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| Connecticut                                                                                       | 06-1559137                                |
|---------------------------------------------------------------------------------------------------|-------------------------------------------|
| (State      or other jurisdiction of incorporation or organization)                               | (IRS      Employer Identification Number) |
| 900      Bedford Street                                                                           |                                      |
| Stamford,      Connecticut                                                                        | 06901                                     |
|  (Address      of principal executive offices)                                               | (Zip      Code)                           |
| Registrant’s      telephone number, including area      code:      | (203)      324-7500                       |

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| Item      1.  | Business                                                                            | 2      |
|---------------|-------------------------------------------------------------------------------------|--------|
| Item      1A. | Risk      Factors                                                                   | 10     |
| Item      1B. | Unresolved      Staff Comments                                                      | 18     |
| Item      2.  | Properties                                                                          | 18     |
| Item      3.  | Legal      Proceedings                                                              | 18     |
| Item      4.  | Submission      of Matters to a Vote of Security Holders                            | 18     |
|          |                                                                                |   |
| Part      II  |
|          |                                                                                |   |
| Item      5.  | Market      for Common Equity, Related Shareholder Matters and Issuer               |   |
|          | Purchases      of Equity Securities                                                 | 19     |
| Item      6.  | Selected      Financial Data                                                        | 22     |
| Item      7.  | Management’s      Discussion and Analysis of Financial Condition and          |   |
|          | Results      of Operation                                                           | 23     |
| Item      7A. | Quantitative      and Qualitative Disclosures About Market Risk                     | 46     |
| Item      8.  | Financial      Statements and Supplementary Data                                    | 49     |
| Item      9.  | Changes      in and Disagreements with Accountants on Accounting and                |   |
|          | Financial      Disclosure                                                           | 50     |
| Item      9A. | Controls      and Procedures                                                        | 50     |
| Item      9B. | Other      Information                                                              | 53     |
|          |                                                                                |   |
| Part      III |
|          |                                                                                |   |
| Item      10. | Directors,      Executive Officers and Corporate Governance                         | 54     |
| Item      11. | Executive      Compensation                                                         | 54     |
| Item      12. | Security      Ownership of Certain Beneficial Owners and Management and             |   |
|          | Related      Shareholder Matters                                                    | 54     |
| Item      13. | Certain      Relationships and Related Transactions, and Director      Independence | 54     |
| Item      14. | Principal      Accountant Fees and Services                                         | 54     |
|          |                                                                                |   |
| Part      IV  |
|          |                                                                                |   |
| Item      15. | Exhibits      and Financial Statement Schedules                                     | 55     |

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|   | · | We      expect to face increased regulation of our industry, including the      provisions of the EESA and ARRA.  Compliance with such regulations      may increase our costs and limit our ability to pursue business      opportunities.  We cannot predict how large these costs will be      or how expansive any such limitations willbe. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Economic      conditions may continue to affect market confidence levels and may cause      adverse changes in payment patterns, causing increases in delinquencies,      which could affect our charge-offs and provision for loan      losses. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      ability to assess the creditworthiness of the Bank’s customers or to      estimate the values of collateral for loans may be impaired if the models      and approaches we use become less predictive of future behaviors,      valuations, assumptions or estimates due to the unpredictable economic      climate. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Increasing      consolidation of financial services companies as a result of current      market conditions could have unexpected adverse effects upon our ability      to compete effectively. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We      will be required to pay significantly higher FDIC premiums.  Market      developments have significantly depleted the insurance fund of the FDIC      and the FDIC has proposed a revised risk-based deposit insurance      assessment schedule. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|               |   | 2008                                                        |                                                                   | 2007                                                        |
|--------------------|--------|-------------------------------------------------------------|------------------------------------------------------------------------|-------------------------------------------------------------|
|               |   |                                                        |                                                                   | Cash                                                        |   |   |   | Cash |
|               |   | Sales      Price                                            | Dividends                                                              |                                                        | Sales      Price | Dividends |
| Quarter      Ended |   | High                                                        | Low                                                                    | Declared                                                    |   | High | Low | Declared |
|               |   |                                                        |                                                                   |                                                        |   |   |   |   |
| March      31      |   |  $      16.55            |  $      14.01                       |  $      0.045            |   |  $      26.52 |  $      20.75 |  $      0.045 |
| June      30       |   |          16.16 |          13.75            |          0.045 |   |          23.50 |          20.50 |          0.045 |
| September      30  |   |          15.50 |          11.50            |          0.045 |   |          22.73 |          18.97 |          0.045 |
| December      31   |   |          13.50 |            6.80 |          0.045 |   |          20.93 |          15.25 |          0.045 |

----

|                                                                    | Number      of securities tobe      issued uponexercise      of outstandingoptions,      warrants andrights(a) | Weighted-averageexercise      price ofoutstanding      options,warrants      and rights(b) | Number      of securitiesremaining      available forfuture      issuance underequity      compensationplans      (excludingsecurities      reflected incolumn      (a))(c) |
|-------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity      compensationplans      approved by security      holders    | 55,000                                                                                                         | $10.13                                                                                     | -                                                                                                                                                                           |
|                                                                    |                                                                                                           |                                                                                       |                                                                                                                                                                        |
| Equity      compensationplans      not approved bysecurity      holders | -                                                                                                              | -                                                                                          | -                                                                                                                                                                           |
|                                                                    |                                                                                                           |                                                                                       |                                                                                                                                                                        |
| Total                                                                   | 55,000                                                                                                         | $10.13                                                                                     | -                                                                                                                                                                           |

