----

| C O      N T E N T S                                                               |
|------------------------------------------------------------------------------------|
|                                                                               |   |
|                                                                               |   |
|                                                                               |   |
|                                                                               | Page |
|                                                                               |   |
| REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                       | 2 |
|                                                                               |   |
| Management’s      Annual Report on Internal Control over Financial Reporting | 3 |
|                                                                               |   |
| FINANCIAL      STATEMENTS                                                          |   |
|   Consolidated      Balance Sheets                                       | 4 |
|   Consolidated      Statements of Income                                 | 5 |
|   Consolidated      Statements of Stockholders' Equity                   | 6 |
|   Consolidated      Statements of Cash Flows                             | 7 |
|   Notes      to Consolidated Financial Statements                        | 8 –      44 |

----

----

----

|                 ASSETS                                                                                                                                                                                                                                                                                 |   | 2009                                                    |   | 2008                                                    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|---------------------------------------------------------|
|  Cash      and due from banks                                                                                                                                                                                                                                                                                                                                                     |   |  $       14,300 |   |  $       12,846 |
|  Federal      funds sold                                                                                                                                                                                                                                                                                                                                                          |   | 15,037                                                  |   | 3,736                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                    |   |                                                    |
|                 Total      Cash and Cash Equivalents                                                                                                                                                                                                                                                   |   | 29,337                                                  |   | 16,582                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                    |   |                                                    |
|  Investment      securities available-for-sale (Note 2)                                                                                                                                                                                                                                                                                                                           |   | 70,948                                                  |   | 106,647                                                 |
|  Other      Investments, at cost (Note 3)                                                                                                                                                                                                                                                                                                                                         |   | 8,417                                                   |   | 6,476                                                   |
|  Loans,      net of allowance for loan losses of  $11,681 and $5,171 in 2009      and 2008, respectively (Note 4)                                                                                                                                                                                                                                                       |   |  474,438                                           |   |  485,254                                           |
|  Premises      and equipment, net (Note 5)                                                                                                                                                                                                                                                                                                                                        |   | 24,613                                                  |   | 24,192                                                  |
|  Interest      receivable                                                                                                                                                                                                                                                                                                                                                         |   | 3,147                                                   |   | 3,698                                                   |
|  Bank      Owned Life Insurance                                                                                                                                                                                                                                                                                                                                                   |   | 12,324                                                  |   | 12,476                                                  |
|   Other      Real Estate Owned                                                                                                                                                                                                                                                                                                                                               |   | 6,847                                                   |   | 3,792                                                   |
|  Other      assets                                                                                                                                                                                                                                                                                                                                                                |   | 15,236                                                  |   | 9,879                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                    |   |                                                    |
|                 Total      Assets                                                                                                                                                                                                                                                                      |   |  $     645,307            |   |  $     668.996            |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                    |   |                                                    |
|               LIABILITIES      AND STOCKHOLDERS' EQUITY                                                                                                                                                                                                                                                          |   |                                                    |   |                                                    |
|  Deposits      (Note 8)                                                                                                                                                                                                                                                                                                                                                           |   |                                                    |   |                                                    |
|       Noninterest      bearing                                                                                                                                                                                                                                                                                                                           |   |  $       84,073 |   |  $       80,169 |
|       Interest      bearing                                                                                                                                                                                                                                                                                                                              |   | 435,831                                                 |   | 442,567                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                    |   |                                                    |
|                 Total      Deposits                                                                                                                                                                                                                                                                    |   | 519,904                                                 |   | 522,736                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                    |   |                                                    |
|  Interest,      taxes and other liabilities                                                                                                                                                                                                                                                                                                                                       |   | 1,950                                                   |   | 3,794                                                   |
|  Short      term borrowings (Note 9)                                                                                                                                                                                                                                                                                                                                              |   | 74,039                                                  |   | 75,608                                                  |
|  Long-term      debt (Note 10)                                                                                                                                                                                                                                                                                                                                                    |   | 10,836                                                  |   | 24,660                                                  |
|  Capital      securities (Note 11)                                                                                                                                                                                                                                                                                                                                                |   | 3,150                                                   |   | 3,150                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   | 89,975                                                  |   | 107,212                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                    |   |                                                    |
|                 Total      Liabilities                                                                                                                                                                                                                                                                 |   | 609,879                                                 |   | 629,948                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                    |   |                                                    |
|  STOCKHOLDERS'      EQUITY                                                                                                                                                                                                                                                                                                                                                        |   |                                                    |   |                                                    |
|       Common      stock, 5,011 and 5,001 shares          issued      and outstanding as of December 31, 2009 and          2008,      respectively. Authorized 40,000 shares, par  value $0.625 per      share  (Notes 13 and 15) |   | 3,132                                                   |   | 3,126                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |
|       Additional      paid-in capital                                                                                                                                                                                                                                                                                                                    |   | 7,783                                                   |   | 7,688                                                   |
|       Retained      Earnings                                                                                                                                                                                                                                                                                                                             |   | 28,063                                                  |   | 34,994                                                  |
|       Accumulated      other comprehensive (loss)                                                                                                                                                                                                                                                                                                        |   | (3,550)                                                 |   | (6,760)                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                    |   |                                                    |
|                 Total      Stockholders' Equity                                                                                                                                                                                                                                                        |   | 35,428                                                  |   | 39,048                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                    |   |                                                    |
|                 Total      Liabilities and Stockholders' Equity                                                                                                                                                                                                                                        |   |  $     645,307            |   |  $     668,996            |

