----

|                                                                                                                                                                                |   | December      31, |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                                                                |   | 2007              |    |   | 2006 |   |
|                                                                                                                                                                                |   |              |    |   |   |   |
| ASSETS                                                                                                                                                                              |   |              |    |
| Cash      and due from banks                                                                                                                                                        |   | $                 | 6,415   |   |   | $ | 16,982 |   |
| Interest      bearing deposits in other banks                                                                                                                                       |   |              | 814     |   |   |   | 709 |   |
| Federal      funds sold                                                                                                                                                             |   |              | 4,037   |   |   |   | 1,024 |   |
|      Cash      and cash equivalents                                                                                                                        |   |              | 11,266  |   |   |   | 18,715 |   |
| Investment      securities held to maturity                                                                                                                                         |   |              | 2,383   |   |   |   | 7,271 |   |
| Loans      held for sale                                                                                                                                                            |   |              | 1,101   |   |   |   | 2,970 |   |
| Loans      receivable, net of allowance for loan losses of                                                                                                                          |   |              |    |   |   |   |   |   |
|      $10,781      and $9,026, respectively                                                                                                                 |   |              | 891,913 |   |   |   | 832,507 |   |
| Premises      and equipment, net                                                                                                                                                    |   |              | 31,289  |   |   |   | 30,411 |   |
| Federal      Home Loan Bank stock at cost                                                                                                                                           |   |              | 10,172  |   |   |   | 9,468 |   |
| Accrued      interest receivable and other assets                                                                                                                                   |   |              | 14,110  |   |   |   | 10,574 |   |
|                                                                                                                                                                                |   |              |    |   |   |   |   |   |
| Total      assets                                                                                                                                                                   |   | $                 | 962,234 |   |   | $ | 911,916 |   |
|                                                                                                                                                                                |   |              |    |   |   |   |   |   |
| LIABILITIES      AND STOCKHOLDERS' EQUITY                                                                                                                                           |   |              |    |   |   |   |   |   |
| Liabilities                                                                                                                                                                         |   |              |    |   |   |   |   |   |
|      Deposits                                                                                                                                              |   | $                 | 652,773 |   |   | $ | 626,524 |   |
|      Short-term      borrowings                                                                                                                            |   |              | 15,000  |   |   |   | 18,000 |   |
|      Long-term      borrowings                                                                                                                             |   |              | 175,000 |   |   |   | 155,000 |   |
|      Subordinated      debentures                                                                                                                          |   |              | 20,619  |   |   |   | 20,619 |   |
|      Accrued      interest payable and other liabilities                                                                                                   |   |              | 3,566   |   |   |   | 5,331 |   |
|                                                                                                                                                                                |   |              |    |   |   |   |   |   |
| Total      liabilities                                                                                                                                                              |   |              | 866,958 |   |   |   | 825,474 |   |
|                                                                                                                                                                                |   |              |    |   |   |   |   |   |
|                                                                                                                                                                                |   |              |    |   |   |   |   |   |
| Stockholders’      Equity                                                                                                                                                     |   |              |    |   |   |   |   |   |
| Common      stock, $0.01 par value, 20,000,000 shares authorized;                                                                                                                   |   |              |    |   |   |   |   |   |
|       10,066,679      and 9,150,850 shares issued and outstanding at      December      31, 2007 and 2006, respectively |   |              | 101     |   |   |   | 92 |   |
| Additional      paid-in capital                                                                                                                                                     |   |              | 46,768  |   |   |   | 28,270 |   |
| Retained      earnings                                                                                                                                                              |   |              | 48,407  |   |   |   | 58,080 |   |
|                                                                                                                                                                                |   |              |    |   |   |   |   |   |
| Total      stockholders' equity                                                                                                                                                     |   |              | 95,276  |   |   |   | 86,442 |   |
|                                                                                                                                                                                |   |              |    |   |   |   |   |   |
| Total      liabilities and stockholders' equity                                                                                                                                     |   | $                 | 962,234 |   |   | $ | 911,916 |   |

----

|                                                                                         |   | Years      Ended December 31, |   |
|----------------------------------------------------------------------------------------------|--------|-------------------------------|--------|
| Interest      Income                                                                         |   | 2007                          |   |   | 2006 |   |   | 2005 |   |
|    Loans                                                                      |   | $                             | 70,275 |   |   | $ | 68,610 |   |   | $ | 56,120 |   |
|    Securities,      taxable                                                   |   |                          | 217    |   |   |   | 266 |   |   |   | 327 |   |
|    Other                                                                      |   |                          | 1,322  |   |   |   | 1,299 |   |   |   | 688 |   |
|       Total      interest income                               |   |                          | 71,814 |   |   |   | 70,175 |   |   |   | 57,135 |   |
|                                                                                         |   |                          |   |   |   |   |   |   |   |   |   |   |
| Interest      Expense                                                                        |   |                          |   |   |   |   |   |   |   |   |   |   |
|    Deposits                                                                   |   |                          | 29,347 |   |   |   | 23,706 |   |   |   | 16,274 |   |
|    Short-term      borrowings                                                 |   |                          | 488    |   |   |   | 438 |   |   |   | 853 |   |
|    Long-term      borrowings and subordinated debentures                      |   |                          | 8,341  |   |   |   | 7,916 |   |   |   | 4,828 |   |
|       Total      interest expense                              |   |                          | 38,176 |   |   |   | 32,060 |   |   |   | 21,955 |   |
|                                                                                         |   |                          |   |   |   |   |   |   |   |   |   |   |
|       Net      interest income                                 |   |                          | 33,638 |   |   |   | 38,115 |   |   |   | 35,180 |   |
| Provision      for loan losses                                                               |   |                          | 2,462  |   |   |   | 1,561 |   |   |   | 1,570 |   |
|       Net      interest income after provision for loan losses |   |                          | 31,176 |   |   |   | 36,554 |   |   |   | 33,610 |   |
|                                                                                         |   |                          |   |   |   |   |   |   |   |   |   |   |
| Other      Income                                                                            |   |                          |   |   |   |   |   |   |   |   |   |   |
|    Mortgage      banking activities                                           |   |                          | 575    |   |   |   | 817 |   |   |   | 1,416 |   |
|    Real      estate commissions                                               |   |                          | 2,451  |   |   |   | 2,018 |   |   |   | 545 |   |
|    Real      estate management fees                                           |   |                          | 653    |   |   |   | 578 |   |   |   | 426 |   |
|    Other      income                                                          |   |                          | 657    |   |   |   | 454 |   |   |   | 361 |   |
|       Total      other income                                  |   |                          | 4,336  |   |   |   | 3,867 |   |   |   | 2,748 |   |
|                                                                                         |   |                          |   |   |   |   |   |   |   |   |   |   |
| Non-Interest      Expenses                                                                   |   |                          |   |   |   |   |   |   |   |   |   |   |
|    Compensation      and related expenses                                     |   |                          | 11,070 |   |   |   | 10,334 |   |   |   | 9,080 |   |
|    Occupancy                                                                  |   |                          | 1,696  |   |   |   | 706 |   |   |   | 719 |   |
|    Other                                                                      |   |                          | 3,726  |   |   |   | 3,025 |   |   |   | 3,079 |   |
|       Total      non-interest expenses                         |   |                          | 16,492 |   |   |   | 14,065 |   |   |   | 12,878 |   |
|                                                                                         |   |                          |   |   |   |   |   |   |   |   |   |   |
| Income      before income tax provision                                                      |   |                          | 19,020 |   |   |   | 26,356 |   |   |   | 23,480 |   |
| Income      tax provision                                                                    |   |                          | 7,909  |   |   |   | 10,608 |   |   |   | 8,926 |   |
|                                                                                         |   |                          |   |   |   |   |   |   |   |   |   |   |
|       Net      income                                          |   | $                             | 11,111 |   |   | $ | 15,748 |   |   | $ | 14,554 |   |
| Basic      earnings per share                                                                |   | $                             | 1.10   |   |   | $ | 1.56 |   |   | $ | 1.45 |   |
| Diluted      earnings per share                                                              |   | $                             | 1.10   |   |   | $ | 1.56 |   |   | $ | 1.45 |   |