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|                                      | At      or for the year ended December 31,                                                                         |
|-------------------------------------------|--------------------------------------------------------------------------------------------------------------------|
|                                      | 2008                                                                                                               | 2007 | 2006 | 2005 | 2004 |
|                                      |                                                                                                               |   |   |   |   |
| Operating      Data:                      |                                                                                                               |   |   |   |   |
|                                      |                                                                                                               |   |   |   |   |
| Interest      and dividend income         |  $     55,750,246                                                                    |  $     51,862,157 |  $     38,009,526 |  $     25,148,701 |  $     18,678,251 |
| Interest      expense                     |         28,539,067                                                         |         27,767,310 |         18,069,648 |         10,269,625 |           7,008,508 |
| Net      interest income                  |         27,211,179                                                         |         24,094,847 |         19,939,878 |         14,879,076 |         11,669,743 |
| Provision      for loan losses            |         11,289,772                                                         |                75,000 |           1,040,000 |           1,110,000 |              556,000 |
| Noninterest      (loss) income            |             (149,108)                                  |           2,233,915 |           2,359,149 |           3,229,037 |           2,702,204 |
| Noninterest      expense                  |         25,947,905                                                         |         22,038,836 |         17,576,872 |         14,634,487 |         12,256,550 |
| (Benefit)      provision for income taxes |          (3,064,000)                                                  |           1,537,000 |           1,267,000 |              957,000 |              633,000 |
| Net      (loss) income                    |          (7,111,606)                                                  |           2,677,926 |           2,415,155 |           1,406,626 |              926,397 |
|                                      |                                                                                                               |   |   |   |   |
| Per      Share Data:                      |                                                                                                               |   |   |   |   |
|                                      |                                                                                                               |   |   |   |   |
| Basic      (loss) income per share        |                   (1.50) |                    0.56 |                    0.67 |                    0.52 |                    0.38 |
| Diluted      (loss) income per share      |                   (1.50) |                    0.56 |                    0.66 |                    0.51 |                    0.37 |
| Dividends      per share                  |                  0.180        |                  0.180 |                  0.175 |                  0.155 |                  0.135 |
|                                      |                                                                                                               |   |   |   |   |
| Balance      Sheet Data                   |                                                                                                               |   |   |   |   |
|                                      |                                                                                                               |   |   |   |   |
| Cash      and due from banks              |           4,286,233                                              |           2,760,246 |           3,868,670 |           7,220,577 |           6,670,409 |
| Federal      funds sold                   |         20,000,000                                                         |         11,000,000 |         27,000,000 |           6,500,000 |         37,500,000 |
| Short      term investments               |              316,518                              |              251,668 |         24,605,869 |           2,247,028 |         11,460,057 |
| Investment      securities                |         58,401,177                                                         |         71,857,840 |         70,222,035 |         80,991,068 |         78,258,775 |
| Loans,      net                           |       788,568,687                                                                    |       685,885,990 |       506,884,155 |       364,243,777 |       263,874,820 |
| Total      assets                         |       913,358,978                                                                    |       807,530,254 |       645,982,795 |       470,641,162 |       405,046,955 |
| Total      deposits                       |       784,821,351                                                                    |       672,399,409 |       561,451,664 |       419,075,288 |       367,005,325 |
| Total      borrowings                     |         65,248,000                                                         |         62,748,000 |         16,248,000 |         17,248,000 |         16,248,000 |
| Total      shareholders' equity           |         58,774,144                                                         |         66,835,367 |         64,283,345 |         31,374,615 |         19,756,434 |

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|                                                                 | 2008                                                | 2007                                                | 2006                                                |
|-----------------------------------------------------------------|-----------------------------------------------------|-----------------------------------------------------|-----------------------------------------------------|
| U.      S. Government sponsored                                 |                                                |                                                |                                                |
|           agency obligations                |  $       10,102,248                       |  $       16,924,648                       |  $       16,566,822                       |
| U.      S. Government Agency and sponsored                      |                                                |                                                |                                                |
|           agency mortgage-backed securities |           37,998,569            |           41,325,870            |           43,476,313            |
| Marketable equity      securities                               |             3,878,860 |             9,039,522 |             7,050,000 |
| Federal Reserve Bank      stock                                 |             1,913,200 |             1,911,700 |             1,911,700 |
| Federal Home Loan      Bank stock                               |             4,508,300 |             2,656,100 |             1,217,200 |
| Total      Investments                                          |  $       58,401,177                       |  $       71,857,840                       |  $       70,222,035                       |

|   | · | Federal      Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”) – $1.05      million.  As a result of actions taken on September 7, 2008 by      the United States Treasury Department and the Federal Housing Finance      Agency with respect to placing Freddie Mac into receivership, the      Company’s investment in FHLMC preferred equity securities was deemed to be      other-than-temporarily impaired and a write-down of $1.05 million was      recorded during the third quarter of2008. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Other      Auction Rate Preferred Securities – $2.1 million.  The Company      has investments in six other auction rate preferred securities of      companies primarily in the financial services sector.  The      illiquidity in the auction rate market has resulted in significant      declines in market value for these investments.  As management      is unable to predict near term prospects for recovery of these securities,      impairment charges totaling $2.1 million were recorded during the fourth      quarter. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                     |                                                                                                                                 | Over one                                                                                                                  | Over five                                                                                                           |                                                                                              |                                                                                                                 |                                     | Weighted |
|----------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|------------------------------------------|----------|
|                                                     | One year                                                                                                                        | through                                                                                                                   | through                                                                                                             | Over ten                                                                                          |                                                                                                                 |                                     | Average  |
|                                                     | or less                                                                                                                         | five years                                                                                                                | ten years                                                                                                           | years                                                                                             | No maturity                                                                                                          | Total                                    | Yield    |
|                                                     |                                                                                                                            |                                                                                                                      |                                                                                                                |                                                                                              |                                                                                                                 |                                     |     |
| U. S. Government Sponsored                               |                                                                                                                            |                                                                                                                      |                                                                                                                |                                                                                              |                                                                                                                 |                                     |     |
|      agency    obligations           |  $                       -            |  $  5,000,000                                                                                                   |  $ 5,000,000                                                                                                   |  $                  -            |  $                       - |  $ 10,000,000                       | 5.31%    |
| U. S. Government Agency and                              |                                                                                                                            |                                                                                                                      |                                                                                                                |                                                                                              |                                                                                                                 |                                     |     |
|      sponsored      agency      |                                                                                                                            |                                                                                                                      |                                                                                                                |                                                                                              |                                                                                                                 |                                     |     |
|      mortgage-backed      securities |                           - |                          - |                         - |                      - |     38,246,799                                                                                        |     38,246,799            | 5.14%    |
| Money market preferred                                   |                                                                                                                            |                                                                                                                      |                                                                                                                |                                                                                              |                                                                                                                 |                                     |     |
|      equitysecurities                |                           - |                          - |                         - |                      - |       3,878,860                                                                             |       3,878,860 | 4.22%    |
| Total                                                    |  $                       -            |  $  5,000,000                                                                                                   |  $ 5,000,000                                                                                                   |  $                  -            |  $ 42,125,659                                                                                                   |  $ 52,125,659                       | 5.10%    |
| Weighted average      yield                              |                         -   | 5.13%                                                                                                                     | 5.50%                                                                                                               |                    -   | 5.05%                                                                                                                | 5.10%                                    |     |

