  |   |      | 3.97   |   | $ | 201,000 |   |
| Options                  exercisable, end of period     |   |   | 9,000   |     | $      | 17.18                                  |   |      | 2.14   |   | $ | 18,000 |   |
| Option                  price range at end of period    |   |   |    |     | $      | 17.18                  to $18.90  |   |      |   |   |   |   |   |

----

**Note      12- **
**Regulatory      Matters**
** **

----

**Note      12- **
**Regulatory      Matters**
**      - Continued**

|                                |    Actual                |   |   For                  CapitalAdequacy                  Purposes |   | To                  Be WellCapitalized                  UnderPrompt                  CorrectiveAction                  Provisions |
|-------------------------------------|-----------------------------------------|--------|----------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------|
|                                | Amount                                  |   | %                                                                          |   | Amount                                                                                                                            |   | % |   | Amount |   | % |
|                                | (dollars                  in thousands) |
| December                  31, 2006  |                                    |   |                                                                       |   |                                                                                                                              |   |   |   |   |   |   |
| Tangible                  (1)       | $99,445                                 |   | 11.0%                                                                      |   | $13,513                                                                                                                           |   | 1.50% |   | N/A |   | N/A |
| Tier                  I capital (2) | 99,445                                  |   | 13.1%                                                                      |   | N/A                                                                                                                               |   | N/A |   | $45,582 |   | 6.00% |
| Core                  (1)           | 99,445                                  |   | 11.0%                                                                      |   | 36,034                                                                                                                            |   | 4.00% |   | 45,043 |   | 5.00% |
| Total                  (2)          | 108,452                                 |   | 14.3%                                                                      |   | 60,776                                                                                                                            |   | 8.00% |   | 75,971 |   | 10.00% |
|                                |                                    |   |                                                                       |   |                                                                                                                              |   |   |   |   |   |   |
| December                  31, 2005  |                                    |   |                                                                       |   |                                                                                                                              |   |   |   |   |   |   |
| Tangible                  (1)       | $86,354                                 |   | 10.3%                                                                      |   | $12,619                                                                                                                           |   | 1.50% |   | N/A |   | N/A |
| Tier                  I capital (2) | 86,354                                  |   | 12.2%                                                                      |   | N/A                                                                                                                               |   | N/A |   | $42,395 |   | 6.00% |
| Core                  (1)           | 86,354                                  |   | 10.3%                                                                      |   | 33,651                                                                                                                            |   | 4.00% |   | 42,064 |   | 5.00% |
| Total                  (2)          | 93,851                                  |   | 13.3%                                                                      |   | 56,527                                                                                                                            |   | 8.00% |   | 70,659 |   | 10.00% |

----

**Note      13- **
**Income      Taxes**

|                                      |   |                                  |   |
|-------------------------------------------|--------|---------------------------------------|--------|
|                                      |   | 2006                                  |   | 2005 |   | 2004 |   |
|                                      |   | (dollars                in thousands) |   |
|                                      |   |                                  |   |   |   |   |   |
| Current                                   |   |                                  |   |   |   |   |   |
| Federal                                   |   | $                                     | 9,186  |   | $ | 7,241 |   | $ | 6,420 |   |
| State                                     |   |                                  | 2,043  |   |   | 1,472 |   |   | 1,430 |   |
|                                      |   |                                  | 11,229 |   |   | 8,713 |   |   | 7,850 |   |
| Deferred                                  |   |                                  |   |   |   |   |   |   |   |   |
| Federal                                   |   |                                  | (511   | ) |   | 176 |   |   | 343 |   |
| State                                     |   |                                  | (110   | ) |   | 37 |   |   | 65 |   |
|                                      |   |                                  | (621   | ) |   | 213 |   |   | 408 |   |
|                                      |   |                                  |   |   |   |   |   |   |   |   |
| Total                income tax provision |   | $                                     | 10,608 |   | $ | 8,926 |   | $ | 8,258 |   |