----

|                                          |   | CommonStock |   |   | Additional      Paid-In Capital |   |   | RetainedEarnings |   |   | Total      Stockholders’ Equity |   |
|-----------------------------------------------|--------|-------------|--------|--------|---------------------------------|--------|--------|------------------|--------|--------|---------------------------------------|--------|
|                                          |   |        |   |   |                            |   |   |             |   |   |                                  |   |
| Balance      - December 31, 2004              |   | $           | 83     |   |                            | $      | 11,516 |             |   | $      | 48,555                                |   |   | $ | 60,154 |   |
|                                          |   |        |   |   |                            |   |   |             |   |   |                                  |   |   |   |   |   |
| Comprehensive      Income                     |   |        |   |   |                            |   |   |             |   |   |                                  |   |   |   |   |   |
|      Net      income |   |        | -      |   |                            |   | -      |             |   |   | 14,554                                |   |   |   | 14,554 |   |
| Dividends      on common stock                |   |        |   |   |                            |   |   |             |   |   |                                  |   |   |   |   |   |
| ($.19      per share)                         |   |        | -      |   |                            |   | -      |             |   |   | (1,996                                | )      |   |   | (1,996 | ) |
|                                          |   |        |   |   |                            |   |   |             |   |   |                                  |   |   |   |   |   |
| Balance      - December 31, 2005              |   |        | 83     |   |                            |   | 11,516 |             |   |   | 61,113                                |   |   |   | 72,712 |   |
|                                          |   |        |   |   |                            |   |   |             |   |   |                                  |   |   |   |   |   |
| Comprehensive      Income                     |   |        |   |   |                            |   |   |             |   |   |                                  |   |   |   |   |   |
|      Net      income |   |        | -      |   |                            |   | -      |             |   |   | 15,748                                |   |   |   | 15,748 |   |
| 10%      Stock dividend (914,943 shares)      |   |        | 9      |   |                            |   | 16,576 |             |   |   | (16,585                               | )      |   |   | - |   |
| Stock-based      compensation                 |   |        | -      |   |                            |   | 163    |             |   |   | -                                     |   |   |   | 163 |   |
| Dividends      on common stock                |   |        |   |   |                            |   |   |             |   |   |                                  |   |   |   |   |   |
| ($.22      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 |   |
|                                          |   |        |   |   |                            |   |   |             |   |   |                                  |   |   |   |   |   |
| Comprehensive      Income                     |   |        |   |   |                            |   |   |             |   |   |                                  |   |   |   |   |   |
|      Net      income |   |        | -      |   |                            |   | -      |             |   |   | 11,111                                |   |   |   | 11,111 |   |
| 10%      Stock dividend (915,004 shares)      |   |        | 9      |   |                            |   | 18,357 |             |   |   | (18,366                               | )      |   |   | - |   |
| Stock-based      compensation                 |   |        | -      |   |                            |   | 128    |             |   |   | -                                     |   |   |   | 128 |   |
| Dividends      on common stock                |   |        |   |   |                            |   |   |             |   |   |                                  |   |   |   |   |   |
| ($.24      per share)                         |   |        | -      |   |                            |   | -      |             |   |   | (2,418                                | )      |   |   | (2,418 | ) |
| Exercise      of stock options (825 shares)   |   |        | -      |   |                            |   | 13     |             |   |   | -                                     |   |   |   | 13 |   |
|                                          |   |        |   |   |                            |   |   |             |   |   |                                  |   |   |   |   |   |
| Balance      - December 31, 2007              |   | $           | 101    |   |                            | $      | 46,768 |             |   | $      | 48,407                                |   |   | $ | 95,276 |   |

----

|                                                                                         |   | Years      Ended December 31, |    |
|----------------------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                                         |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                                                                         |   |                          |    |   |   |   |   |   |   |
| Cash Flows from      Operating Activities                                                    |   |                          |    |   |   |   |   |   |   |
|                                                                                         |   |                          |    |   |   |   |   |   |   |
| Net      income                                                                              |   | $                             | 11,111  |   |   | $ | 15,748 |   |   | $ | 14,554 |   |
| Adjustments      to reconcile net income to net                                              |   |                          |    |   |   |   |   |   |   |   |   |   |
|    cash      provided by operating activities:                                |   |                          |    |   |   |   |   |   |   |   |   |   |
|       Amortization      of deferred loan fees                  |   |                          | (3,263  | ) |   |   | (4,211 | ) |   |   | (3,927 | ) |
|       Net      amortization of premiums and                    |   |                          |    |   |   |   |   |   |   |   |   |   |
|            discounts                  |   |                          | 4       |   |   |   | 31 |   |   |   | 31 |   |
|       Provision      for loan losses                           |   |                          | 2,462   |   |   |   | 1,561 |   |   |   | 1,570 |   |
|       Provision      for depreciation                          |   |                          | 1,333   |   |   |   | 362 |   |   |   | 377 |   |
|       Deferred      income taxes                               |   |                          | (1,157  | ) |   |   | (621 | ) |   |   | 213 |   |
|       Gain      on sale of loans                               |   |                          | (177    | ) |   |   | (357 | ) |   |   | (804 | ) |
|       Proceeds      from loans sold to others                  |   |                          | 20,366  |   |   |   | 31,925 |   |   |   | 78,008 |   |
|       Loans      originated for sale                           |   |                          | (18,320 | ) |   |   | (31,322 | ) |   |   | (73,766 | ) |
|       Stock-based      compensation expense                    |   |                          | 128     |   |   |   | 163 |   |   |   | - |   |
|       Increase      in accrued interest receivable             |   |                          |    |   |   |   |   |   |   |   |   |   |
|            and      other assets      |   |                          | (356    | ) |   |   | (303 | ) |   |   | (2,324 | ) |
|       Increase      (decrease) in accrued interest payable     |   |                          |    |   |   |   |   |   |   |   |   |   |
|            and      other liabilities |   |                          | (1,765  | ) |   |   | 1,781 |   |   |   | 1,120 |   |
|                                                                                         |   |                          |    |   |   |   |   |   |   |   |   |   |
| Net      cash provided by operating activities                                               |   |                          | 10,366  |   |   |   | 14,757 |   |   |   | 15,052 |   |
|                                                                                         |   |                          |    |   |   |   |   |   |   |   |   |   |
| Cash Flows from      Investing Activities                                                    |   |                          |    |   |   |   |   |   |   |   |   |   |
|                                                                                         |   |                          |    |   |   |   |   |   |   |   |   |   |
| Proceeds      from maturing investment securities                                            |   |                          | 4,000   |   |   |   | - |   |   |   | - |   |
| Principal      collected on mortgage backed securities                                       |   |                          | 884     |   |   |   | 988 |   |   |   | 1,634 |   |
| Net      increase in loans                                                                   |   |                          | (61,947 | ) |   |   | (54,710 | ) |   |   | (123,447 | ) |
| Net      proceeds from sale of foreclosed property                                           |   |                          | 1,319   |   |   |   | - |   |   |   | - |   |
| Investment      in premises and equipment                                                    |   |                          | (4,013  | ) |   |   | (10,813 | ) |   |   | (13,336 | ) |
| Proceeds      from disposal of premises and                                                  |   |                          |    |   |   |   |   |   |   |   |   |   |
|     equipment                                                            |   |                          | 1,802   |   |   |   | 3 |   |   |   | - |   |
| Purchase      of FHLB stock                                                                  |   |                          | (704    | ) |   |   | (955 | ) |   |   | (3,430 | ) |
|                                                                                         |   |                          |    |   |   |   |   |   |   |   |   |   |
| Net      cash used in investing activities                                                   |   |                          | (58,659 | ) |   |   | (65,487 | ) |   |   | (138,579 | ) |