|                                                            | Amortized      Cost                                                                            | Fair      Value                                                                                |
|-----------------------------------------------------------------|------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|
|                                                            |                                                                                           |                                                                                           |
| Available for sale      securities:                             |                                                                                           |                                                                                           |
| U.      S. Government Sponsored Agency      Obligations         |  $                10,000,000            |  $                10,102,248            |
| U.      S. Government Agency and sponsored                      |                                                                                           |                                                                                           |
|           agency mortgage-backed securities |                    38,246,799 |                    37,998,569 |

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|                             |                                                              | 2008                                                                         | 2007                                                                         | 2006                                                                         | 2005                                                                                                                                                                | 2004                                                                                                                                                                |
|-----------------------------|--------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                        |                                                         |                                                                         |                                                                         |                                                                         |                                                                                                                                                                |                                                                                                                                                                |
| Real Estate                 |                                                         |                                                                         |                                                                         |                                                                         |                                                                                                                                                                |
|                        | Commercial                                                   |  $  262,570,339                                                    |  $  233,121,685                                                    |  $  166,799,341                                                    |  $  129,178,889                                                                                                                                           |  $  106,771,441                                                                                                                                           |
|                        | Residential                                                  | 170,449,780                                                                  | 110,154,838                                                                  | 91,077,687                                                                   | 77,391,833                                                                                                                                                          | 36,965,661                                                                                                                                                          |
|                        | Construction                                                 | 257,117,081                                                                  | 254,296,326                                                                  | 173,840,322                                                                  | 107,232,587                                                                                                                                                         | 74,598,919                                                                                                                                                          |
|                        | Construction to permanent                                    |                 35,625,992 |                 37,701,509 |                 29,988,131 |                                 - |                                 - |
| Commercial                  | 33,860,527                                                   | 27,494,531                                                                   | 23,997,640                                                                   | 15,591,818                                                                   | 17,562,523                                                                                                                                                          |
| Consumer installment        | 993,707                                                      | 1,270,360                                                                    | 1,251,300                                                                    | 1,106,648                                                                    | 1,386,709                                                                                                                                                           |
| Consumer home equity        | 45,022,128                                                   | 29,154,498                                                                   | 26,933,277                                                                   | 39,097,450                                                                   | 30,874,894                                                                                                                                                          |
| Total loans                 |          805,639,554 |          693,193,747                 |          513,887,698                 |          369,599,225                 |          268,160,147                                                                                                        |
| Premiums on purchased loans | 158,072                                                      | 195,805                                                                      | 292,543                                                                      | 367,491                                                                      | 313,754                                                                                                                                                             |
| Net deferred fees           | (981,869)                                                    | (1,830,942)                                                                  | (1,665,654)                                                                  | (1,134,604)                                                                  | (1,117,556)                                                                                                                                                         |
| Allowance for loan losses   | (16,247,070)                                                 | (5,672,620)                                                                  | (5,630,432)                                                                  | (4,588,335)                                                                  | (3,481,525)                                                                                                                                                         |
| Loans, net                  |  $  788,568,687                                    |  $  685,885,990                                                    |  $  506,884,155                                                    |  $  364,243,777                                                    |  $  263,874,820                                                                                                                                           |

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|                                      |                                                                                                                                        | Due after                                                                                                                                   |                                                                                                                                        |                                                                                                            |
|--------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------|
|                                 | Due in                                                                                                                                      | one year                                                                                                                                    |                                                                                                                                        |                                                                                                            |
|                                 | one year                                                                                                                                    | through                                                                                                                                     | Due after                                                                                                                                   |                                                                                                            |
| (thousands of      dollars)          | or less                                                                                                                                     | five years                                                                                                                                  | five years                                                                                                                                  | Total                                                                                                           |
| Commercial real      estate          |  $               35,267                                                                   |  $               54,093                                                                   |  $             173,210                                                                              |  $             262,570                                                  |
| Residential real      estate         |                     2,280                                             |                     2,522                                             |                 165,648                                                                   |                 170,450                                       |
| Construction      loans              |                 186,548                                                                   |                   64,511                                                        |                     6,058                                             |                 257,117                                       |
| Construction to      permanent loans |                           -   |                           -   |                   35,626                                                        |                   35,626                            |
| Commercial      loans                |                   18,897                                                        |                     9,111                                             |                     5,853                                             |                   33,861                            |
| Consumer      installment            |                        928                             |                          66                  |                           -   |                        994 |
| Consumer home      equity            |                     1,645                                             |                     1,299                                             |                   42,078                                                        |                   45,022                            |
|           Total  |  $             245,565                                                                              |  $             131,602                                                                              |  $             428,473                                                                              |  $             805,640                                                  |
|                                 |                                                                                                                                        |                                                                                                                                        |                                                                                                                                        |                                                                                                            |
| Fixed rate      loans                |  $               44,379                                                                   |  $               32,091                                                                   |  $               11,498                                                                   |  $               87,968                                       |
| Variable rate      loans             |                 201,185                                                                   |                   99,511                                                        |                 416,976                                                                   |                 717,672                                       |
|           Total  |  $             245,564                                                                              |  $             131,602                                                                              |  $             428,474                                                                              |  $             805,640                                                  |