|                             | 2006                                  |   | 2005                                   |   | 2004               |
|----------------------------------|---------------------------------------|--------|----------------------------------------|--------|--------------------|
|                             |   Amount                    |   | Percent                of PretaxIncome |   |   Amount |   | Percent                of Pretax Income |   |   Amount |   | Percent                ofPretaxIncome |
|                             | (dollars                in thousands) |
| Statutory                Federal |                                  |   |                                   |   |               |   |   |   |   |   |   |
| income                tax rate   | $9,225                                |   | 35.0%                                  |   | $8,218             |   | 35.0% |   | $7,416 |   | 35.0% |
| State                tax net of  |                                  |   |                                   |   |               |   |   |   |   |   |   |
| Federal                income    |                                  |   |                                   |   |               |   |   |   |   |   |   |
| tax                benefit       | 1,256                                 |   | 4.8%                                   |   | 981                |   | 4.2% |   | 972 |   | 4.6% |
| Other                adjustments | 127                                   |   | 0.4%                                   |   | (273)              |   | (1.2%) |   | (130) |   | (0.6%) |
|                             | $10,608                               |   | 40.2%                                  |   | $8,926             |   | 38.0% |   | $8,258 |   | 39.0% |

----

**Note      13- **
**Income      Taxes**
**      - Continued**

|                                                  |   | 2006                                  |   | 2005   |   |
|-------------------------------------------------------|--------|---------------------------------------|--------|--------|--------|
|                                                  |   | (dollars                in thousands) |   |
|                                                  |   |                                  |   |   |   |
| Deferred                Tax Assets:                   |   |                                  |   |   |   |   |   |
| Allowances                for loan losses             |   | $                                     | 3,570  |   | $      | 2,968 |   |
| Reserve                for uncollected interest       |   |                                  | 90     |   |   | 11 |   |
| Other                                                 |   |                                  | 19     |   |   | - |   |
| Total                deferred tax assets              |   |                                  | 3,679  |   |   | 2,979 |   |
|                                                  |   |                                  |   |   |   |   |   |
| Deferred                Tax Liabilities:              |   |                                  |   |   |   |   |   |
| Federal                Home Loan Bank stock dividends |   |                                  | (82    | )      |   | (82 | ) |
| Loan                origination costs                 |   |                                  | (892   | )      |   | (802 | ) |
| Accelerated                depreciation               |   |                                  | (532   | )      |   | (560 | ) |
| Other                                                 |   |                                  | (80    | )      |   | (63 | ) |
| Total                deferred tax liabilities         |   |                                  | (1,586 | )      |   | (1,507 | ) |
|                                                  |   |                                  |   |   |   |   |   |
| Net                deferred tax assets                |   | $                                     | 2,093  |   | $      | 1,472 |   |

**Note      14- **
**Related      Party Transactions**

----

**Note      15- **
**Disclosure      About Fair Value of Financial Instruments**

----

**Note      15- **
**Disclosure      About Fair Value of Financial Instruments**
**      - Continued**

|                                         |   | December                31, 2006      |    | December                31, 2005 |   |
|----------------------------------------------|--------|---------------------------------------|---------|----------------------------------|--------|
|                                         |   | CarryingAmount                        |    | FairValue                        |   | CarryingAmount |   | FairValue |   |
|                                         |   | (dollars                in thousands) |    |
|                                         |   |                                  |    |                             |   |   |   |   |   |
| Financial                Assets              |   |                                  |    |                             |   |   |   |   |   |
| Cash                and cash equivalents     |   | $                                     | 18,715  |                             | $      | 18,715 |   | $ | 24,995 |   | $ | 24,995 |   |
| Investment                securities         |   |                                  | 7,271   |                             |   | 7,117 |   |   | 8,290 |   |   | 7,992 |   |
| FHLB                stock                    |   |                                  | 9,468   |                             |   | 9,468 |   |   | 8,513 |   |   | 8,513 |   |
| Loans                held for sale           |   |                                  | 2,970   |                             |   | 2,970 |   |   | 3,216 |   |   | 3,216 |   |
| Loans                receivable, net         |   |                                  | 832,507 |                             |   | 836,164 |   |   | 776,117 |   |   | 765,436 |   |
| Accrued                interest receivable   |   |                                  | 5,070   |                             |   | 5,070 |   |   | 4,562 |   |   | 4,562 |   |
|                                         |   |                                  |    |                             |   |   |   |   |   |   |   |   |   |
| Financial                Liabilities         |   |                                  |    |                             |   |   |   |   |   |   |   |   |   |
| Deposits                                     |   | $                                     | 626,524 |                             | $      | 627,066 |   | $ | 594,893 |   | $ | 594,609 |   |
| FHLB                advances                 |   |                                  | 173,000 |                             |   | 168,662 |   |   | 158,000 |   |   | 153,962 |   |
| Subordinated                debentures       |   |                                  | 20,619  |                             |   | 20,619 |   |   | 20,619 |   |   | 20,619 |   |
| Accrued                interest payable      |   |                                  | 865     |                             |   | 865 |   |   | 607 |   |   | 607 |   |
|                                         |   |                                  |    |                             |   |   |   |   |   |   |   |   |   |
| Off                Balance Sheet Commitments |   | $                                     | -       |                             | $      | - |   | $ | - |   | $ | - |   |
|                                         |   |                                  |    |                             |   |   |   |   |   |   |   |   |   |