----

|                                                                                                         |   | For      the Years Ended December 31, |    |
|--------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                                                                         |   | 2007                                  |    |   | 2006 |   |   | 2005 |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |
| Cash Flows from      Financing Activities                                                                    |   |                                  |    |   |   |   |   |   |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |
| Net      increase in deposits                                                                                |   | $                                     | 26,249  |   |   | $ | 31,631 |   |   | $ | 67,480 |   |
| Net      increase (decrease) in short term borrowings                                                        |   |                                  | (3,000  | ) |   |   | (8,000 | ) |   |   | 26,000 |   |
| Additional      borrowed funds, long term                                                                    |   |                                  | 40,000  |   |   |   | 73,000 |   |   |   | 50,000 |   |
| Repayment      of borrowed funds, long term                                                                  |   |                                  | (20,000 | ) |   |   | (50,000 | ) |   |   | (7,000 | ) |
| Redemption      of preferred securities of subsidiary                                                        |   |                                  | -       |   |   |   | - |   |   |   | (4,000 | ) |
| Cash      dividends paid                                                                                     |   |                                  | (2,418  | ) |   |   | (2,196 | ) |   |   | (1,996 | ) |
| Proceeds      from exercise of options                                                                       |   |                                  | 13      |   |   |   | 15 |   |   |   | - |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Net      cash provided by financing activities                                                               |   |                                  | 40,844  |   |   |   | 44,450 |   |   |   | 130,484 |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Increase      (decrease) in cash and cash equivalents                                                        |   |                                  | (7,449  | ) |   |   | (6,280 | ) |   |   | 6,957 |   |
| Cash      and cash equivalents at beginning of year                                                          |   |                                  | 18,715  |   |   |   | 24,995 |   |   |   | 18,038 |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents at end of year                                                                |   | $                                     | 11,266  |   |   | $ | 18,715 |   |   | $ | 24,995 |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |   |   |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosure of cash flows information:                                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |
|      Cash      paid during year for:                                                |   |                                  |    |   |   |   |   |   |   |   |   |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |   |   |   |
|           Interest                                         |   | $                                     | 38,326  |   |   | $ | 32,464 |   |   | $ | 21,693 |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |   |   |   |
|           Income      taxes                                |   | $                                     | 9,065   |   |   | $ | 11,323 |   |   | $ | 9,624 |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |   |   |   |
|           Transfer      of loans to foreclosed real estate |   | $                                     | 3,342   |   |   | $ | 970 |   |   | $ | - |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |   |   |   |
|                                                                                                         |   |                                  |    |   |   |   |   |   |   |   |   |   |

----

| A.     |   | Principles of Consolidation      - The consolidated financial statements include the accounts of      Severn Bancorp, Inc. ("Bancorp"), and its wholly-owned subsidiaries, Louis      Hyatt, Inc., SBI Mortgage Company and SBI Mortgage Company's subsidiary,      Crownsville Development Corporation, and its subsidiary, Crownsville      Holdings I, LLC, and Severn Savings Bank, FSB ("the Bank"), and the Bank's      subsidiaries, Homeowners Title and Escrow Corporation, Severn Financial      Services Corporation, SSB Realty Holdings, LLC, SSB Realty Holdings II,      LLC, HS West, LLC and Severn Preferred Capital Corporation. All      intercompany accounts and transactions have been eliminated in the      accompanying financial statements.                                                                                                                                                                                                    |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   | Severn      Preferred Capital Corporation, which qualified as a real estate investment      trust ("REIT") under the Internal Revenue Code of 1986, as amended,      liquidated effective January 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   | Bancorp      has no reportable segments. Management does not separately allocate      expenses, including the cost of funding loan demand, between the retail      and real estate operations of Bancorp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| C.     |   | Estimates - The      consolidated financial statements have been prepared in conformity with      accounting principles generally accepted in the United States of America.      In preparing the financial statements, management is required to make      estimates and assumptions that affect the reported amounts of assets and      liabilities as of the date of the statement of financial condition and      revenues and expenses for the period.  Actual results could      differ significantly from those estimates. Material estimates that are      particularly susceptible to significant change in the near-term relate to      the determination of the allowance for loan losses and the fair value of      foreclosed real estate.                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| D.     |   | Investment Securities Held to      Maturity – Investment securities for which the Bank has the      positive intent and ability to hold to maturity are reported at cost,      adjusted for premiums and discounts that are recognized in interest income      using the interest method over the period to maturity.  Declines      in the fair value of held to maturity securities below their cost that are      deemed to be other than temporary are reflected in earnings as realized      losses.  In estimating other than temporary impairment losses,      management considers (1) the length of time and the extent to which the      fair value has been less than cost, (2) the financial condition and near      term prospects of the issuer, and (3) the intent and ability of the Bank      to retain its investment in the issuer for a period of time sufficient to      allow for any anticipated recovery in fair  value. |

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| E.     |   | Loans Held for Sale -      Loans held for sale are carried at lower of cost or market value in the      aggregate.  Net unrealized losses are recognized through a      valuation allowance by charges to income.  Mortgage loans held      for sale are generally sold with the mortgage servicing rights released by      the Bank.  Gains and losses on sales of mortgage loans are      recognized based on the difference between the selling price and the      carrying value of the related mortgage loans sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | The      accrual of interest on loans is discontinued at the time the loan is 90      days past due unless the credit is well secured and in process of      collection.  Past due status is based on contractual terms of      the loan.  In all cases, loans are placed on non-accrual or      charged-off at an earlier date if collection of principal or interest is      considered doubtful.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | All      interest accrued but not collected for loans that are placed on      non-accrual or charged-off is reversed against interest      income.  The interest on these loans is accounted for on the      cash-basis or cost-recovery method, until qualifying for return to      accrual.  Loans are returned to accrual status when all the      principal and interest amounts contractually due are brought current and      future payments are reasonably assured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 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 collectability 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. |

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|   |   | The      allowance consists of specific, general and unallocated      components.  The specific component relates to loans that are      classified as impaired.  For such loans that are classified as      impaired, an allowance is established when the discounted cash flows (or      collateral value or observable market price) of the impaired loan is lower      than the carrying value of that loan.  The general component      relates to loans that are classified as either doubtful, substandard or      special mention, as well as non-classified loans.  The general      reserve is based on historical loss experience adjusted for qualitative      factors.  An unallocated component is maintained to cover      uncertainties that could affect management’s estimate of probable      losses.  The unallocated component of the allowance reflects the      margin of imprecision inherent in the underlying assumptions used in the      methodologies for estimating specific and general losses in the      portfolio.                                                                                                                                                                                                                                                                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | A      loan is considered impaired when, based on current information and events,      it is probable that the Bank will be unable to collect the scheduled      payments of principal or interest when due according to the contractual      terms of the loan agreement.  Factors considered by management      in determining impairment, include payment status, collateral value, and      the probability of collecting scheduled principal and interest payments      when due.  Loans that experience insignificant payment delays      and payment shortfalls generally are not classified as      impaired.  Management determines the significance of payment      delays and payment shortfalls on a case-by-case basis, taking into      consideration all of the circumstances surrounding the loan and the      borrower, including the length of the delay, the reasons for the delay,      the borrower’s prior payment record, and the amount of the shortfall in      relation to the principal and interest owed.  Impairment is      measured on a loan-by-loan basis for commercial and construction loans by      either the present value of expected future cash flows discounted at the      loan’s effective interest rate, the loan’s obtainable market price, or the      fair value of the collateral if the loan is collateral      dependent. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 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      $2,993,000 and $970,000 as of December 31, 2007 and 2006, respectively and      is included in other assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