----

| INTEREST      INCOME                                                                                                       | 2009                                                                  |   | 2008                                                                                                                                                                                                                            |
|----------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                       |                                                                  |   |                                                                                                                                                                                                                            |
|       Loans      receivable and fees on loans                                                | $          30,33383 |   | $      32,937                                                                                                                                                                                     |
|       Securities      available for sale:                                                    |                                                                  |   |                                                                                                                                                                                                                            |
|          Taxable                                                              | 1,673                                                                 |   | 3,359                                                                                                                                                                                                                           |
|          Tax-exempt                                                           | 2,373                                                                 |   | 2,658                                                                                                                                                                                                                           |
|          Other      Investment Income                                         | 80                                                                    |   | 279                                                                                                                                                                                                                             |
|       Federal      funds sold                                                                | 10                                                                    |   | 84                                                                                                                                                                                                                              |
|             Total      Interest Income                         | 34,474                                                                |   | 39,317                                                                                                                                                                                                                          |
|                                                                                                                       |                                                                  |   |                                                                                                                                                                                                                            |
|  INTEREST      EXPENSE                                                                                                |                                                                  |   |                                                                                                                                                                                                                            |
|      Deposits                                                                                     | 11,246                                                                |   | 14,823                                                                                                                                                                                                                          |
|      Federal      funds purchased                                                                 | 6                                                                     |   | 46                                                                                                                                                                                                                              |
|      Other      borrowed funds                                                                    | 4,893                                                                 |   | 4,754                                                                                                                                                                                                                           |
|            Total      interest expense                              | 16,145                                                                |   | 19,623                                                                                                                                                                                                                          |
|                                                                                                                       |                                                                  |   |                                                                                                                                                                                                                            |
|            Net      interest income                                 | 18,329                                                                |   | 19,694                                                                                                                                                                                                                          |
|                                                                                                                       |                                                                  |   |                                                                                                                                                                                                                            |
|  PROVISION      FOR LOAN LOSSES (Note 4)                                                                              | 9,614                                                                 |   | 1,590                                                                                                                                                                                                                           |
|                                                                                                                       |                                                                  |   |                                                                                                                                                                                                                            |
|            Net      interest income after provision for loan losses | 8,715                                                                 |   | 18,104                                                                                                                                                                                                                          |
|                                                                                                                       |                                                                  |   |                                                                                                                                                                                                                            |
|  NON-INTEREST      INCOME                                                                                             |                                                                  |   |                                                                                                                                                                                                                            |
|       Securities      gains                                                                  | 380                                                                   |   | 137                                                                                                                                                                                                                             |
|       Service      charges on deposit accounts                                               | 2,225                                                                 |   | 2,414                                                                                                                                                                                                                           |
|       Other      service charges, commissions and fees                                       | 1,354                                                                 |   | 1,392                                                                                                                                                                                                                           |
|       Other      operating income                                                            | 1,683                                                                 |   | 690                                                                                                                                                                                                                             |
|       Other      than temporary impairment charge                                            |  (5,621)                                                         |   |                                          (5,988) |
|              Total      Non-Interest Income               | 21                                                                    |   |        (1,355)                                                                                                                                                                                                             |
|                                                                                                                       |                                                                  |   |                                                                                                                                                                                                                            |
|  NON-INTEREST      EXPENSE                                                                                            |                                                                  |   |                                                                                                                                                                                                                            |
|       Salaries      and employee benefits (Note 14 and 15)                                   | 10,560                                                                |   | 10,259                                                                                                                                                                                                                          |
|       Occupancy      expense of bank premises                                                | 1,145                                                                 |   | 1,085                                                                                                                                                                                                                           |
|       Furniture      and equipment expense                                                   | 1,613                                                                 |   | 1,700                                                                                                                                                                                                                           |
|       Other      operating expenses (Note 23)                                                | 7,031                                                                 |   | 5,133                                                                                                                                                                                                                           |
|              Total      Non-Interest Expenses             | 20,349                                                                |   | 18,177                                                                                                                                                                                                                          |
|                                                                                                                       |                                                                  |   |                                                                                                                                                                                                                            |
|             (Loss)  Income      Before Income Taxes  | (11,613)                                                              |   | (1,428)                                                                                                                                                                                                                         |
|                                                                                                                       |                                                                  |   |                                                                                                                                                                                                                            |
|       Income      Tax Expense (Note 7)                                                       | (5,234)                                                               |   | (1,543)                                                                                                                                                                                                                         |
|              Net      Income (Loss) |                            $        (6,379)                        |   |        $           115                                                                                                                                                        |
|------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                 |                                                                                                                                                                                                                                              |   |                                                                                                                                                                                                                                      |
|  Earnings      (Loss) Per Common Share (Note 13)                                                |                                    $     (1.27)     |   |                                  $          0.02 |
|                                                                                                 |                                                                                                                                                                                                                                              |   |                                                                                                                                                                                                                                      |
|  Earnings      (Loss) Per Common Share - assuming dilution -Note 13 13)                         |                                    $     (1.27)                         |   |                             $               0.02 |

----

|                                                                                                                        |                          |                           |                                       |                            | AccumulatedOtherComprehensiveIncome          |                                                                                                                                          |
|-----------------------------------------------------------------------------------------------------------------------------|-------------------------------|--------------------------------|--------------------------------------------|---------------------------------|----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                        |                          |                           | AdditionalPaid-inCapital                   | RetainedEarnings                |  TotalStockholders'Equity               |
|                                                                                                                        |   Common      Stock |
|                                                                                                                        | Shares                        | Par      Value                 |
|                                                                                                                        |                          |                           |                                       |                            |                                         |                                                                                                                                          |
|  Balance,      December 31, 2007                                                                                       | 5,109                         | $    3,193 | $      7,405 | $    38,247 | $      (2,134) | $     46,711                                                                                                         |
|                                                                                                                        |                          |                           |                                       |                            |                                         |                                                                                                                                          |
| Comprehensive      income:                                                                                                  |                          |                           |                                       |                            |                                         |                                                                                                                                          |
| Net      income                                                                                                             | -                             | -                              | -                                          | 115                             | -                                            | 115                                                                                                                                           |
| Change      in unrealized gain (loss) on securities available-for-sale, net of      deferred income tax benefit of $4,373   | -                             | -                              | -                                          | -                               | (8,488)                                      | (8,488)                                                                                                                                       |
| Less:      reclassification adjustment, net of income tax expense of      $1,990                                            | -                             | -                              | -                                          | -                               | 3,862                                        | 3,862                                                                                                                                         |
|                                                                                                                        |                          |                           |                                       |                            |                                         |                                                                                                                                          |
|  Total      comprehensive income                                                                                       | -                             | -                              | -                                          | -                               | -                                            | (4,511)                                                                                                                                       |
|                                                                                                                        |                          |                           |                                       |                            |                                         |                                                                                                                                          |
| Common      stock issued for stock options exercised                                                                        | 31                            | 20                             | 283                                        | -                               | -                                            |                             303 |
| Cash      dividend                                                                                                          |                          |                           |                                       | (1,104)                         |                                         |   (1,104)                                                                                                                           |
| Repurchase      Common Stock                                                                                                | (139)                         | (87)                           | -                                          | (2,264)                         | -                                            | (2,351)                                                                                                                                       |
|                                                                                                                        |                          |                           |                                       |                            |                                         |                                                                                                                                          |
|  Balance,      December 31, 2008                                                                                       | 5,001                         | $    3,126 | $      7,688 | $    34,994 | $      (6,760) | $     39,048                                                                                                         |
|                                                                                                                        |                          |                           |                                       |                            |                                         |                                                                                                                                          |
| Comprehensive      income:                                                                                                  |                          |                           |                                       |                            |                                         |                                                                                                                                          |
| Net      income                                                                                                             | -                             | -                              | -                                          | (6,379)                         | -                                            | (6,379)                                                                                                                                       |
| Change      in unrealized gain (loss) on securities available-for-sale, net of      deferred income tax benefit of $77 | -                             | -                              | -                                          | -                               | (148)                                        | (148)                                                                                                                                         |
| Less:      reclassification adjustment, net of income tax expense of      $1,730                                            | -                             | -                              | -                                          | -                               | 3,358                                        | 3,358                                                                                                                                         |
|                                                                                                                        |                          |                           |                                       |                            |                                         |                                                                                                                                          |
|  Total      comprehensive income                                                                                       | -                             | -                              | -                                          | -                               | -                                            | (3,169)                                                                                                                                       |
|                                                                                                                        |                          |                           |                                       |                            |                                         |                                                                                                                                          |
| Common      stock issued for stock options exercised                                                                        | 10                            | 6                              | 95                                         | -                               | -                                            |                             101 |
| Cash      dividend                                                                                                          |                          |                           |                                       | (552)                           |                                         |   (552)                                                                                                                             |
| Repurchase      Common Stock                                                                                                | -                             | -                              | -                                          | -                               | -                                            | -                                                                                                                                             |
|                                                                                                                        |                          |                           |                                       |                            |                                         |                                                                                                                                          |
|  Balance,      December 31, 2009                                                                                       | 5,011                         | $    3,132 | $      7,783 | $    28,063 | $      (3,550) | $     35,428                                                                                                         |