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|                                       | 2008                                                                                              | 2007                                                                                              | 2006                                                                                              | 2005                                                                                              | 2004                                                                                              |
|--------------------------------------------|---------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|
|                                       | (thousands of      dollars)                                                                       |
|                                       |                                                                                              |                                                                                              |                                                                                              |                                                                                              |                                                                                              |
| Balance at beginning      of period        |  $           5,673                                                  |  $           5,630                                                  |  $           4,588                                                  |  $           3,481                                                  |  $           2,934                                                  |
| Charge-offs                                | (716)                                                                                             | (32)                                                                                              | (1)                                                                                               |                    (3)           |                    (9)           |
| Recoveries                                 |                      1 |                      - |                      3 |                      - |                      - |
| Net recoveries      (charge-offs)          | (715)                                                                                             | (32)                                                                                              | 2                                                                                                 |                    (3)           |                    (9)           |
| Additions charged to      operations       |             11,289                                                  |                    75            |               1,040                                       |               1,110                                       |                  556                       |
| Balance at end of      period              |  $         16,247                                                             |  $           5,673                                                  |  $           5,630                                                  |  $           4,588                                                  |  $           3,481                                                  |
| Ratio of net      (charge-offs) recoveries |                                                                                              |                                                                                              |                                                                                              |                                                                                              |                                                                                              |
| during the period to      average loans    |                                                                                              |                                                                                              |                                                                                              |                                                                                              |                                                                                              |
| outstanding during      the period         | (0.09%)                                                                                           | (0.00%)                                                                                           | 0.00%                                                                                             | (0.00%)                                                                                           | (0.01%)                                                                                           |

|                                        |                                                                            |                                                                           |                                                           |                                                                                 |                                                                                 |        | Percent of loans in      each |
|---------------------------------------------|----------------------------------------------------------------------------|---------------------------------------------------------------------------|-----------------------------------------------------------|---------------------------------------------------------------------------------|---------------------------------------------------------------------------------|--------|-------------------------------|
| Balance at end of      each                 | Amounts (thousands of      dollars)                                        |                                                                      | category to total      loans                              |
| period applicable      to:                  | 2008                                                                       | 2007                                                                      | 2006                                                      | 2005                                                                            | 2004                                                                            |   | 2008                          | 2007 | 2006 | 2005 | 2004 |
| Real Estate:                                |                                                                       |                                                                      |                                                      |                                                                            |                                                                            |   |                          |   |   |   |   |
|    Commercial                     |  $    4,843                                            |  $  1,963                                                       |  $  1,943                                       |  $  1,607                                                             |  $  1,319                                                             |   | 32.59%                        | 33.63% | 32.46% | 34.95% | 39.82% |
|    Residential                    |        1,417                                 |         296                            |         245            |         511                                  |         304                                  |   | 21.16%                        | 15.89% | 17.72% | 20.94% | 13.78% |
|    Construction                   |        8,654                                 |      2,644                                            |      2,557                            |      1,963                                                  |      1,358                                                  |   | 31.91%                        | 36.68% | 33.83% | 29.01% | 27.82% |
|    Construction to      permanent |           264                 |         391                            |         441            |                   - |                   - |   | 4.42%                         | 5.44% | 5.84% | 0.00% | 0.00% |
| Commercial                                  |           471                 |         271                            |         290            |         164                                  |         185                                  |   | 4.20%                         | 3.97% | 4.67% | 4.22% | 6.55% |
| Consumer installment                        |                  28 |           30                 |           31 |           10                       |           11                       |   | 0.12%                         | 0.18% | 0.24% | 0.30% | 0.52% |
| Consumer home equity                        |           336                 |           77                 |           72 |         260                                  |         233                                  |   | 5.59%                         | 4.21% | 5.24% | 10.58% | 11.51% |
| Unallocated                                 |           234                 |                  1 |           51 |           73                       |           71                       |   | N/A                           | N/A | N/A | N/A | N/A |
| Total                                       |  $  16,247                                                       |  $  5,673                                                       |  $  5,630                                       |  $  4,588                                                             |  $  3,481                                                             |   | 100.00%                       | 100.00% | 100.00% | 100.00% | 100.00% |