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| 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 -      Premises and equipment are carried at cost less accumulated      depreciation. Depreciation and amortization of premises and equipment is      accumulated by the use of the straight-line method over the estimated      useful lives of the assets. Additions and improvements are capitalized,      and charges for repairs and maintenance are expensed when incurred. The      related cost and accumulated depreciation are eliminated from the accounts      when an asset is sold or retired and the resultant gain or loss is      credited or charged to income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 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 -      Basic earnings per share of common stock for the years ended December 31,      2007, 2006 and 2005 is computed by dividing net income by 10,066,283,      10,065,289 and 10,065,002, respectively, the weighted average number of      shares of common stock outstanding for each year. Diluted earnings per      share reflect additional common shares that would have been outstanding if      dilutive potential common shares had been issued.  Potential      common shares that may be issued by Bancorp relate solely to outstanding      stock options, and are determined using the treasury stock      method.  Diluted earnings per share of common stock for the      years ended December 31, 2007, 2006 and 2005, is computed by dividing net      income for each year by 10,066,283, 10,069,056 and 10,065,002,      respectively, the weighted average number of diluted shares of common      stock. The above amounts have been retroactively adjusted to give effect      to two 10% stock dividends effective March 2007 and  2006. |

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| N.     |   | Employee Stock Ownership Plan      - Bancorp accounts for its Employee Stock Ownership Plan ("ESOP")      in accordance with Statement of Position 93-6 of the Accounting Standards      Division of the American Institute of Certified Public Accountants.      Bancorp records compensation expense equal to the cash contribution called      for under the Plan. All ESOP shares are included in the weighted average      shares outstanding for earnings per share computations. All dividends paid      on ESOP shares are charged to retained earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| O.     |   | Advertising Cost -      Advertising cost is expensed as incurred and totaled $460,000,      $287,000 and $190,000 for the years ended December 31, 2007, 2006, and      2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| P.     |   | Recent Accounting      Pronouncements - In September 2006, the FASB issued FASB Statement      No. 157, Fair Value      Measurements, which defines fair value, establishes a framework for      measuring fair value under GAAP, and expands disclosures about fair value      measurements. FASB Statement No. 157 applies to other accounting      pronouncements that require or permit fair value measurements. The new      guidance is effective for financial statements issued for fiscal years      beginning after November 15, 2007, and for interim periods within      those fiscal years. The Company does not expect that FASB Statement      No. 157 will have a material impact on its financial      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | In      December 2007, the FASB proposed FASB Staff Position (FSP) 157-b,      “Effective Date of FASB Statement No. 157,” that would permit a one year      deferral in applying the measurement provisions of Statement No. 157 to      non-financial assets and non-financial liabilities (non-financial items)      that are not recognized or disclosed at fair value in an entity’s      financial statements on a recurring basis (at least      annually).  Therefore, if the change in the fair value of a      non-financial item is not required to be recognized or disclosed in the      financial statements on an annual basis or more frequently, the effective      date of application of Statement 157 to that item is deferred until fiscal      years beginning after November 15, 2008 and interim periods within those      fiscal years.  This deferral does not apply, however, to an      entity that applies Statement 157 in interim or annual financial      statements before proposed FSP 157-b is finalized.  The Company      does not expect that FSP 157-b will have a material impact on its      financial statements. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | In      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for      Financial Assets and Financial Liabilities-Including an amendment of FASB      Statement No. 115”.  SFAS No. 159 permits entities to choose to      measure many financial instruments and certain other items at fair      value.  Unrealized gains and losses on items for which the fair      value option has been elected will be recognized in earnings at each      subsequent reporting date.  SFAS No. 159 is effective for the      Company January 1, 2008.  The Company does not expect that SFAS      No. 159 will have a material impact on its financial      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | In      June 2007, the Emerging Issues Task Force (EITF) reached a consensus on      Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on      Share-Based Payment Awards” (“EITF 06-11”).  EITF 06-11 states      that an entity should recognize a realized tax benefit associated with      dividends on nonvested equity shares, nonvested equity share units and      outstanding equity share options charged to retained earnings as an      increase in additional paid in capital.  The amount recognized      in additional paid in capital should be included in the pool of excess tax      benefits available to absorb potential future tax deficiencies on      share-based payment awards.  EITF 06-11 should be applied      prospectively to income tax benefits of dividends on equity-classified      share-based payment awards that are declared in fiscal years beginning      after December 15, 2007.  The Company does not expect that EITF      06-11 will have a material impact on its financial    statements. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | FASB      Statement No. 141 (R) “Business Combinations” was issued in December of      2007.  This Statement establishes principles and requirements      for how the acquirer of a business recognizes and measures in its      financial statements the identifiable assets acquired, the liabilities      assumed, and any noncontrolling interest in the acquiree.  The      Statement also provides guidance for recognizing and measuring the      goodwill acquired in the business combination and determines what      information to disclose to enable users of the financial statements to      evaluate the nature and financial effects of the business      combination.  The guidance will become effective as of the      beginning of a company’s fiscal year beginning after December 15,      2008.  This new pronouncement will impact the Company’s      accounting for any business combinations beginning January 1,      2009.                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | FASB      Statement No. 160 “Noncontrolling Interest in Consolidated Financial      Statements – an amendment of ARB No. 51” was issued in December of      2007.  This Statement establishes accounting and reporting      standards for the noncontrolling interest in a subsidiary and for the      deconsolidation of a subsidiary.  The guidance will become      effective as of the beginning of a company’s fiscal year beginning after      December 15, 2008.  The Company does not expect that FASB No.      160 will have a material impact on its financial    statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | Staff      Accounting Bulletin No. 110 (SAB 110) amends and replaces Question 6 of      Section D.2 of Topic 14, “Share-Based Payment” of the Staff Accounting      Bulletin series.  Question 6 of Section D.2 of Topic 14      expresses the views of the staff regarding the use of the “simplified”      method in developing an estimate of expected terms of “plain vanilla”      share options and allows usage of the “simplified” method for share option      grants prior to December 31, 2007.  SAB 110 allows public      companies which do not have historically sufficient experience to provide      a reasonable estimate to continue use of the “simplified” method for      estimating the expected term of “plain vanilla” share option grants after      December 31, 2007.  SAB 110 is effective January 1,      2008.                                                                                                                                                                          |