----

|                                                                                                                                           | 2009                                                                                                                                                                                                                                            |   | 2008                                                                                                                                                                                                                                                                            |
|------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  CASH      FLOWS FROM OPERATING ACTIVITIES:                                                                                               |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|       Net      income                                                                                            | $         (6,379)                                                                                                                                                                                  |   | $         115                                                                                                                                                                                                                      |
|       Adjustments      to reconcile net income to net cash                                                       |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|         provided      by operating activities:                                                         |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|            Provision      for loan losses                                               | 9,614                                                                                                                                                                                                                                           |   | 1,590                                                                                                                                                                                                                                                                           |
|            Provision      for deferred income taxes                                     | (4,210)                                                                                                                                                                                                                                         |   | (2,280)                                                                                                                                                                                                                                                                         |
|            Depreciation      and amortization                                           | 1,342                                                                                                                                                                                                                                           |   | 1,344                                                                                                                                                                                                                                                                           |
|            Net      realized gains on available-for-sale securities                     | (380)                                                                                                                                                                                                                                           |   | (137)                                                                                                                                                                                                                                                                           |
|            Net      amortization on securities                                          | 377                                                                                                                                                                                                                                             |   | 339                                                                                                                                                                                                                                                                             |
|            Amortization      of capital issue costs                                     | 5                                                                                                                                                                                                                                               |   | 116                                                                                                                                                                                                                                                                             |
|            Other      than temporary impairment charge                                  | 5,621                                                                                                                                                                                                                                           |   | 5,988                                                                                                                                                                                                                                                                           |
|            Increase      (decrease) in interest receivable                              | 551                                                                                                                                                                                                                                             |   | 381                                                                                                                                                                                                                                                                             |
|                 Valuation adjustment of other real estate owed                               |                                       1,393  |   |                                   -                           |
|                 (Increase) decrease in other assets                                          |     (3,460)                                                                                                                                                                                                                 |   |     (3,724)                                                                                                                                                                                                                                                 |
|            Increase      (decrease) in interest, taxes and other                        |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|              liabilities                                                      | (1,844)                                                                                                                                                                                                                                         |   |               132                                                                                                                                                                                         |
|                 Net      Cash provided by operating activities | 2,630                                                                                                                                                                                                                                           |   | 3,864                                                                                                                                                                                                                                                                           |
|                                                                                                                                           |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|  CASH      FLOWS FROM INVESTING ACTIVITIES:                                                                                               |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|       Securities      available for sale:                                                                        |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|           Proceeds      from sale of debt and equity securities                              |            28,308                                                                                                                                                                        |   |            19,182                                                                                                                                                                                                        |
|           Proceeds      from maturities of debt and equity securities                        | 25,576                                                                                                                                                                                                                                          |   | 20,652                                                                                                                                                                                                                                                                          |
|           Purchase      of debt and equity securities                                        | (18,938)                                                                                                                                                                                                                                        |   | (28,548)                                                                                                                                                                                                                                                                        |
|       Purchase      of other investments                                                                         | (1,788)                                                                                                                                                                                                                                         |   | (741)                                                                                                                                                                                                                                                                           |
|       Net      increase in loans                                                                                 | (4,633)                                                                                                                                                                                                                                         |   | (40,183)                                                                                                                                                                                                                                                                        |
|            Proceeds from sales of otehr real estate owned                                                             |                                       1,387  |   |                                                   - |
|       Proceeds      from cash surrender value of Life Insurance                                                  | 604                                                                                                                                                                                                                                             |   |                                                   - |
|       Premises      and equipment expenditures                                                                   | (1,715)                                                                                                                                                                                                                                         |   | (2,352)                                                                                                                                                                                                                                                                         |
|                 Net      Cash used in investing activities     | 28,801                                                                                                                                                                                                                                          |   | (31,990)                                                                                                                                                                                                                                                                        |
|                                                                                                                                           |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|  CASH      FLOWS FROM FINANCING ACTIVITIES:                                                                                               |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|       Net      increase in certificates of deposit                                                               | (22,105)                                                                                                                                                                                                                                        |   | 6,084                                                                                                                                                                                                                                                                           |
|       Net      increase in demand, savings and other deposits                                                    |          19,273                                                                                                                                                                                    |   |          3,905                                                                                                                                                                                                                     |
|       Increase      (decrease) in short term borrowings                                                          | (1,569)                                                                                                                                                                                                                                         |   | 31,503                                                                                                                                                                                                                                                                          |
|            Decrease in long-term debt                                                                                 | (13,824)                                                                                                                                                                                                                                        |   | (22,609)                                                                                                                                                                                                                                                                        |
|       Cash      dividends paid                                                                                   |  (552)                                                                                                                                                                                                                                     |   |  (1,104)                                                                                                                                                                                                                                                                   |
|       Redemption      of Capital Securities                                                                      | -                                                                                                                                                                                                                                               |   | (3,150)                                                                                                                                                                                                                                                                         |
|       Proceeds      from exercise of common stock options                                                        | 101                                                                                                                                                                                                                                             |   | 303                                                                                                                                                                                                                                                                             |
|       Repurchase      of common stock                                                                            | -                                                                                                                                                                                                                                               |   | (2,351)                                                                                                                                                                                                                                                                         |
|                 Net      Cash provided by financing activities | (18,676)                                                                                                                                                                                                                                        |   | 12,581                                                                                                                                                                                                                                                                          |
|                 Net      increase in cash and cash equivalents |            12,755                                                                                                                                                                        |   | (15,545)                                                                                                                                                                                                                                                                        |
|                                                                                                                                           |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|  CASH      AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                                                      | 16,582                                                                                                                                                                                                                                          |   | 32,127                                                                                                                                                                                                                                                                          |
|                                                                                                                                           |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|  CASH      AND CASH EQUIVALENTS AT END OF YEAR                                                                                            |  $       29,337                                                                                                                                                                                         |   |  $       16,582                                                                                                                                                                                                                         |
|                                                                                                                                           |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|                                                                                                                                           |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
| SUPPLEMENTAL      DISCLOSURES OF CASH FLOW INFORMATION:                                                                                        |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|  Cash      paid during the year for:                                                                                                      |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|       Interest                                                                                                   |  $       17,361                                                                                                                                                                                         |   |  $       20,219                                                                                                                                                                                                                         |
|       Income      taxes                                                                                          |  $            250                                                                                                                                                              |   |  $            400                                                                                                                                                                                              |
|                                                                                                                                           |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|  SUPPLEMENTAL      DISCLOSURE OF NONCASH TRANSACTIONS                                                                                     |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |
|         Transfer of loans to other real estate owned                                                                                 |                            $              5,836                  |   |                            $                     -            |
|                                                                                                                                           |                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                            |