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|                                                | 2008                                                             | 2007                                                             | 2006                                                             | 2005                                                                                   | 2004                                                                        |
|-----------------------------------------------------|------------------------------------------------------------------|------------------------------------------------------------------|------------------------------------------------------------------|----------------------------------------------------------------------------------------|-----------------------------------------------------------------------------|
|                                                | (thousands of      dollars)                                      |
|                                                |                                                             |                                                             |                                                             |                                                                                   |                                                                        |
| Loans delinquent      over 90                  |                                                             |                                                             |                                                             |                                                                                   |                                                                        |
|    days      still accruing               |  $              337 |  $              112 |  $           1,897                 |  $              275                       |  $              373            |
| Non-accrual      loans                              |             80,156                 |               3,832      |               2,904      |               1,935                            |               3,669                 |
|                                                |  $         80,493                            |  $           3,944                 |  $           4,801                 |  $           2,210                                       |  $           4,042                            |
|                                                |                                                             |                                                             |                                                             |                                                                                   |                                                                        |
| % of Total      Loans                               | 10.21%                                                           | 0.57%                                                            | 0.93%                                                            | 0.60%                                                                                  | 1.51%                                                                       |
| % of Total      Assets                              | 8.81%                                                            | 0.49%                                                            | 0.74%                                                            | 0.47%                                                                                  | 1.00%                                                                       |
|                                                |                                                             |                                                             |                                                             |                                                                                   |                                                                        |
| Additional income on      non-accrual               |                                                             |                                                             |                                                             |                                                                                   |                                                                        |
|    loans      if recognized on an accrual |                                                             |                                                             |                                                             |                                                                                   |                                                                        |
|         basis                             |  $           2,854                 |  $              168 |  $              141 |  $                  6 |  $                18 |

----

----

|                                                    | 2008                                                                         | 2007                                                                         | 2006                                                                         |
|----------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|
|                                               |                                                                         |                                                                         |                                                                         |
| Non-interest bearing                               |  $        50,194,400                 |  $        51,925,991                 |  $        56,679,836                 |
|                                               |                                                                         |                                                                         |                                                                         |
| Interest bearing                                   |                                                                         |                                                                         |                                                                         |
|    Time certificates, less than $100,000 |          405,298,436                 |          300,502,281                 |          248,414,014                 |
|    Time certificates, $100,000 or more   |          195,502,087                 |          231,366,788                 |          162,546,807                 |
|    Money markets                         |                 68,241,790 |                 34,880,837 |                 40,935,628 |
|    Savings                               |                 46,040,086 |                 34,261,389 |                 25,993,452 |
|    NOW                                   |                 19,544,552 |                 19,462,123 |                 26,881,927 |
|    Total interest bearing                |          734,626,951                 |          620,473,418                 |          504,771,828                 |
| Total deposits                                     |  $      784,821,351                            |  $      672,399,409                            |  $      561,451,664                            |

----

|                             | Less than                                                                            | $100,000      or                                                                     |                                                                                 |
|-----------------------------|--------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------|
|                        | $100,000                                                                             | greater                                                                              | Totals                                                                               |
|                        | (thousands of      dollars)                                                          |
|                        |                                                                                 |                                                                                 |                                                                                 |
| Three months or      less   |  $             151,990                       |  $               43,945            |  $             195,935                       |
| Three to six      months    |                   54,380 |                   22,850 |                   77,230 |
| Six      months to one year |                 159,833            |                 102,388            |                 262,221            |
| Over      one year          |                   39,095 |                   26,319 |                   65,414 |
| Total                       |  $             405,298                       |  $             195,502                       |  $             600,800                       |

| December 31,      2007                              |
|-----------------------------------------------------|
|                                                |   |   |
|                                                |   |   |
| Amount                                              |             Maturity |               Rate |
|                                                |   |   |
|  $         5,000,000            | 1/3/2008 | 4.520% |
|           25,000,000            | 1/4/2008 | 4.380% |
|             7,500,000 | 1/7/2008 | 4.400% |
|  $       37,500,000                       |   | 4.403% |

----

----

| Distribution      of Assets, Liabilities and Shareholder's Equity                                   |
|----------------------------------------------------------------------------------------------------------|
| Interest      Rates and Interest Differential and Rate Volume      Variance Analysis (1)  |
| (thousands      of dollars)                                                                         |