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|                                  |   | AmortizedCost               |   |   | Gross      Unrealized Gains |   |   | Gross      Unrealized Losses |   |   | FairValue |   |
|---------------------------------------|--------|-----------------------------|--------|--------|-----------------------------|--------|--------|------------------------------|--------|--------|-----------|--------|
|                                  |   | (dollars      in thousands) |   |
| December 31,      2007:               |   |                        |   |   |                        |   |   |                         |   |   |      |   |
|                                  |   |                        |   |   |                        |   |   |                         |   |   |      |   |
| Federal      Home Loan Bank           |   |                        |   |   |                        |   |   |                         |   |   |      |   |
|  (“FHLB”)      Notes |   | $                           | 1,000  |   |                        | $      | -      |                         |   | $      | -         |   |   | $ | 1,000 |   |
| Mortgage      backed securities       |   |                        | 1,383  |   |                        |   | 3      |                         |   |   | 56        |   |   |   | 1,330 |   |
|                                  |   | $                           | 2,383  |   |                        | $      | 3      |                         |   | $      | 56        |   |   | $ | 2,330 |   |
| 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 |   |
|                                  |   |                        |   |   |                        |   |   |                         |   |   |      |   |   |   |   |   |

|                             |   | AmortizedCost               |   |   | FairValue |   |
|----------------------------------|--------|-----------------------------|--------|--------|-----------|--------|
|                             |   | (dollars      in thousands) |   |
|                             |   |                        |   |   |      |   |
| Due      less than one year      |   | $                           | -      |   |      | $      | - |   |
| More      than five to ten years |   |                        | 1,000  |   |      |   | 1,000 |   |
| Greater      than ten years      |   |                        | 1,383  |   |      |   | 1,330 |   |
|                             |   | $                           | 2,383  |   |      | $      | 2,330 |   |

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| 2007                            |   | Less      than 12 months    |   |   | 12      Months or More |   |   | Total           |   |
|---------------------------------|--------|-----------------------------|--------|--------|------------------------|--------|--------|-----------------|--------|
|                            |   |                        |   |   | Unrealized             |   |   |            |   |   | Unrealized |   |   |   |   |   | Unrealized |   |
|                            |   | Fair      Value             |   |   | Losses                 |   |   | Fair      Value |   |   | Losses |   |   | Fair      Value |   |   | Losses |   |
|                            |   | (dollars      in thousands) |   |
|                            |   |                        |   |   |                   |   |   |            |   |   |   |   |   |   |   |   |   |   |
| Mortgage      Backed Securities |   | $                           | -      |   |                   | $      | -      |            |   | $ | 1,150 |   |   | $ | 56 |   |   | $ | 1,150 |   |   | $ | 56 |   |
|                            |   |                        |   |   |                   |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| 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 |   |

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|                                                                             |   | December      31,           |    |
|----------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                             |   | 2007                        |    |   | 2006 |   |
|                                                                             |   | (dollars      in thousands) |    |
|                                                                             |   |                        |    |   |   |   |
| Residential      mortgage                                                        |   | $                           | 320,303 |   |   | $ | 249,448 |   |
| Construction,      land acquisition and                                          |   |                        |    |   |   |   |   |   |
|    development                                                    |   |                        | 297,823 |   |   |   | 339,122 |   |
| Land                                                                             |   |                        | 93,717  |   |   |   | 90,747 |   |
| Lines      of credit                                                             |   |                        | 29,713  |   |   |   | 40,733 |   |
| Commercial      real estate                                                      |   |                        | 205,755 |   |   |   | 193,299 |   |
| Commercial      non-real estate                                                  |   |                        | 3,416   |   |   |   | 3,348 |   |
| Home      equity                                                                 |   |                        | 32,748  |   |   |   | 32,758 |   |
| Consumer                                                                         |   |                        | 2,355   |   |   |   | 1,537 |   |
|                                                                             |   |                        | 985,830 |   |   |   | 950,992 |   |
| Less                                                                             |   |                        |    |   |   |   |   |   |
|      Loans      in process                              |   |                        | (78,238 | ) |   |   | (104,747 | ) |
|      Allowance      for loan losses                     |   |                        | (10,781 | ) |   |   | (9,026 | ) |
|      Deferred      loan origination fees and costs, net |   |                        | (4,898  | ) |   |   | (4,712 | ) |
|                                                                             |   |                        |    |   |   |   |   |   |
|                                                                             |   | $                           | 891,913 |   |   | $ | 832,507 |   |

----

|                              |   | 2007                        |   |   | 2006   |   |   | 2005   |   |
|-----------------------------------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                              |   | (dollars      in thousands) |   |
|                              |   |                        |   |   |   |   |   |   |   |
| Balance      at beginning of year |   | $                           | 9,026  |   |   | $      | 7,505  |   |   | $ | 5,935 |   |
| Provision      for loan losses    |   |                        | 2,462  |   |   |   | 1,561  |   |   |   | 1,570 |   |
| Charge-offs                       |   |                        | (707   | )      |   |   | (40    | )      |   |   | - |   |
| Balance      at end of year       |   | $                           | 10,781 |   |   | $      | 9,026  |   |   | $ | 7,505 |   |

|                                             |   | 2007                        |   |   | 2006   |   |   | 2005   |   |
|--------------------------------------------------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                             |   | (dollars      in thousands) |   |
|                                             |   |                        |   |   |   |   |   |   |   |
| Interest      income that would have             |   |                        |   |   |   |   |   |   |   |
|      been      recorded |   | $                           | 649    |   |   | $      | 416    |   |   | $ | 147 |   |
| Interest      income recognized                  |   |                        | 406    |   |   |   | 188    |   |   |   | 64 |   |
| Interest      income not recognized              |   | $                           | 243    |   |   | $      | 228    |   |   | $ | 83 |   |

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| Financial      Instruments Whose ContractAmounts      Represent Credit Risk |   | Contract      AmountAt      December 31, |   |
|-----------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                        |   | 2007                                     |   |   | 2006 |   |
|                                                                        |   | (dollars      in thousands)              |   |
| Standby      letters of credit                                              |   | $                                        | 9,530  |   |   | $ | 6,032 |   |
| Home      equity lines of credit                                            |   |                                     | 22,895 |   |   |   | 25,084 |   |
| Unadvanced      construction commitments                                    |   |                                     | 78,238 |   |   |   | 104,747 |   |
| Loan      commitments                                                       |   |                                     | 1,784  |   |   |   | 14,815 |   |
| Lines      of credit                                                        |   |                                     | 35,840 |   |   |   | 33,495 |   |
| Loans      sold with limited                                                |   |                                     |   |   |   |   |   |   |
|      repurchase      provisions                    |   | $                                        | 4,054  |   |   | $ | 6,089 |   |

----

----

|                                   |   | December      31,           |   |   | Estimated |   |
|----------------------------------------|--------|-----------------------------|--------|--------|-----------|--------|
|                                   |   | 2007                        |   |   | 2006      |   |   | Useful      Lives |   |
|                                   |   | (dollars      in thousands) |   |   |      |   |
| Land                                   |   | $                           | 1,566  |   |      | $      | 1,924 |   |   |   | - |   |
| Building                               |   |                        | 28,896 |   |      |   | 2,290 |   |   | 39      Years |   |
| Leasehold      improvements            |   |                        | 1,068  |   |      |   | 600 |   |   | 15-27.5      Years |   |
| Furniture,      fixtures and equipment |   |                        | 2,510  |   |      |   | 2,325 |   |   | 3-10      Years |   |
| Construction      in progress          |   |                        | -      |   |      |   | 25,787 |   |   |   | - |   |
|    Total      at cost   |   |                        | 34,040 |   |      |   | 32,926 |   |   |   |   |   |
| Accumulated      depreciation          |   |                        | (2,751 | )      |      |   | (2,515 | ) |   |   |   |   |
|                                   |   | $                           | 31,289 |   |      | $      | 30,411 |   |   |   |   |   |

| Years      Ended December 31, (in thousands) |   |
|----------------------------------------------|--------|
| 2008                                         |   | $ | 94 |   |
| 2009                                         |   |   | 94 |   |
| 2010                                         |   |   | 37 |   |