----

----

----

----

----

----

----

|                                               | 2009                           |
|----------------------------------------------------|--------------------------------|
|                                               | Amortized      Cost            |   | Gross      Unrealized Gains |   | Gross      Unrealized Losses |   | Fair      Value |
|                                               |
|                                               |                           |   |   |   |   |   |   |
| U.S      Government agencies and corporations | $    1,498 |   | $           9 |   | $          -- |   | $      1,507 |
| State      and political subdivisions              | 48,002                         |   | 399 |   | 1,053 |   | 47,348 |
| Mortgage      backed securities                    | 18,445                         |   | 314 |   | 7 |   | 18,752 |
| Other      securities                              | 8,381                          |   | -- |   | 5,040 |   | 3,341 |
|                                               |                           |   |   |   |   |   |   |
|                                               | $      76,326                  |   | $       722 |   | $      6,100 |   | $    70,948 |

|                                               | 2008                            |
|----------------------------------------------------|---------------------------------|
|                                               | Amortized      Cost             |   | Gross      Unrealized Gains |   | Gross      Unrealized Losses |   | Fair      Value |
|                                               |
|                                               |                            |   |   |   |   |   |   |
| U.S      Government agencies and corporations | $    11,377 |   | $        62 |   | $          -- |   | $      11,439 |
| State      and political subdivisions              | 52,537                          |   | 247 |   | 1,793 |   | 50,991 |
| Mortgage      backed securities                    | 38,910                          |   | 320 |   | 330 |   | 38,900 |
| Other      securities                              | 14,067                          |   | 5 |   | 8,756 |   | 5,317 |
|                                               |                            |   |   |   |   |   |   |
|                                               | $      116,891                  |   | $       635 |   | $      10,879 |   | $    106,647 |

----

|                              | December      31, 2009   |
|-----------------------------------|--------------------------|
|                              | Less Than 12 months      | 12 Months or More | Total |
|                              | Fair      Value          | Unrealized      Losses | Fair      Value | Unrealized      Losses | Fair      Value | Unrealized      Losses |
|                              |                     |   |   |   |   |   |
| Mortgage-backed      securities   | $   1,465 | $        4 | $       224 | $       3 | $  1,689 | $         7 |
| States      and pol. subdivisions | 12,363                   | 216 | 7,975 | 838 | 20,338 | 1,053 |
| Other      securities             | 86                       | 15 | 3,256 | 5024 | 3,342 | 5,040 |
|                              |                     |   |   |   |   |   |
|   Total                 | $  13,914      | $    235 | $  11,455 |  $    5,865 | $25,369 | $  6,100 |

|                              | December      31, 2008 |
|-----------------------------------|------------------------|
|                              | Less Than 12 months    | 12 Months or More | Total |
|                              | Fair      Value        | Unrealized      Losses | Fair      Value | Unrealized      Losses | Fair      Value | Unrealized      Losses |
|                              |                   |   |   |   |   |   |
| Mortgage-backed      securities   | $  13,695    | $      168 | $    6,572 | $       162 | $20,267 | $       330 |
| States      and pol. subdivisions | 21,874                 | 1,356 | 5,479 | 433 | 27,353 | 1,789 |
| Other      securities             | 843                    | 1,281 | 3,454 | 7,478 | 4,297 | 8,759 |
|                              |                   |   |   |   |   |   |
|   Total                 | $  36,412    | $   2,805 | $  15,505 |  $    8,073 | $51,917 | $  10,878 |

----

----

----

|                                        | Amortized      Cost                                                         |   | ApproximateMarket      Value                                                |
|---------------------------------------------|-----------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|
|                                        |                                                                        |
| Due      in one year or less                | $            -- |   | $            -- |
| Due      after one year through five years  | 309                                                                         |   | 324                                                                         |
| Due      after five years through ten years | 1,416                                                                       |   | 1,437                                                                       |
| Due      after ten years                    | 47,775                                                                      |   | 47,094                                                                      |
|                                        | 49,500                                                                      |   | 48,855                                                                      |
|                                        |                                                                        |   |                                                                        |
| Mortgage-backed      securities             | 18,445                                                                      |   | 18,752                                                                      |
| Other      securities                       | 8,381                                                                       |   | 3,341                                                                       |
|                                        | $     76,326                                       |   | $     70,948                                       |

|                 |   | 2009                                                                                     |   | 2008                                                                              |
|----------------------|--------|------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|
|                 |   |                                                                                     |   |                                                                              |
| Realized      gains  |   | $               533                         |   | $             154                              |
| Realized      losses |   |  $       (153)                                   |   |  $            (17)                             |
| Tax      provision   |   |     $               129 |   |     $              47 |

----

|                                               | 2009                                                   |   | 2008                             |
|----------------------------------------------------|--------------------------------------------------------|--------|----------------------------------|
| Real      Estate Secured:                          |                                                   |   |                             |
| Residential      1-4 family                        | $   183,983                             |   | $   176,239       |
| Multifamily                                        | 12,895                                                 |   | 13,115                           |
| Commercial,      Construction and Land Development | 173,752                                                |   | 179,338                          |
| Second      mortgages                              | 16,980                                                 |   | 18,499                           |
| Equity      lines of credit                        | 10,164                                                 |   | 9,984                            |
| Farmland                                           | 11,176                                                 |   | 9,501                            |
|                                               | 408,950                                                |   | 406,676                          |
|                                               |                                                   |   |                             |
| Secured,      Other:                               |                                                   |   |                             |
| Personal                                           | 20,671                                                 |   | 21,854                           |
| Commercial                                         | 30,449                                                 |   | 32,725                           |
| Agricultural                                       | 2,263                                                  |   | 4,319                            |
|                                               | 53,383                                                 |   | 58,898                           |
|                                               |                                                   |   |                             |
| Unsecured                                          | 24,229                                                 |   | 25,251                           |
| Overdrafts                                         | 191                                                    |   | 246                              |
|                                               | 24,420                                                 |   | 25,497                           |
|                                               |                                                   |   |                             |
|                                               | 486,753                                                |   | 491,071                          |
| Less:                                              |                                                   |   |                             |
|   Allowance      for loan losses         |         11,681 |   | 5,171                            |
|   Net      deferred fees                 | 634                                                    |   | 646                              |
|                                               | 12,315                                                 |   | 5,817                            |
|                                               |                                                   |   |                             |
| Loans,      net                                    | $    474,438                       |   | $    485,254 |

|                                 | 2009                                                   |   | 2008                                                   |
|--------------------------------------|--------------------------------------------------------|--------|--------------------------------------------------------|
|                                 |                                                   |   |                                                   |
| Balance,      beginning              | $        5,171 |   | $        4,630 |
| Provision      charged to operations | 9,614                                                  |   | 1,590                                                  |
| Loans      charged to reserve        |  (3,247)                                          |   |  (1,316)                                          |
| Recoveries                           | 143                                                    |   | 267                                                    |
|                                 |                                                   |   |                                                   |
| Balance,      ending                 | $      11,681            |   | $        5,171 |