|                                                                  | 2008                                                              |                                                                        | 2007    |   | 2006                                                                              |                                                                             | 2008 vs. 2007      Fluctuations |   | 2007 vs. 2006      Fluctuations                                                              |
|-----------------------------------------------------------------------|-------------------------------------------------------------------|-----------------------------------------------------------------------------|---------|--------|-----------------------------------------------------------------------------------|----------------------------------------------------------------------------------|---------------------------------|--------|----------------------------------------------------------------------------------------------|
|                                                                  |                                                              | Interest                                                                    |    |   |                                                                              | Interest                                                                         |                            |   |                                                                                         | Interest |   |   | Interest      Income/Expense (3) |   | Interest      Income/Expense (3) |
|                                                                  | Average                                                           | Income/                                                                     | Average |   | Average                                                                           | Income/                                                                          | Average                         |   | Average                                                                                      | Income/ | Average |   | Due to Change      in: |   | Due to Change      in: |
|                                                                  | Balance                                                           | Expense                                                                     | Rate    |   | Balance                                                                           | Expense                                                                          | Rate                            |   | Balance                                                                                      | Expense | Rate |   | Volume | Rate | Total |   | Volume | Rate | Total |
| Interest      earning assets:                                         |                                                              |                                                                        |    |   |                                                                              |                                                                             |                            |   |                                                                                         |   |   |   |   |   |   |   |   |   |   |
|    Loans      (2)                                           |  $        771,174                                  |  $         52,484                                       | 6.81%   |   |  $        598,525                                                  |  $        46,949                                                  | 7.84%                           |   |  $        442,612                                                             |  $        34,052 | 7.69% |   |  $  12,275 |  $        (6,740) |  $          5,535 |   |  $        12,220 |  $             677 |  $        12,897 |
|    Federal      funds sold and                              |                                                              |                                                                        |    |   |                                                                              |                                                                             |                            |   |                                                                                         |   |   |   |   |   |   |   |   |   |   |
|           other cash equivalents                  |              12,435            |                  325 | 2.61%   |   |              40,000                            |              2,058                            | 5.15%                           |   |              18,661                                       |                 955 | 5.12% |   |            (1,010) |               (723) |            (1,733) |   |              1,097 |                     6 |              1,103 |
|         Investments (4)                                     |              63,199            |               2,941                 | 4.65%   |   |              67,420                            |              2,855                            | 4.23%                           |   |              75,869                                       |              3,003 | 3.96% |   |               (172) |                 258 |                   86 |   |               (324) |                 176 |               (148) |
| Total interest      earning assets                                    |  $        846,808                                  |  $         55,750                                       | 6.58%   |   |  $        705,945                                                  |  $        51,862                                                  | 7.35%                           |   |  $        537,142                                                             |  $        38,010 | 7.08% |   |           11,093 |            (7,205) |              3,888 |   |            12,993 |                 859 |            13,852 |
|                                                                  |                                                              |                                                                        |    |   |                                                                              |                                                                             |                            |   |                                                                                         |   |   |   |   |   |   |   |   |   |   |
|    Cash and      due from banks                             |                5,993 |                                                                        |    |   |                4,155                 |                                                                             |                            |   |                5,231                            |   |   |   |   |   |   |   |   |   |   |
|         Allowance for loan losses                           |              (7,575)           |                                                                        |    |   |              (5,613)                           |                                                                             |                            |   |              (5,324)                                      |   |   |   |   |   |   |   |   |   |   |
|    Other      assets                                        |              37,209            |                                                                        |    |   |              19,813                            |                                                                             |                            |   |                9,671                            |   |   |   |   |   |   |   |   |   |   |
|           Total Assets                            |  $        882,435                                  |                                                                        |    |   |  $        724,300                                                  |                                                                             |                            |   |  $        546,720                                                             |   |   |   |   |   |   |   |   |   |   |
|                                                                  |                                                              |                                                                        |    |   |                                                                              |                                                                             |                            |   |                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Interest      bearing liabilities:                                    |                                                              |                                                                        |    |   |                                                                              |                                                                             |                            |   |                                                                                         |   |   |   |   |   |   |   |   |   |   |
|    Time      certificates                                   |  $        568,717                                  |  $         23,561                                       | 4.14%   |   |  $        483,918                                                  |  $        24,811                                                  | 5.13%                           |   |  $        325,522                                                             |  $        14,687 | 4.51% |   |  $         3,965 |  $        (5,215) |  $        (1,250) |   |  $          7,894 |  $          2,230 |  $        10,124 |
|    Savings      accounts                                    |              40,252            |                  992 | 2.46%   |   |              30,657                            |                 747            | 2.44%                           |   |              23,291                                       |                 435 | 1.87% |   |                229 |                   16 |                 245 |   |                 159 |                 153 |                 312 |
|    Money      market accounts                               |              54,321            |               1,229                 | 2.26%   |   |              38,526                            |                 699            | 1.81%                           |   |              44,876                                       |                 646 | 1.44% |   |                242 |                 288 |                 530 |   |                 (83) |                 136 |                   53 |
|    NOW      accounts                                        |              21,044            |                  186 | 0.88%   |   |              26,612                            |                 267            | 1.00%                           |   |              26,838                                       |                 383 | 1.43% |   |                 (52) |                 (29) |                 (81) |   |                   (3) |               (113) |               (116) |
|    FHLB      advances                                       |              57,716            |               1,726                 | 2.99%   |   |              11,174                            |                 511            | 4.57%                           |   |              24,496                                       |              1,241 | 5.07% |   |             1,448 |               (233) |              1,215 |   |               (618) |               (112) |               (730) |
|         Subordinated debt                                   |                8,248 |                  536 | 6.50%   |   |                8,248                 |                 691            | 8.38%                           |   |                8,248                            |                 673 | 8.16% |   |                     - |               (155) |               (155) |   |                     - |                   18 |                   18 |
|    Other      borrowings                                    |                7,005 |                  309 | 4.41%   |   |                   927 |                   41 | 4.42%                           |   |                     96 |                     5 | 5.21% |   |                268 |                     - |                 268 |   |                   37 |                   (1) |                   36 |
| Total interest      bearing liabilities                               |  $        757,304                                  |  $         28,539                                       | 3.77%   |   |  $        600,062                                                  |  $        27,767                                                  | 4.63%                           |   |  $        453,367                                                             |  $        18,070 | 3.99% |   |             6,100 |            (5,328) |                 772 |   |              7,386 |              2,311 |              9,697 |
|                                                                  |                                                              |                                                                        |    |   |                                                                              |                                                                             |                            |   |                                                                                         |   |   |   |   |   |   |   |   |   |   |
|    Demand      deposits                                     |              53,380            |                                                                        |    |   |              52,992                            |                                                                             |                            |   |              48,455                                       |   |   |   |   |   |   |   |   |   |   |
|    Accrued      expenses and                                |                                                              |                                                                        |    |   |                                                                              |                                                                             |                            |   |                                                                                         |   |   |   |   |   |   |   |   |   |   |
|              and other liabilities |                4,502 |                                                                        |    |   |                5,441                 |                                                                             |                            |   |                4,418                            |   |   |   |   |   |   |   |   |   |   |
|         Shareholder's equity                                |              67,250            |                                                                        |    |   |              65,805                            |                                                                             |                            |   |              40,480                                       |   |   |   |   |   |   |   |   |   |   |
| Total      liabilities and equity                                     |  $        882,435                                  |                                                                        |    |   |  $        724,300                                                  |                                                                             |                            |   |  $        546,720                                                             |   |   |   |   |   |   |   |   |   |   |
|                                                                  |                                                              |                                                                        |    |   |                                                                              |                                                                             |                            |   |                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Net interest      income                                              |                                                              |  $         27,211                                       |    |   |                                                                              |  $        24,095                                                  |                            |   |                                                                                         |  $        19,940 |   |   |  $         4,993 |  $        (1,877) |  $          3,116 |   |  $          5,607 |  $        (1,452) |  $          4,155 |
| Interest      margin                                                  |                                                              |                                                                        | 3.21%   |   |                                                                              |                                                                             | 3.41%                           |   |                                                                                         |   | 3.71% |   |   |   |   |   |   |   |   |
| Interest      spread                                                  |                                                              |                                                                        | 2.81%   |   |                                                                              |                                                                             | 2.72%                           |   |                                                                                         |   | 3.09% |   |   |   |   |   |   |   |   |
|                                                                  |                                                              |                                                                        |    |   |                                                                              |                                                                             |                            |   |                                                                                         |   |   |   |   |   |   |   |   |   |   |