----

|                               |   | 2007                        |    |   | 2006    |   |
|------------------------------------|--------|-----------------------------|---------|--------|---------|--------|
| Category                           |   | Amount                      |    |   | Percent |   |   | Amount |   |   | Percent |   |
|                               |   | (dollars      in thousands) |    |
|                               |   |                        |    |   |    |   |   |   |   |   |   |   |
| NOW      accounts                  |   | $                           | 11,152  |   |    |   | 1.71 | % |   | $ | 9,314 |   |   |   | 1.49 | % |
| Money      market accounts         |   |                        | 87,688  |   |    |   | 13.43 | % |   |   | 89,120 |   |   |   | 14.22 | % |
| Passbooks                          |   |                        | 14,891  |   |    |   | 2.28 | % |   |   | 18,526 |   |   |   | 2.96 | % |
| Certificates      of deposit       |   |                        | 523,698 |   |    |   | 80.23 | % |   |   | 490,865 |   |   |   | 78.35 | % |
| Non-interest      bearing accounts |   |                        | 15,344  |   |    |   | 2.35 | % |   |   | 18,699 |   |   |   | 2.98 | % |
|                               |   |                        |    |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Total      deposits                |   | $                           | 652,773 |   |    |   | 100.00 | % |   | $ | 626,524 |   |   |   | 100.00 | % |

----

|                              |   | Amount                      |    |
|-----------------------------------|--------|-----------------------------|---------|
|                              |   | (dollars      in thousands) |    |
| One      year or less             |   | $                           | 442,996 |   |
| More      than 1 year to 2 years  |   |                        | 30,988  |   |
| More      than 2 years to 3 years |   |                        | 15,341  |   |
| More      than 3 years to 4 years |   |                        | 16,362  |   |
| More      than 4 years to 5 years |   |                        | 17,898  |   |
| More      than 5 years            |   |                        | 113     |   |
|                              |   | $                           | 523,698 |   |

|                         |   | For      Years Ended December 31, |   |
|------------------------------|--------|-----------------------------------|--------|
|                         |   | 2007                              |   |   | 2006 |   |   | 2005 |   |
|                         |   | (dollars      in thousands)       |   |
|                         |   |                              |   |   |   |   |   |   |   |
| NOW      accounts            |   | $                                 | 115    |   |   | $ | 57 |   |   | $ | 55 |   |
| Money      market accounts   |   |                              | 3,068  |   |   |   | 3,076 |   |   |   | 2,250 |   |
| Passbooks                    |   |                              | 436    |   |   |   | 573 |   |   |   | 289 |   |
| Certificates      of deposit |   |                              | 25,728 |   |   |   | 20,000 |   |   |   | 13,680 |   |
|                         |   | $                                 | 29,347 |   |   | $ | 23,706 |   |   | $ | 16,274 |   |

----

| Description        |   | Rate                  |   |   | Amount |    | Maturity |
|--------------------|--------|-----------------------|--------|--------|--------|---------|----------|
| FHLB      advances |   | 3.33%      to 5.012%  |   |   |   | 37,000  |     | 2008 |
| FHLB      advances |   | 4.995%      to 4.996% |   |   |   | 13,000  |     | 2009 |
| FHLB      advances |   |                  | 5.00   | %      |   |    | 10,000   |   | 2010 |
| FHLB      advances |   |                  | -      | %      |   |    | -        |   | 2011 |
| FHLB      advances |   |                  | -      | %      |   |    | -        |   | 2012 |
| FHLB      advances |   | 2.64%      to 4.430%  |   |   |   | 115,000 |     | Thereafter |
|               |   |                  |   |   |   | $       | 175,000  |   |   |

----

----

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

----

|                                         |   |   |                 |   |     |   |   | Weighted  |   |      |
|----------------------------------------------|--------|--------|----------------------|--------|----------|--------|--------|-----------|--------|-----------|
|                                         |   |   |                 |   | Weighted |   |   | Average   |   | Aggregate |
|                                         |   |   |                 |   | Average  |   |   | Remaining |   | Intrinsic |
|                                         |   | Shares |                 |   | Price    |   |   | Life      |   | Value     |
| Options      outstanding, December 31, 2005  |   |   | -                    |   |     | $      | -      |      |   |      |   |   |
| Options      granted                         |   |   | 124,630              |   |     |   | 15.85  |      |   |      |   |   |
| Options      exercised                       |   |   | (990                 | )      |     |   | 15.62  |      |   |      |   |   |
| Options      outstanding, December 31, 2006  |   |   | 123,640              |   |     | $      | 15.85  |      |   |      |   |   |
| Options      granted                         |   |   | -                    |   |     |   | -      |      |   |      |   |   |
| Options      exercised                       |   |   | (825                 | )      |     |   | 15.62  |      |   |      |   |   |
| Options      outstanding, December 31, 2007  |   |   | 122,815              |   |     | $      | 15.85  |      |   |      | 2.97 |   | $- |
| Options      exercisable, December 31, 2007  |   |   | 31,823               |   |     | $      | 15.80  |      |   |      | 1.14 |   | $- |
| Option      price range at December 31, 2007 |   | $      | 15.62      to $17.18 |   |     |   |   |      |   |      |   |   |

----

|                    |   |   Actual          |    |   |  For      CapitalAdequacy      Purposes |   |   | To      Be WellCapitalized      UnderPrompt      CorrectiveAction      Provisions |   |
|-------------------------|--------|-----------------------------|---------|--------|----------------------------------------------|--------|--------|-----------------------------------------------------------------------------------|--------|
|                    |   | Amount                      |    |   | %                                            |   |   | Amount                                                                            |   |   | % |   |   | Amount |   |   | % |   |
|                    |   | (dollars      in thousands) |    |
| December      31, 2007  |   |                        |    |   |                                         |   |   |                                                                              |   |   |   |   |   |   |   |   |   |   |
| Tangible      (1)       |   | $                           | 107,734 |   |                                         |   | 11.3   | %                                                                                 |   | $ | 14,321 |   |   |   | 1.50 | % |   |   | N/A |   |   |   | N/A |   |
| Tier      I capital (2) |   |                        | 107,734 |   |                                         |   | 13.7   | %                                                                                 |   |   | N/A |   |   |   | N/A |   |   | $ | 47,144 |   |   |   | 6.00 | % |
| Core      (1)           |   |                        | 107,734 |   |                                         |   | 11.3   | %                                                                                 |   |   | 38,190 |   |   |   | 4.00 | % |   |   | 47,737 |   |   |   | 5.00 | % |
| Total      (2)          |   |                        | 117,205 |   |                                         |   | 14.9   | %                                                                                 |   |   | 62,859 |   |   |   | 8.00 | % |   |   | 78,573 |   |   |   | 10.00 | % |
|                    |   |                        |    |   |                                         |   |   |                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 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 | % |