----

|                                                              | December      31,                                                                                  |
|-------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                                              | 2009                                                                                               |   | 2008 |
|                                                              |                                                                                               |   |   |
| Impaired      loans without a valuation  allowance      | $                     - |   | $             - |
| Impaired      loans with a valuation allowance                    | 11,826                                                                                             |   | 5,421 |
| Total      impaired loans                                         | $           11,826                                                        |   | $      5,421 |
| Valuation      allowance related to impaired loans                | $             1,483                                             |   | $      1,225 |
|                                                              |                                                                                               |   |   |
| Total      non-accrual loans                                      | $           11,559                                                        |   | $      6,278 |
| Total      loans past due 90 days or more and still accruing      | $             4,260                                             |   | $         656 |
| Average      investment in impaired loans                         | $            9,729                                                   |   | $      6,520 |
| Interest      income recognized on impaired loans                 | $               159                                   |   | $         127 |
| Interest      income recognized on a cash basis on impaired loans | $                    -       |   | $              - |

|                                | 2009                                                    |   | 2008                                                    |
|-------------------------------------|---------------------------------------------------------|--------|---------------------------------------------------------|
|                                |                                                    |   |                                                    |
| Land                                | $        10,723 |   | $      10,050             |
| Bank      Premises                  | 14,061                                                  |   | 13,927                                                  |
| Equipment                           | 12,015                                                  |   | 11,536                                                  |
|                                | 36,799                                                  |   | 35,513                                                  |
| Less:      accumulated depreciation | 12,237                                                  |   | 11,389                                                  |
|                                | 24,562                                                  |   | 24,124                                                  |
| Construction      in Progress       | 51                                                      |   | 68                                                      |
|                                |                                                    |   |                                                    |
|                                | $        24,613 |   | $        24,192 |

----

|                                                                                                                                     | 2009                                                               |   | 2008                                                   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------|--------|--------------------------------------------------------|
|                                                                                                                                     |                                                               |   |                                                   |
| Deferred      tax assets:                                                                                                                |                                                               |   |                                                   |
|     Allowance      for loan loss                                                                                     | $          3,971 |   | $        1,758 |
|     Previous      Years AMT credit                                                                                   | 293                                                                |   | 136                                                    |
|     Loss      on Other Equity Investments                                                                            | 51                                                                 |   |                                                   |
|  Other      than temporary      impairment          charge      on AFS securities | 3,947                                                              |   | 2,036                                                  |
|  Net      unrealized loss on securities available-for-sale                                                                     | 1,829                                                              |   | 3,483                                                  |
|                                                                                                                                     |  10,091                                                       |   | 7,413                                                  |
|                                                                                                                                     |                                                               |   |                                                   |
| Deferred      tax liability:                                                                                                             |                                                               |   |                                                   |
|     Depreciation                                                                                                     |  (417)                                                        |   |  (452)                                            |
|                                                                                                                                     |  (417)                                                        |   |  (452)                                            |
|                                                                                                                                     |                                                               |   |                                                   |
| Net      deferred tax asset                                                                                                              | $          9,674 |   | $        6,961 |

|                          | 2009                                                     |   | 2008                                                                               |
|-------------------------------|----------------------------------------------------------|--------|------------------------------------------------------------------------------------|
|                          |                                                     |   |                                                                               |
| Federal:                      |                                                     |   |                                                                               |
|   Current           | $            (1,024)       |   | $                  737 |
|   Deferred          | (4,210)                                                  |   | (2,280)                                                                            |
|                          |                                                     |   |                                                                               |
|     Total | $             (5,234) |   | $       (1,543)                                 |

|                                                                        | 2009                                                                                                                                                                                                                                                  |   | 2008                                                                                                                                                                                                                                                    |
|-----------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                        |                                                                                                                                                                                                                                                  |   |                                                                                                                                                                                                                                                    |
| Statutory      rate applied to earnings before  income      taxes | $        (3,949)                                                                                                                                                                                                   |   | $           (486)                                                                                                                                                                                          |
| Tax      exempt interest                                                    |                                              (807) |   |                                            (931)               |
| Life      Insurance benefits                                                |                                           (223)                   |   |                                               - |
| Other,      net                                                             |                                          (255)                         |   |                                             (126)         |
|                                                                        |                                                                                                                                                                                                                                                  |   |                                                                                                                                                                                                                                                    |
|     Total                                               | $       (5,234)                                                                                                                                                                                                    |   | $       (1,543)                                                                                                                                                                                                      |

----

|                                                                     |                                              2009 |   |                                    2008 |
|--------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                     |                                                                                                                                                                                                                                                 |   |                                                                                                                                                                                     |
| Non-interest      bearing demand                                         | $        84,073                                                                                                                                                                                              |   | $      80,169                                                                                                                                              |
| Interest      bearing demand                                             | 75,560                                                                                                                                                                                                                                               |   | 66,023                                                                                                                                                                                   |
| Savings      deposits                                                    | 55,745                                                                                                                                                                                                                                               |   | 49,805                                                                                                                                                                                   |
| Time      deposits, in amounts of $100,000   or      more | 111,637                                                                                                                                                                                                                                              |   | 119,623                                                                                                                                                                                  |
| Other      time deposits                                                 | 192,889                                                                                                                                                                                                                                              |   | 207,116                                                                                                                                                                                  |
|                                                                     |                                                                                                                                                                                                                                                 |   |                                                                                                                                                                                     |
| Total      deposits                                                      | $      519,904                                                                                                                                                                                                         |   | $    522,736                                                                                                                                                         |

| 2010       | $      208,681 |
|------------|----------------------------------------------|
| 2011       | 45,340                                       |
| 2012       | 28,814                                       |
| 2013       | 6,968                                        |
| 2013       | 13,035                                       |
| Thereafter | 1,688                                        |
|       |                                         |
|       | $      304,526 |

----

|   | At      December 31, Highlands Bankshares, Inc. and its Subsidiary had the      following long-term debtagreements: |
|--------|---------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                         | 2009                                                                                               |   | 2008                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|--------|------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                               |   |                               |
| Note      payable FHLB dated 03/04/05 for $5 million with an annual interest rate of      4.165%, due 03/04/2015. The note requires quarterly interest payments and      has an early conversion option at 03/04/2010. The loan is secured by a      floating blanket lien on a specific class of mortgage loans of the Bank      and a specific group of securities available for sale.                     |           Included      in short term borrowings |   | 5,000                              |
|                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                               |   |                               |
| Note      payable FHLB dated 06/29/05 for $5 million with an annual interest rate of      3.760%, due 06/29/2015. The note requires quarterly interest payments and      has an early conversion option at 06/29/2010. The loan is secured by a      floating blanket lien on a specific class of mortgage loans of the Bank      and a specific group of securities available for sale.                     | Included      in short term borrowings                                                             |   | 5,000                              |
|                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                               |   |                               |
| Note      payable FHLB dated 08/23/05 for $750,000 with an annual interest rate of      0%, due 08/24/2020. The note requires monthly principal payments and was      granted as part of the FHLB’s affordable housing program. The loan is      secured by a floating blanket lien on a specific class of mortgage loans      of the Bank and a specific group of securities available for      sale. | $       500                                                     |   | $     548 |
|                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                               |   |                               |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                | 2009                                   |   | 2008                                              |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|--------|---------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                   |   |                                              |
| Note      payable FHLB dated 02/28/08 for $6 million with an annual interest rate of      2.66%, due 02/28/2018. The note requires quarterly interest payments and      has an early conversion option at 02/26/2010. The loan is secured by a      floating blanket lien on a specific class of mortgage loans of the Bank      and a specific group of securities available for sale.                                                             | Included      in short term borrowings |   | 6,000                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                   |   |                                              |
| Note      payable FHLB dated 03/12/2008 for $8 million with an annual interest rate      of 2.61%, due 03/12/2018. The note requires quarterly interest payments      and has an early conversion option at 03/14/2011. The loan is secured by a      floating blanket lien on a specific class of mortgage loans of the Bank      and a specific group of securities available for sale.                                                           | 8,000                                  |   | 8,000                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                   |   |                                              |
| Other      notes payable resulting from seller-financing transactions for $375 with      annual interest rates ranging from 3.2% to 8.0%, and due dates ranging      from 2010-2013. The notes require monthly installments of principal and      interest of $6. The loans are secured by a first deed of trust on real      estate.                                                                                                          | 74                                     |   | 112                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                   |   |                                              |
| Holding      Company Note payable to Community Bankers Bank with a rate of 6.75%. The      note requires monthly installments of principal and interest in the amount      of $51. The loan is secured by the stock of the subsidiary bank and      contains certain other covenants that are typical for Bank Holding Company      loans. The loan is being amortized over a 10 year term and contains a      balloon date at then end of 5 years. | 2,262                                  |   | --                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                   |   |                                              |
|  Total      long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                     | $     10,836  |   | $       24,660 |