----

|                                  |   | 2008                                        |   | 2007                                                  |   | 2006                                                  |
|---------------------------------------|--------|---------------------------------------------|--------|-------------------------------------------------------|--------|-------------------------------------------------------|
|                                  |   |                                        |   |                                                  |   |                                                  |
| (Loss) return on      average assets  |   | -0.81%                                      |   | 0.37%                                                 |   | 0.44%                                                 |
| (Loss) return on      average equity  |   | -10.62%                                     |   | 4.07%                                                 |   | 5.97%                                                 |
| Dividend payout      ratio            |   | N /A                                        |   | 32.14%                                                |   | 26.12%                                                |
| Average equity to      average assets |   | 7.59%                                       |   | 9.09%                                                 |   | 7.41%                                                 |
| Basic income per      share           |   |  $          (1.50) |   |  $            0.56 |   |  $            0.67 |
| Diluted income per      share         |   |  $          (1.50) |   |  $            0.56 |   |  $            0.66 |

----

----

----

----

----

|                                                    |                                                                                   | Less than                                                                                                                                                     | One to                                                                                                                                             | Three to                                                                                                                                                | Over five                                                                                                            |
|----------------------------------------------------|-----------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|
|                                               | Total                                                                             | one year                                                                                                                                                      | three years                                                                                                                                             | five years                                                                                                                                              | years                                                                                                                |
|                                               |                                                                              |                                                                                                                                                          |                                                                                                                                                    |                                                                                                                                                    |                                                                                                                 |
| Certificates of deposit                            |  $ 600,800,523                                                               |  $ 535,386,282                                                                                                                                           |  $ 33,793,463                                                                                                                                      |  $ 31,620,778                                                                                                                                      |  $                       - |
| Junior subordinated debt owed      to              |                                                                              |                                                                                                                                                          |                                                                                                                                                    |                                                                                                                                                    |                                                                                                                 |
|           unconsolidated trust |                  8,248,000 |                                - |                               - |                               - |           8,248,000                                                     |
| FHLB Advances                                      |           50,000,000                 |                                - |         10,000,000                                                                                                   |         20,000,000                                                                                                   |         20,000,000                                                                |
| Securities sold under      agreements              |                                                                              |                                                                                                                                                          |                                                                                                                                                    |                                                                                                                                                    |                                                                                                                 |
|      to      repurchase        |                  7,000,000 |                                - |                               - |                               - |           7,000,000                                                     |
| Operating lease      obligations                   |           16,233,754                 |                  2,510,644                                                                             |           4,890,285                                                                                        |           3,786,945                                                                                        |           5,045,880                                                     |
|                                               |                                                                              |                                                                                                                                                          |                                                                                                                                                    |                                                                                                                                                    |                                                                                                                 |
| Total contractual      obligations                 |  $ 682,282,277                                                               |  $ 537,896,926                                                                                                                                           |  $ 48,683,748                                                                                                                                      |  $ 55,407,723                                                                                                                                      |  $ 40,293,880                                                                                                   |

----

| Future loan      commitments             |  $          9,237,000            |
|------------------------------------------|-----------------------------------------------------------|
| Unused lines of      credit              |            56,640,392            |
| Undisbursed      construction loans      |            72,694,600            |
| Financial Standby      letters of credit |              1,481,600 |
|                                     |                                                      |
| Total      commitments                   |  $ 140,053,592                                       |

----

|                            | December      31, |
|---------------------------------|-------------------|
|                            | 2008              | 2007 | 2006 |
|                            |              |   |   |
| Total Risk-Based      Capital   | 10.27%            | 12.17% | 15.34% |
| Tier      1 Risk- Based Capital | 9.01%             | 11.30% | 14.22% |
| Leverage      Capital           | 7.23%             | 9.42% | 11.63% |

|                            | December      31, |
|---------------------------------|-------------------|
|                            | 2008              | 2007 | 2006 |
|                            |              |   |   |
| Total Risk-Based      Capital   | 10.22%            | 12.03% | 15.02% |
| Tier 1 Risk- Based      Capital | 8.96%             | 11.15% | 13.90% |
| Leverage      Capital           | 7.19%             | 9.30% | 11.37% |

----

----

|                      | Basis     | Interest    Rate     | December    31, |
|---------------------------|-----------|----------------------|-----------------|
|                      | Points    | Risk      Guidelines | 2008            | 2007 |
|                      |      |                 |            |   |
| Gap      percentage total |      | +/- 15%              | 2.51%           | -8.33% |
| Net      interest income  |  200 | +/- 15%              | -1.32%          | -1.05% |
|                      | -200      | +/- 15%              | -0.54%          | -0.59% |
| Net      portfolio value  |  200 | +/- 25%              | -12.48%         | -12.60% |
|                      | -200      | +/-    25%      | 5.40%           | 7.35% |