----

**Note      16- **
**Condensed      Financial Information (Parent Company Only)**

|                                                            |   | December                31,           |    |
|-----------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                            |   | 2006                                  |    | 2005 |   |
|                                                            |   | (dollars                in thousands) |    |
| Statements                of Financial Condition                |   |                                  |    |   |   |
|                                                            |   |                                  |    |   |   |
| Cash                                                            |   | $                                     | 1,643   |   | $ | 1,828 |   |
| Equity                in net assets of subsidiaries:            |   |                                  |    |   |   |   |   |
| Bank                                                            |   |                                  | 99,445  |   |   | 86,354 |   |
| Non-Bank                                                        |   |                                  | 4,636   |   |   | 3,512 |   |
| Loans                                                           |   |                                  | 1,199   |   |   | 1,856 |   |
| Other                assets                                     |   |                                  | 923     |   |   | 866 |   |
|  Total                assets                               |   | $                                     | 107,846 |   | $ | 94,416 |   |
|                                                            |   |                                  |    |   |   |   |   |
| Subordinated                debentures                          |   | $                                     | 20,619  |   | $ | 20,619 |   |
| Other                liabilities                                |   |                                  | 785     |   |   | 1,085 |   |
|                                                            |   |                                  |    |   |   |   |   |
| Total                liabilities                                |   |                                  | 21,404  |   |   | 21,704 |   |
|                                                            |   |                                  |    |   |   |   |   |
| Stockholders’                equity                       |   |                                  | 86,442  |   |   | 72,712 |   |
|                                                            |   |                                  |    |   |   |   |   |
| Total                liabilities and stockholders’ equity |   | $                                     | 107,846 |   | $ | 94,416 |   |

|                                                              |   | For                the Years Ended December 31, |   |
|-------------------------------------------------------------------|--------|-------------------------------------------------|--------|
|                                                              |   | 2006                                            |   | 2005 |   | 2004 |   |
|                                                              |   | (dollars                in thousands)           |   |
| Statements                of Income                               |   |                                            |   |   |   |   |   |
|  Interest                income                              |   | $                                               | 129    |   | $ | 36 |   | $ | - |   |
| Interest                expense on subordinated debentures        |   |                                            | 1,443  |   |   | 1,087 |   |   | 34 |   |
|                                                              |   |                                            |   |   |   |   |   |   |   |   |
| Net                interest expense                               |   |                                            | (1,314 | ) |   | (1,051 | ) |   | (34 | ) |
|  Dividends                received from subsidiaries         |   |                                            | 3,424  |   |   | 2,920 |   |   | 1,747 |   |
| General                and administrative expenses                |   |                                            | 292    |   |   | 153 |   |   | 125 |   |
| Income                before income taxes and equity in           |   |                                            |   |   |   |   |   |   |   |   |
| undistributed                net income of subsidiaries           |   |                                            | 1,818  |   |   | 1,716 |   |   | 1,588 |   |
|                                                              |   |                                            |   |   |   |   |   |   |   |   |
| Income                tax benefit                                 |   |                                            | 415    |   |   | 27 |   |   | 44 |   |
| Equity                in undistributed net income of subsidiaries |   |                                            | 13,515 |   |   | 12,811 |   |   | 11,299 |   |
|                                                              |   |                                            |   |   |   |   |   |   |   |   |
| Net                income                                         |   | $                                               | 15,748 |   | $ | 14,554 |   | $ | 12,931 |   |