----

| 2010       | $                     - |
|------------|----------------------------------------------------------------------------------------------------|
| 2011       | 562                                                                                                |
| 2012       | 598                                                                                                |
| 2013       | 622                                                                                                |
| 2014       | 645                                                                                                |
| Thereafter | 8409                                                                                               |
|       |                                                                                               |
|       | $        10,836                                            |

----

----

|                                                            | 2009                                                                      |   | 2008                                                                    |
|-----------------------------------------------------------------|---------------------------------------------------------------------------|--------|-------------------------------------------------------------------------|
|                                                            |                                                                      |   |                                                                    |
| Income      available to common stockholders                    | $              (6,379)            |   | $                115  |
| Weighted      average shares outstanding                        |                5,006         |   |                5,023       |
| Shares      outstanding including assumed  conversion |                 5,006        |   |                5,077       |
| Basic      earnings (loss) per share                            |  $               (1.27) |   |  $          0.02 |
| Fully      diluted earnings (loss) per share                    |  $               (1.27) |   |  $          0.02 |

----

|   | Note      15. |   Stock      Option Plan and Equity CompensationPlan |
|--------|---------------|----------------------------------------------------------------|

----

|                                                                          | 2009                                 | 2008                  |
|-------------------------------------------------------------------------------|--------------------------------------|-----------------------|
|                                                                          |                                 |                  |   |   |
|                                                                          | Weighted      Average Exercise Price | Number      of Shares | Weighted      Average Exercise Price | Number      of Shares |
|                                                                          |                                 |                  |   |   |
|                                                                          |                                 |                  |   |   |
| Options      outstanding at January 1                                         | $   13.28             | 280,585               | $   12.86 | 314,321 |
| Granted                                                                       | -                                    | -                     | - | - |
| Exercised                                                                     | 10.13                                | (10,016)              | 9.53 | (31,736) |
| Expired                                                                       | 9.50                                 | (7,790)               | 7.54 | (2,000) |
|                                                                          |                                 |                  |   |   |
| Options      outstanding and   exercisable      at December 31 | $   13.51             | 262,779               | $   13.28 | 280,585 |
|                                                                          |                                 |                  |   |   |

|   |             Information pertaining to options outstanding at December 31, 2009 is as      follows: |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

|                                                          | Options      Outstanding and Exercisable |
|---------------------------------------------------------------|------------------------------------------|
| Range      of Exercise Prices                                 | Number      Outstanding                  |   | Weighted      Average Remaining Contractual Life |   | Weighted      Average Exercise Price |
|                                                          |                                     |   |   |   |   |
| $    11.75  -  $12.50 |      68,000     |   |          1.12  years |   | $      12.19 |
| $  13.00  -  $15.00             |    194,779                |   |          4.12  years |   | $      13.97 |
|                                                          |                                     |   |   |   |   |
| Outstanding      at end of year                               |    262,779                |   |          3.34      years |   | $      13.51 |

----

|   | Note      16. |   Off-Balance      Sheet Activities |
|--------|---------------|-----------------------------------------------|

----

|   | Level      1  |   | Valuation      is based upon quoted prices for identical instruments traded in active      markets.                                                                                                                                                                                                                                                                                                              |
|--------|--------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |               |   |                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Level      2  |   | Valuation      is based upon quoted prices for similar instruments in active markets,      quoted prices for identical or similar instruments in markets that are not      active, and model-based valuation techniques for which all significant      assumptions are observable in the market.                                                                                                                 |
|   |               |   |                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Level      3  |   | Valuation      is generated from model-based techniques that use at least one significant      assumption not observable in the market. These unobservable assumptions      reflect estimates of assumptions that market participants would use in      pricing the asset or liability. Valuation techniques include use of option      pricing models, discounted cash flow models and similar      techniques. |

----

| Available      for Sale Securities    |                                                     |                                                     |                                                                 |                                                                     |
|---------------------------------------|----------------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------------------|--------------------------------------------------------------------------|
| TRUP      CDO’s                 |          -- |          -- |       $   1,197         |        $         1,197 |
| State      and Political Subdivisions |                                                     | $  47,347                                      |                                                                 |        $       47,347            |
| Mortgage      Backed Securities       |          -- | $  18,752                                      |            -- |        $  18,752            |
| Other                                 |                                                     | $    3,652                           |                                                                 |        $    3,652 |
| Total      AFS Securities             |         --       | $   69,751                                |       $    1,197   |        $  70,948            |
|                                  |                                                     |                                                     |                                                                 |                                                                     |
|                                  |                                                     |                                                     |                                                                 |                                                                     |

----

| Available      for Sale Securities    |                                                     |                                                     |                                                                 |                                                                                                   |
|---------------------------------------|----------------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|
| TRUP      CDO’s                 |          -- |          -- |       $   3,831         |          $            3,831 |
| State      and Political Subdivisions |                                                     | $         50,990                          |                                                                 |          $          50,990                 |
| Mortgage      Backed Securities       |          -- | $         38,901                          |            -- |               $        38,901                   |
| Other                                 |                                                     | $    12,925                          |                                                                 |               $       9,715 |
| Total      AFS Securities             |         --       | $  102,816                                     |       $   3,831         |               $   106,647                            |
|                                  |                                                     |                                                     |                                                                 |                                                                                                   |
|                                  |                                                     |                                                     |                                                                 |                                                                                                   |

| Beginning      balance, January 1, 2009         |                                                 $        3,831                                 |
|-------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Total      gains, losses included in net income |                                                          (5,621)                          |
| Included      in Other comprehensive Income     |                                                            2,987                |
| Transfers      in or out of Level 3             |                                                               -- |
| Ending      Balance December 31, 2009           |                                                 $              1,197                           |

----

| Impaired      Loans |                                         |  $     10,343            |                            -- |        $  10,343       |
|---------------------|----------------------------------------------|--------------------------------------------------------|----------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------|
| Repossessions/OREO  |        -- |  $       4,221 |               2,713                |        $         6,934 |