----

|                                  |   |                        |   |
|---------------------------------------|--------|-----------------------------|--------|
|                                  |   | 2007                        |   |   | 2006 |   |   | 2005 |   |
|                                  |   | (dollars      in thousands) |   |
|                                  |   |                        |   |   |   |   |   |   |   |
| Current                               |   |                        |   |   |   |   |   |   |   |
|      Federal |   | $                           | 7,471  |   |   | $ | 9,186 |   |   | $ | 7,241 |   |
|      State   |   |                        | 1,595  |   |   |   | 2,043 |   |   |   | 1,472 |   |
|                                  |   |                        | 9,066  |   |   |   | 11,229 |   |   |   | 8,713 |   |
| Deferred                              |   |                        |   |   |   |   |   |   |   |   |   |   |
|      Federal |   |                        | (863   | ) |   |   | (511 | ) |   |   | 176 |   |
|      State   |   |                        | (294   | ) |   |   | (110 | ) |   |   | 37 |   |
|                                  |   |                        | (1,157 | ) |   |   | (621 | ) |   |   | 213 |   |
|                                  |   |                        |   |   |   |   |   |   |   |   |   |   |
| Total      income tax provision       |   | $                           | 7,909  |   |   | $ | 10,608 |   |   | $ | 8,926 |   |

|                                                 | 2007                              |   | 2006                                                 |   | 2005                              |
|------------------------------------------------------|-----------------------------------|--------|------------------------------------------------------|--------|-----------------------------------|
|                                                 |   Amount                |   | Percent      of PretaxIncome                         |   |   Amount                |   | Percent      of Pretax Income |   |   Amount |   | Percent      ofPretaxIncome |
|                                                 | (dollars      in thousands)       |
| Statutory      Federal                               |                              |   |                                                 |   |                              |   |   |   |   |   |   |
|      income      tax rate   | $6,657                            |   | 35.0%                                                |   | $9,225                            |   | 35.0% |   | $8,218 |   | 35.0% |
| State      tax net of                                |                              |   |                                                 |   |                              |   |   |   |   |   |   |
|      Federal      income    |                              |   |                                                 |   |                              |   |   |   |   |   |   |
|       tax      benefit | 846                               |   |         4.5% |   | 1,256                             |   |   4.8% |   | 981 |   |   4.2% |
| Other      adjustments                               |      406 |   |        2.1%       |   |      127 |   |   0.4% |   |     (273) |   |     (1.2%) |
|                                                 | $7,909                            |   | 41.6%                                                |   | $10,608                           |   | 40.2% |   | $8,926 |   | 38.0% |

----

|                                                                      |   | 2007                        |   |   | 2006   |   |
|---------------------------------------------------------------------------|--------|-----------------------------|--------|--------|--------|--------|
|                                                                      |   | (dollars      in thousands) |   |
|                                                                      |   |                        |   |   |   |   |
| Deferred      Tax Assets:                                                 |   |                        |   |   |   |   |
|      Allowances      for loan losses             |   | $                           | 4,352  |   |   | $      | 3,570 |   |
|      Reserve      for uncollected interest       |   |                        | 261    |   |   |   | 90 |   |
|      Other                                       |   |                        | 58     |   |   |   | 19 |   |
| Total      deferred tax assets                                            |   |                        | 4,671  |   |   |   | 3,679 |   |
|                                                                      |   |                        |   |   |   |   |   |   |
| Deferred      Tax Liabilities:                                            |   |                        |   |   |   |   |   |   |
|      Federal      Home Loan Bank stock dividends |   |                        | (84    | )      |   |   | (82 | ) |
|      Loan      origination costs                 |   |                        | (874   | )      |   |   | (892 | ) |
|      Accelerated      depreciation               |   |                        | (342   | )      |   |   | (532 | ) |
|      Other                                       |   |                        | (121   | )      |   |   | (80 | ) |
| Total      deferred tax liabilities                                       |   |                        | (1,421 | )      |   |   | (1,586 | ) |
|                                                                      |   |                        |   |   |   |   |   |   |
| Net      deferred tax assets                                              |   | $                           | 3,250  |   |   | $      | 2,093 |   |

----

----

|                               |   | December      31, 2007      |    |   | December      31, 2006 |   |
|------------------------------------|--------|-----------------------------|---------|--------|------------------------|--------|
|                               |   | CarryingAmount              |    |   | FairValue              |   |   | CarryingAmount |   |   | FairValue |   |
|                               |   | (dollars      in thousands) |    |
|                               |   |                        |    |   |                   |   |   |   |   |   |   |   |
| Financial      Assets              |   |                        |    |   |                   |   |   |   |   |   |   |   |
| Cash      and cash equivalents     |   | $                           | 11,266  |   |                   | $      | 11,266 |   |   | $ | 18,715 |   |   | $ | 18,715 |   |
| Investment      securities         |   |                        | 2,383   |   |                   |   | 2,330 |   |   |   | 7,271 |   |   |   | 7,117 |   |
| FHLB      stock                    |   |                        | 10,172  |   |                   |   | 10,172 |   |   |   | 9,468 |   |   |   | 9,468 |   |
| Loans      held for sale           |   |                        | 1,101   |   |                   |   | 1,101 |   |   |   | 2,970 |   |   |   | 2,970 |   |
| Loans      receivable, net         |   |                        | 891,913 |   |                   |   | 877,647 |   |   |   | 832,507 |   |   |   | 836,164 |   |
| Accrued      interest receivable   |   |                        | 5,330   |   |                   |   | 5,330 |   |   |   | 5,070 |   |   |   | 5,070 |   |
|                               |   |                        |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Financial      Liabilities         |   |                        |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                           |   | $                           | 652,773 |   |                   | $      | 653,433 |   |   | $ | 626,524 |   |   | $ | 627,066 |   |
| FHLB      advances                 |   |                        | 190,000 |   |                   |   | 186,275 |   |   |   | 173,000 |   |   |   | 168,662 |   |
| Subordinated      debentures       |   |                        | 20,619  |   |                   |   | 20,619 |   |   |   | 20,619 |   |   |   | 20,619 |   |
| Accrued      interest payable      |   |                        | 1,034   |   |                   |   | 1,034 |   |   |   | 865 |   |   |   | 865 |   |
|                               |   |                        |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Off Balance Sheet      Commitments |   | $                           | -       |   |                   | $      | - |   |   | $ | - |   |   | $ | - |   |

----

|                                                  |   | December      31,           |    |
|-------------------------------------------------------|--------|-----------------------------|---------|
|                                                  |   | 2007                        |    |   | 2006 |   |
|                                                  |   | (dollars      in thousands) |    |
| Statements      of Financial Condition                |   |                        |    |   |   |   |
|                                                  |   |                        |    |   |   |   |
| Cash                                                  |   | $                           | 1,905   |   |   | $ | 1,643 |   |
| Equity      in net assets of subsidiaries:            |   |                        |    |   |   |   |   |   |
|    Bank                                |   |                        | 107,734 |   |   |   | 99,445 |   |
|    Non-Bank                            |   |                        | 4,367   |   |   |   | 4,636 |   |
| Loans                                                 |   |                        | 1,199   |   |   |   | 1,199 |   |
| Other      assets                                     |   |                        | 1,628   |   |   |   | 923 |   |
|  Total      assets                               |   | $                           | 116,833 |   |   | $ | 107,846 |   |
|                                                  |   |                        |    |   |   |   |   |   |
| Subordinated      debentures                          |   | $                           | 20,619  |   |   | $ | 20,619 |   |
| Other      liabilities                                |   |                        | 938     |   |   |   | 785 |   |
|                                                  |   |                        |    |   |   |   |   |   |
| Total      liabilities                                |   |                        | 21,557  |   |   |   | 21,404 |   |
|                                                  |   |                        |    |   |   |   |   |   |
| Stockholders’      equity                       |   |                        | 95,276  |   |   |   | 86,442 |   |
|                                                  |   |                        |    |   |   |   |   |   |
| Total      liabilities and stockholders’ equity |   | $                           | 116,833 |   |   | $ | 107,846 |   |