----

**Note      16- **
**Condensed      Financial Information (Parent Company Only)**
**      - Continued**

|                                                             |   | For                the Years Ended December 31, |    |
|------------------------------------------------------------------|--------|-------------------------------------------------|---------|
|                                                             |   | 2006                                            |    | 2005 |   | 2004 |   |
|                                                             |   | (dollars                in thousands)           |    |
| Statements                of Cash Flows                          |   |                                            |    |   |   |   |   |
|                                                             |   |                                            |    |   |   |   |   |
| Cash                Flows from Operating Activities:             |   |                                            |    |   |   |   |   |
| Net                income                                        |   | $                                               | 15,748  |   | $ | 14,554 |   | $ | 12,931 |   |
| Adjustments                to reconcile net income to net        |   |                                            |    |   |   |   |   |   |   |   |
| cash                provided by operating activities:            |   |                                            |    |   |   |   |   |   |   |   |
| Equity                in undistributed earnings of subsidiaries  |   |                                            | (13,515 | ) |   | (12,811 | ) |   | (11,299 | ) |
| Increase                in other assets                          |   |                                            | (57     | ) |   | (134 | ) |   | (602 | ) |
| Stock-based                compensation expense                  |   |                                            | 163     |   |   | - |   |   | - |   |
| Increase                (decrease) in other liabilities          |   |                                            | (300    | ) |   | 586 |   |   | 119 |   |
|                                                             |   |                                            |    |   |   |   |   |   |   |   |
| Cash                provided by operating activities             |   |                                            | 2,039   |   |   | 2,195 |   |   | 1,149 |   |
|                                                             |   |                                            |    |   |   |   |   |   |   |   |
| Cash                Flows from Investing Activities:             |   |                                            |    |   |   |   |   |   |   |   |
| Net                (increase) decrease in loans                  |   |                                            | 657     |   |   | (1,856 | ) |   | - |   |
| Investment                in subsidiaries                        |   |                                            | (700    | ) |   | - |   |   | (17,000 | ) |
|                                                             |   |                                            |    |   |   |   |   |   |   |   |
| Cash                used in investing activities                 |   |                                            | (43     | ) |   | (1,856 | ) |   | (17,000 | ) |
|  Cash                Flows from Financing Activities:       |   |                                            |    |   |   |   |   |   |   |   |
| Dividends                paid on capital stock                   |   |                                            | (2,196  | ) |   | (1,996 | ) |   | (1,747 | ) |
| Proceeds                from issuance of subordinated debentures |   |                                            | -       |   |   | - |   |   | 20,619 |   |
| Proceeds                from exercise of options                 |   |                                            | 15      |   |   | - |   |   | - |   |
|                                                             |   |                                            |    |   |   |   |   |   |   |   |
| Cash                provided by (used in) financing activities   |   |                                            | (2,181  | ) |   | (1,996 | ) |   | 18,872 |   |
|                                                             |   |                                            |    |   |   |   |   |   |   |   |
| Increase                (decrease) in cash and cash equivalents  |   |                                            | (185    | ) |   | (1,657 | ) |   | 3,021 |   |
|                                                             |   |                                            |    |   |   |   |   |   |   |   |
| Cash                and cash equivalents at beginning of year    |   |                                            | 1,828   |   |   | 3,485 |   |   | 464 |   |
|                                                             |   |                                            |         |   |   |  |   |   |  |   |
| Cash                and cash equivalents at end of year          |   | $                                               | 1,643   |   | $ | 1,828 |   | $ | 3,485 |   |