----

|                                        | December  31,      2009                                               |                                                                                  | December      31, 2008 |
|---------------------------------------------|---------------------------------------------------------------------------------|---------------------------------------------------------------------------------------|------------------------|
|                                        | Carrying      Amount                                                            | Fair      Value                                                                       |                   | Carrying      Amount | Fair      Value |
|                                        |                                                                            |
|                                        |                                                                            |                                                                                  |                   |   |   |
| Cash      and cash equivalents              |            $    29,337             | $    29,337                                                       |                   | $    16,582 |        $    16,582 |
| Securities      available for sale     |                  70,948  | 70,948                                                                                |                   | 106,647 |            106,647 |
| Other      investments                      | 8,417                                                                           | 8,417                                                                                 |                   | 6,476 |                6,476 |
| Loans,      net                             | 474,438                                                                         | 467,790                                                                               |                   | 485,254 |            480,180 |
| Deposits                                    |              (519,904)                       |               (522,563)                       |                   |              (522,736) |          (526,780) |
| Other      short-term  borrowings |                (74,039)            |                 (80,047)            |                   |                (75,608) |            (83,844) |
| Long-term      debt                         |                (10,836)            |                 (10,875)            |                   |                (24,660) |            (26,468) |
| Capital      Securities                     |                  (3,150) |                   (2,588) |                   |                  (3,150) |              (2,758) |

----

| Note      19. |   Related      Party Transactions |
|---------------|---------------------------------------------|

|                    | 2009                                     |   | 2008                                       |
|-------------------------|------------------------------------------|--------|--------------------------------------------|
|                    |                                     |   |                                       |
| Balance,      beginning | $    16,255          |   | $    11,264            |
|   Additions   | 7,883                                    |   | 6,805                                      |
|   Reductions  | (7,695))                                 |   | (1,814))                                   |
|                    |                                     |   |                                       |
| Balance,      ending    | $    16,443          |   | $    16,255            |
|                    |                                     |   |                                       |
| Unused      commitments | $      894 |   | $      1,397 |
|                    |                                     |   |                                       |

|   |  Deposits      from related parties held by the Bank at December 31, 2009 and 2009 were      $4,600 and$4,714,      respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|

| Note      20. |   Restrictions      on Cash |
|---------------|---------------------------------------|

| Note      21. |   Minimum      Regulatory Capital Requirements |
|---------------|----------------------------------------------------------|

----

|   | Note      21.  Minimum Regulatory Capital Requirements      (Continued) |
|--------|-----------------------------------------------------------------------------------|

|                                                                     | Actual                    |   | For      Capital Adequacy Purposes |
|--------------------------------------------------------------------------|---------------------------|--------|------------------------------------|
|                                                                     |                      |
|                                                                     | Amount                    |   | Ratio                              |   | Amount |   | Ratio |
| As      of December 31, 2009:                                            |                      |   |                               |   |   |   |   |
| Total      Risk-Based Capital (to Risk-Weighted   Assets) | $   44,915 |   | 9.19%                              |   | $      39,096 |   | =,>      8% |
| Tier      1 Capital (to Risk-Weighted Assets)                            | 38,743                    |   | 7.93%                              |   | 19,548 |   | =,>      4% |
| Tier      1 Capital (to Adjusted Total Assets)                           | 38,743                    |   | 5.90%                              |   | 26,278 |   | =,>      4% |
|                                                                     |                      |   |                               |   |   |   |   |
| As      of December 31, 2008:                                            |                      |   |                               |   |   |   |   |
| Total      Risk-Based Capital (to Risk-Weighted   Assets) | $   53,784 |   | 11.15%                             |   | $      38,596 |   | =,>      8% |
| Tier      1 Capital (to Risk-Weighted Assets)                            | 48,613                    |   | 10.08%                             |   | 19,298 |   | =,>      4% |
| Tier      1 Capital (to Adjusted Total Assets)                           | 48,613                    |   | 7.20%                              |   | 27,008 |   | =,>      4% |
|                                                                     |                      |   |                               |   |   |   |   |

----

|   | Note      21.  Minimum Regulatory Capital Requirements      (Continued) |
|--------|-----------------------------------------------------------------------------------|

|                                                               | Actual                    | For      Capital Adequacy Purposes | To      be Well Capitalized under the Prompt Corrective Action      Provisions |
|--------------------------------------------------------------------|---------------------------|------------------------------------|--------------------------------------------------------------------------------|
|                                                               | Amount                    | Ratio                              | Amount                                                                         | Ratio | Amount | Ratio |
|                                                               |                      |                               |                                                                           |   |   |   |
| As      of December 31, 2009:                                      |                      |                               |                                                                           |   |   |   |
| Total      Risk-Based Capital (to Risk-Weighted  Assets) | $   49,677 | 10.17%                             | $  39,062                                                            | =,>      8% | $      48,828 | =,>      10% |
| Tier      1 Capital (to Risk-Weighted Assets)                      | 43,505                    | 8.91%                              | 19,531                                                                         | =,>      4% | 29,297 | =,>      6% |
| Tier      1 Capital (to Adjusted Total Assets)                     | 43,505                    | 6.63%                              | 26,242                                                                         | =,>      4% | 32,803 | =,>      5% |
|                                                               |                      |                               |                                                                           |   |   |   |
| As      of December 31, 2008:                                      |                      |                               |                                                                           |   |   |   |
| Total      Risk-Based Capital (to Risk-Weighted  Assets) | $   52,775 | 11.00%                             | $  38,396                                                            | =,>      8% | $      47,995 | =,>      10% |
| Tier      1 Capital (to Risk-Weighted Assets)                      | 47,603                    | 9.92%                              | 19,198                                                                         | =,>      4% | 28,797 | =,>      6% |
| Tier      1 Capital (to Adjusted Total Assets)                     | 47,603                    | 7.08%                              | 26,905                                                                         | =,>      4% | 33,632 | =,>      5% |
|                                                               |                      |                               |                                                                           |   |   |   |

| Note      22. |   Restrictions      on Dividends |
|---------------|--------------------------------------------|

----

| Note      23. |   Other      Operating Income and Expenses |
|---------------|------------------------------------------------------|

|                                            | 2009                                     |   | 2008                                     |
|-------------------------------------------------|------------------------------------------|--------|------------------------------------------|
|                                            |                                     |   |                                     |
| BOLI      income                                | $      458 |   | $      499 |
|                                            |                                     |   |                                     |
| Other      Contracted Services                  | $      578 |   | $      514 |
|                                            |                                     |   |                                     |
| Bank      Franchise Taxes                       | $      470 |   | $      482 |
|                                            |                                     |   |                                     |
| FDIC      Insurance Costs                       | $  1,183                       |   | $      332 |
|                                            |                                     |   |                                     |
| Loss      on Sale /Write-down of OREO and Repos | $   1,070                 |   | $     159       |
|                                            |                                     |   |                                     |
| Software      Licensing / Maintenance           | $      731 |   | $    589             |
|                                            |                                     |   |                                     |
| Life      Insurance Proceeds                    | $      656 |   | --                                       |
|                                            |                                     |   |                                     |