|                                                                        |   | For      the Years Ended December 31, |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                        |   | 2007                                  |   |   | 2006 |   |   | 2005 |   |
|                                                                        |   | (dollars      in thousands)           |   |
| Statements      of Income                                                   |   |                                  |   |   |   |   |   |   |   |
|  Interest      income                                                  |   | $                                     | 116    |   |   | $ | 129 |   |   | $ | 36 |   |
| Interest      expense on subordinated debentures                            |   |                                  | 1,487  |   |   |   | 1,443 |   |   |   | 1,087 |   |
| Net      interest expense                                                   |   |                                  | (1,371 | ) |   |   | (1,314 | ) |   |   | (1,051 | ) |
|  Dividends      received from subsidiaries                             |   |                                  | 6,182  |   |   |   | 3,424 |   |   |   | 2,920 |   |
| General      and administrative expenses                                    |   |                                  | 282    |   |   |   | 292 |   |   |   | 153 |   |
| Income      before income taxes and equity in                               |   |                                  |   |   |   |   |   |   |   |   |   |   |
|      undistributed      net income of subsidiaries |   |                                  | 4,529  |   |   |   | 1,818 |   |   |   | 1,716 |   |
|                                                                        |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Income      tax benefit                                                     |   |                                  | 2      |   |   |   | 415 |   |   |   | 27 |   |
| Equity      in undistributed net income of subsidiaries                     |   |                                  | 6,580  |   |   |   | 13,515 |   |   |   | 12,811 |   |
|                                                                        |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                             |   | $                                     | 11,111 |   |   | $ | 15,748 |   |   | $ | 14,554 |   |

----

|                                                                      |   | For      the Years Ended December 31, |   |
|---------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                      |   | 2007                                  |   |   | 2006 |   |   | 2005 |   |
|                                                                      |   | (dollars      in thousands)           |   |
|                                                                      |   |                                  |   |   |   |   |   |   |   |
| Statements      of Cash Flows                                             |   |                                  |   |   |   |   |   |   |   |
|                                                                      |   |                                  |   |   |   |   |   |   |   |
| Cash Flows from      Operating Activities:                                |   |                                  |   |   |   |   |   |   |   |
| Net      income                                                           |   | $                                     | 11,111 |   |   | $ | 15,748 |   |   | $ | 14,554 |   |
| Adjustments      to reconcile net income to net                           |   |                                  |   |   |   |   |   |   |   |   |   |   |
|      cash      provided by operating activities: |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Equity      in undistributed earnings of subsidiaries                     |   |                                  | (6,580 | ) |   |   | (13,515 | ) |   |   | (12,811 | ) |
| Increase      in other assets                                             |   |                                  | (705   | ) |   |   | (57 | ) |   |   | (134 | ) |
| Stock-based      compensation expense                                     |   |                                  | 128    |   |   |   | 163 |   |   |   | - |   |
| Increase      (decrease) in other liabilities                             |   |                                  | 153    |   |   |   | (300 | ) |   |   | 586 |   |
|                                                                      |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Cash      provided by operating activities                                |   |                                  | 4,107  |   |   |   | 2,039 |   |   |   | 2,195 |   |
|                                                                      |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Cash Flows from      Investing Activities:                                |   |                                  |   |   |   |   |   |   |   |   |   |   |
|      Net      (increase) decrease in loans       |   |                                  | -      |   |   |   | 657 |   |   |   | (1,856 | ) |
|      Investment      in subsidiaries             |   |                                  | (1,440 | ) |   |   | (700 | ) |   |   | - |   |
|                                                                      |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Cash      used in investing activities                                    |   |                                  | (1,440 | ) |   |   | (43 | ) |   |   | (1,856 | ) |
|  Cash Flows from      Financing Activities:                          |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Dividends      paid on capital stock                                      |   |                                  | (2,418 | ) |   |   | (2,196 | ) |   |   | (1,996 | ) |
| Proceeds      from exercise of options                                    |   |                                  | 13     |   |   |   | 15 |   |   |   | - |   |
|                                                                      |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Cash      used in financing activities                                    |   |                                  | (2,405 | ) |   |   | (2,181 | ) |   |   | (1,996 | ) |
|                                                                      |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Increase      (decrease) in cash and cash equivalents                     |   |                                  | 262    |   |   |   | (185 | ) |   |   | (1,657 | ) |
|                                                                      |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents at beginning of year                       |   |                                  | 1,643  |   |   |   | 1,828 |   |   |   | 3,485 |   |
|                                                                      |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents at end of year                             |   | $                                     | 1,905  |   |   | $ | 1,643 |   |   | $ | 1,828 |   |

----

|                                                                       |   | FirstQuarter                                       |   |   | Second      Quarter |   |   | ThirdQuarter |   |   | FourthQuarter |   |
|----------------------------------------------------------------------------|--------|----------------------------------------------------|--------|--------|---------------------|--------|--------|--------------|--------|--------|---------------|--------|
|                                                                       |   | (dollars      in thousands, except per share data) |   |
|                                                                       |   |                                               |   |   |                |   |   |         |   |   |          |   |
| Interest      income                                                       |   | $                                                  | 18,013 |   |                | $      | 17,987 |         |   | $      | 18,201        |   |   | $ | 17,613 |   |
| Interest      expense                                                      |   |                                               | 8,956  |   |                |   | 9,449  |         |   |   | 9,872         |   |   |   | 9,899 |   |
|    Net      interest income                                 |   |                                               | 9,057  |   |                |   | 8,538  |         |   |   | 8,329         |   |   |   | 7,714 |   |
| Provision      for loan losses                                             |   |                                               | 425    |   |                |   | 537    |         |   |   | 750           |   |   |   | 750 |   |
|                                                                       |   |                                               |   |   |                |   |   |         |   |   |          |   |   |   |   |   |
|    Net      interest income after provision for loan losses |   |                                               | 8,632  |   |                |   | 8,001  |         |   |   | 7,579         |   |   |   | 6,964 |   |
| Other      income                                                          |   |                                               | 1,689  |   |                |   | 1,292  |         |   |   | 673           |   |   |   | 682 |   |
| Other      expense                                                         |   |                                               | 4,386  |   |                |   | 4,349  |         |   |   | 4,014         |   |   |   | 3,743 |   |
|                                                                       |   |                                               |   |   |                |   |   |         |   |   |          |   |   |   |   |   |
| Income      before income tax provision                                    |   |                                               | 5,935  |   |                |   | 4,944  |         |   |   | 4,238         |   |   |   | 3,903 |   |
| Income      tax provision                                                  |   |                                               | 2,445  |   |                |   | 2,053  |         |   |   | 1,806         |   |   |   | 1,605 |   |
|    Net      income                                          |   | $                                                  | 3,490  |   |                | $      | 2,891  |         |   | $      | 2,432         |   |   | $ | 2,298 |   |
|                                                                       |   |                                               |   |   |                |   |   |         |   |   |          |   |   |   |   |   |
| Per      share data:                                                       |   |                                               |   |   |                |   |   |         |   |   |          |   |   |   |   |   |
|    Earnings      – basic1                             |   | $                                                  | .35    |   |                | $      | .29    |         |   | $      | .24           |   |   | $ | .23 |   |
|    Earnings      – diluted1                           |   | $                                                  | .35    |   |                | $      | .29    |         |   | $      | .24           |   |   | $ | .23 |   |

|                                                                       |   | FirstQuarter                                       |   |   | Second      Quarter |   |   | Third      Quarter |   |   | Fourth      Quarter |   |
|----------------------------------------------------------------------------|--------|----------------------------------------------------|--------|--------|---------------------|--------|--------|--------------------|--------|--------|---------------------|--------|
|                                                                       |   | (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                             |   | $                                                  | .39    |   |                | $      | .41    |               |   | $      | .40                 |   |   | $ | .36 |   |
|    Earnings      – diluted1                           |   | $                                                  | .39    |   |                | $      | .41    |               |   | $      | .40                 |   |   | $ | .36 |   |

----