----

**Note      17- **
**Quarterly      Financial Data (Unaudited)**

|                                                               |   | FirstQuarter                                                 |   | Second                Quarter |   | ThirdQuarter |   | FourthQuarter |   |
|--------------------------------------------------------------------|--------|--------------------------------------------------------------|--------|-------------------------------|--------|--------------|--------|---------------|--------|
|                                                               |   | (dollars                in thousands, except per share data) |   |
|                                                               |   |                                                         |   |                          |   |         |   |          |   |
| Interest                income                                     |   | $                                                            | 16,255 |                          | $      | 17,545       |   | $             | 18,174 |   | $ | 18,201 |   |
| Interest                expense                                    |   |                                                         | 6,844  |                          |   | 7,765        |   |          | 8,490  |   |   | 8,961 |   |
| Net                interest income                                 |   |                                                         | 9,411  |                          |   | 9,780        |   |          | 9,684  |   |   | 9,240 |   |
| Provision                for loan losses                           |   |                                                         | 382    |                          |   | 375          |   |          | 392    |   |   | 412 |   |
|                                                               |   |                                                         |   |                          |   |         |   |          |   |   |   |   |   |
| Net                interest income after provision for loan losses |   |                                                         | 9,029  |                          |   | 9,405        |   |          | 9,292  |   |   | 8,828 |   |
| Other                income                                        |   |                                                         | 600    |                          |   | 1,391        |   |          | 801    |   |   | 1,075 |   |
| Other                expense                                       |   |                                                         | 3,039  |                          |   | 4,005        |   |          | 3,355  |   |   | 3,666 |   |
|                                                               |   |                                                         |   |                          |   |         |   |          |   |   |   |   |   |
| Income                before income tax provision                  |   |                                                         | 6,590  |                          |   | 6,791        |   |          | 6,738  |   |   | 6,237 |   |
| Income                tax provision                                |   |                                                         | 2,608  |                          |   | 2,704        |   |          | 2,740  |   |   | 2,556 |   |
| Net                income                                          |   | $                                                            | 3,982  |                          | $      | 4,087        |   | $             | 3,998  |   | $ | 3,681 |   |
|                                                               |   |                                                         |   |                          |   |         |   |          |   |   |   |   |   |
| Per                share data:                                     |   |                                                         |   |                          |   |         |   |          |   |   |   |   |   |
| Earnings                - basic1                                   |   | $                                                            | .43    |                          | $      | .45          |   | $             | .44    |   | $ | .40 |   |
| Earnings                - diluted1                                 |   | $                                                            | .43    |                          | $      | .45          |   | $             | .44    |   | $ | .40 |   |

|                                                               |   | First                Quarter                                 |   | Second                Quarter |   | Third                Quarter |   | Fourth                Quarter |   |
|--------------------------------------------------------------------|--------|--------------------------------------------------------------|--------|-------------------------------|--------|------------------------------|--------|-------------------------------|--------|
|                                                               |   | (dollars                in thousands, except per share data) |   |
|                                                               |   |                                                         |   |                          |   |                         |   |                          |   |
| Interest                income                                     |   | $                                                            | 12,567 |                          | $      | 13,787                       |   | $                             | 14,887 |   | $ | 15,894 |   |
| Interest                expense                                    |   |                                                         | 4,503  |                          |   | 5,227                        |   |                          | 5,860  |   |   | 6,365 |   |
| Net                interest income                                 |   |                                                         | 8,064  |                          |   | 8,560                        |   |                          | 9,027  |   |   | 9,529 |   |
| Provision                for loan losses                           |   |                                                         | 242    |                          |   | 453                          |   |                          | 450    |   |   | 425 |   |
|                                                               |   |                                                         |   |                          |   |                         |   |                          |   |   |   |   |   |
| Net                interest income after provision for loan losses |   |                                                         | 7,822  |                          |   | 8,107                        |   |                          | 8,577  |   |   | 9,104 |   |
| Other                income                                        |   |                                                         | 652    |                          |   | 739                          |   |                          | 668    |   |   | 689 |   |
| Other                expense                                       |   |                                                         | 3,280  |                          |   | 3,256                        |   |                          | 3,079  |   |   | 3,263 |   |
|                                                               |   |                                                         |   |                          |   |                         |   |                          |   |   |   |   |   |
| Income                before income tax provision                  |   |                                                         | 5,194  |                          |   | 5,590                        |   |                          | 6,166  |   |   | 6,530 |   |
| Income                tax provision                                |   |                                                         | 2,044  |                          |   | 2,054                        |   |                          | 2,270  |   |   | 2,558 |   |
| Net                income                                          |   | $                                                            | 3,150  |                          | $      | 3,536                        |   | $                             | 3,896  |   | $ | 3,972 |   |
|                                                               |   |                                                         |   |                          |   |                         |   |                          |   |   |   |   |   |
| Per                share data                                      |   |                                                         |   |                          |   |                         |   |                          |   |   |   |   |   |
| Earnings                - basic1                                   |   | $                                                            | .34    |                          | $      | .39                          |   | $                             | .43    |   | $ | .43 |   |
| Earnings                - diluted1                                 |   | $                                                            | .34    |                          | $      | .39                          |   | $                             | .43    |   | $ | .43 |   |