----

| CONDENSED      BALANCE SHEETS                                                       |                                                 |   |                                                            |
|-------------------------------------------------------------------------------------|------------------------------------------------------|--------|-----------------------------------------------------------------|
|                                                                                | 2009                                                 |   | 2008                                                            |
| ASSETS                                                                              |                                                 |   |                                                            |
|   Cash                                                                    | $     1,051                 |   | $             184            |
|   Capital      securities repurchased                                     | 600                                                  |   | 600                                                             |
|   Other      investments                                                  | 102                                                  |   | 254                                                             |
|   Equity      in subsidiary                                               | 40,189                                               |   | 41,186                                                          |
|   Premises      and equipment, net                                        | --                                                   |   | 1,532                                                           |
|   Other      assets                                                       | 145                                                  |   | 123                                                             |
|                                                                                |                                                 |   |                                                            |
|      Total      Assets                                     | $   42,087                            |   | $   43,879                                       |
|                                                                                |                                                 |   |                                                            |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                     |                                                 |   |                                                            |
|   Interest,      taxes and other liabilities                              | $        195 |   | $               81 |
|   Other      short term borrowings                                        | 453                                                  |   | 1,000                                                           |
|   Long      Term Debt                                                     | 2,261                                                |   | --                                                              |
|   Capital      securities                                                 | 3,750                                                |   | 3,750                                                           |
|      Total      Liabilities                                | 6,659                                                |   | 4,831                                                           |
|                                                                                |                                                 |   |                                                            |
| STOCKHOLDERS’      EQUITY                                                     | 35,428                                               |   | 39,048                                                          |
|                                                                                |                                                 |   |                                                            |
|      Total      Liabilities and Stockholders’ Equity | $   42,087                            |   | $   43,879                                       |

| CONDENSED      STATEMENTS OF INCOME                 |                                       |   |                                       |
|-----------------------------------------------------|--------------------------------------------|--------|--------------------------------------------|
|                                                | 2009                                       |   | 2008                                       |
|                                                |                                       |   |                                       |
| Dividends      from subsidiary                      | $      1,000 |   | $      2,500 |
| Interest      income                                | 55                                         |   | 58                                         |
| Other      income                                   | 59                                         |   | 226                                        |
| Interest      expense                               | (491)                                      |   | (376)                                      |
| Operating      expense                              | (267)                                      |   | (483)                                      |
|                                                | 356                                        |   | 1,925                                      |
|                                                |                                       |   |                                       |
|                                                |                                       |   |                                       |
| Income      tax benefit                             | 219                                        |   | 196                                        |
| Equity      in undistributed earnings of subsidiary |   (6,954)                        |   |   (2,006)                        |
|                                                |                                       |   |                                       |
| Net      income (Loss)                              | $   (6,379)                 |   | $      115   |

----

| CONDENSED      STATEMENTS OF CASH FLOWS                                                                |                                                                                                                           |   |                                                                                                                                     |
|--------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                   | 2009                                                                                                                           |   | 2008                                                                                                                                     |
| CASH      FLOWS FROM OPERATING ACTIVITIES:                                                             |                                                                                                                           |   |                                                                                                                                     |
| Net      income (Loss)                                                                                 | $  (6,379)                                                                                                           |   | $     115                                                                                                       |
| Adjustments      to reconcile net income to net cash  Provided      by operating activities: |                                                                                                                           |   |                                                                                                                                     |
| Depreciation      and amortization                                                                     | 17                                                                                                                             |   | 172                                                                                                                                      |
| Provision      for loan losses                                                                         |               -                                          |   | -                                                                                                                                        |
| Provision      for deferred income taxes                                                               | -                                                                                                                              |   | 3                                                                                                                                        |
| Equity      in undistributed earnings of subsidiary                                                    | 6,954                                                                                                                          |   | 2,006                                                                                                                                    |
| Increase      in other assets                                                                          | (256)                                                                                                                          |   | (189)                                                                                                                                    |
| Increase      (decrease)  in other liabilities                                               | 114                                                                                                                            |   | (72)                                                                                                                                     |
|                                                                                                   |                                                                                                                           |   |                                                                                                                                     |
| Net      cash provided by operating activities                                                         | 603                                                                                                                            |   | 2,035                                                                                                                                    |
|                                                                                                   |                                                                                                                           |   |                                                                                                                                     |
| CASH      FLOWS FROM INVESTING ACTIVITIES:                                                             |                                                                                                                           |   |                                                                                                                                     |
| (Purchase)      sale of other investments                                                              | -                                                                                                                              |   | (102)                                                                                                                                    |
| Net      (increase) decrease in loans                                                                  |       -                                                                                          |   |       -                                                                                                    |
| Premises      and equipment expenditures                                                               | -                                                                                                                              |   | -                                                                                                                                        |
| Capital      contributed to subsidiary bank                                                            | (1,000)                                                                                                                        |   | (1,000)                                                                                                                                  |
|                                                                                                   |                                                                                                                           |   |                                                                                                                                     |
| Net      cash provided by (used in) investing  activities                                    | (1,000)                                                                                                                        |   | (1,102)                                                                                                                                  |
|                                                                                                   |                                                                                                                           |   |                                                                                                                                     |
| CASH      FLOWS FROM FINANCING ACTIVITIES:                                                             |                                                                                                                           |   |                                                                                                                                     |
| Net      increase (decrease) in Short Term Borrowings                                                  | (547)                                                                                                                          |   | 1,000                                                                                                                                    |
| Net      increase in Long Term Debt                                                                    | 2,261                                                                                                                          |   |                                                                                                                                     |
| Cash      dividends paid                                                                               | (551)                                                                                                                          |   | (1,104)                                                                                                                                  |
| Repurchase      of capital securities                                                                  | -                                                                                                                              |   | (3,150)                                                                                                                                  |
| Proceeds      from exercise of common stock options                                                    | 101                                                                                                                            |   | 303                                                                                                                                      |
| Repurchase      of Common Stock                                                                        | -                                                                                                                              |   | (2,351)                                                                                                                                  |
|                                                                                                   |                                                                                                                           |   |                                                                                                                                     |
|      Net      cash (used in) provided by financing activities                 | 1,264                                                                                                                          |   | (5,302)                                                                                                                                  |
|                                                                                                   |                                                                                                                           |   |                                                                                                                                     |
| Net      increase (decrease) in cash and cash equivalents                                              | 867                                                                                                                            |   | (4,369)                                                                                                                                  |
|                                                                                                   |                                                                                                                           |   |                                                                                                                                     |
| CASH      AND CASH EQUIVALENTS AT  BEGINNING      OF YEAR                                    | 184                                                                                                                            |   | 4,553                                                                                                                                    |
|                                                                                                   |                                                                                                                           |   |                                                                                                                                     |
| CASH      AND CASH EQUIVALENTS AT END OF  YEAR                                               |                $     1,051 |   |                $            184 |
|  SUPPLEMENTAL      SCHEDULE OF NONCASH INVESTING ACTIVITIES                                       |                                                                                                                           |   |                                                                                                                                     |
| Capital      contributed to subsidiary bank—land and buildings                                   | $          1,527                                                                                           |   | $         1,311                                                                                                           |

----

----