----

| Net Interest Income      and Economic Value |
|---------------------------------------------|
| Summary      Performance                    |
|                                        |   |   |   |   |   |   |   |
| December 31,      2008                      |
|                                        | Net Interest      Income |   | Net Portfolio      Value |
| Projected      Interest                     | Estimated | $ Change | % Change |   | Estimated | $ Change | %Change |
| Rate      Scenario                          | Value | from Base | from Base |   | Value | from Base | from  Base |
| +      200                                  |              22,609 |                  (302) | -1.32% |   |              67,804 |               (9,668) | -12.48% |
| +      100                                  |              22,745 |                  (166) | -0.73% |   |              72,462 |               (5,010) | -6.47% |
| BASE                                        |              22,911 |   |   |   |              77,472 |   |   |
| -      100                                  |              22,927 |                     16 | 0.07% |   |              80,422 |                2,950 | 3.81% |
| -      200                                  |              22,788 |                  (123) | -0.54% |   |              81,658 |                4,186 | 5.40% |
|                                        |   |   |   |   |   |   |   |
| December 31,      2007                      |
|                                        | Net      Interest Income |   | Net      Portfolio Value |
| Projected      Interest                     | Estimated | $ Change | % Change |   | Estimated | $ Change | %Change |
| Rate      Scenario                          | Value | from Base | from Base |   | Value | from Base | from  Base |
| +      200                                  |              24,969 |                  (265) | -1.05% |   |              69,103 |               (9,966) | -12.60% |
| +      100                                  |              25,138 |                    (96) | -0.38% |   |              73,971 |               (5,098) | -6.45% |
| BASE                                        |              25,234 |   |   |   |              79,069 |   |   |
| -      100                                  |              25,316 |                     82 | 0.32% |   |              83,213 |                4,144 | 5.24% |
| -      200                                  |              25,084 |                  (150) | -0.59% |   |              84,881 |                5,812 | 7.35% |

----

|                                                           | First                                                                                                                                       | Second                                                                                                                                      | Third                                                                                                                                       | Fourth                                                                                                     |
|----------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|
|                                                           | Quarter                                                                                                                                     | Quarter                                                                                                                                     | Quarter                                                                                                                                     | Quarter                                                                                                    |
|                                                           |                                                                                                                                        |                                                                                                                                        |                                                                                                                                        |                                                                                                       |
| 2008:                                                          |                                                                                                                                        |                                                                                                                                        |                                                                                                                                        |                                                                                                       |
| Interest      income                                           |  $        14,298,676                                                                                                         |  $        14,524,245                                                                                                         |  $        13,473,165                                                                                                         |  $        13,454,160                                                                        |
| Interest      expense                                          |              8,150,666                                                                                   |              7,397,678                                                                                   |              6,370,263                                                                                   |              6,620,460                                                  |
|    Net      interest income                          |              6,148,010                                                                                   |              7,126,567                                                                                   |              7,102,902                                                                                   |              6,833,700                                                  |
| Provision for loan      losses                                 |                 477,000                                                                   |              1,068,000                                                                                   |              3,000,000                                                                                   |              6,744,772                                                  |
| Noninterest      income                                        |                 753,739                                                                   |                 761,014                                                                   |                (303,564)                                                                       |             (1,360,297)                                                      |
| Noninterest      expenses                                      |              6,222,082                                                                                   |              6,370,342                                                                                   |              5,996,420                                                                                   |              7,359,061                                                  |
|    (Loss)      income before income taxes (benefits) |                 202,667                                                                   |                 449,239                                                                   |             (2,197,082)                                                                                       |             (8,630,430)                                                      |
| Income taxes      (benefits)                                   |                   52,000                                                        |                   53,000                                                        |                (288,000)                                                                       |             (2,881,000)                                                      |
| Net (loss)      income                                         |  $             150,667                                                                              |  $             396,239                                                                              |  $         (1,909,082)                                                                                                  |  $         (5,749,430)                                                                 |
|                                                           |                                                                                                                                        |                                                                                                                                        |                                                                                                                                        |                                                                                                       |
| Net income (loss)      per common share:                       |                                                                                                                                        |                                                                                                                                        |                                                                                                                                        |                                                                                                       |
| Basic                                                          |  $                   0.03                                             |  $                   0.08                                             |  $                  (0.40)                                                 |  $                  (1.21)                |
| Diluted                                                        |                       0.03                                  |                       0.08                                  |                      (0.40)                                      |                      (1.21)     |
|                                                           |                                                                                                                                        |                                                                                                                                        |                                                                                                                                        |                                                                                                       |
|                                                           |                                                                                                                                        |                                                                                                                                        |                                                                                                                                        |                                                                                                       |
| 2007:                                                          |                                                                                                                                        |                                                                                                                                        |                                                                                                                                        |                                                                                                       |
| Interest      income                                           |  $        11,564,608                                                                                                         |  $        12,994,015                                                                                                         |  $        13,298,154                                                                                                         |  $        14,005,379                                                                        |
| Interest      expense                                          |              5,963,090                                                                                   |              7,093,024                                                                                   |              7,066,513                                                                                   |              7,644,683                                                  |
|    Net      interest income                          |              5,601,518                                                                                   |              5,900,991                                                                                   |              6,231,641                                                                                   |              6,360,696                                                  |
| Provision for loan      losses                                 |                             - |                             - |                             - |                   75,000                       |
| Noninterest      income                                        |                 585,014                                                                   |                 526,378                                                                   |                 465,059                                                                   |                 657,465                                  |
| Noninterest      expenses                                      |              5,343,113                                                                                   |              5,553,020                                                                                   |              5,485,975                                                                                   |              5,656,728                                                  |
|    Income      before income taxes                   |                 843,419                                                                   |                 874,349                                                                   |              1,210,725                                                                                   |              1,286,433                                                  |
| Income    taxes                                                |                 327,000                                                                   |                 340,000                                                                   |                 470,000                                                                   |                 400,000                                  |
| Net income                                                     |  $             516,419                                                                              |  $             534,349                                                                              |  $             740,725                                                                              |  $             886,433                                             |
|                                                           |                                                                                                                                        |                                                                                                                                        |                                                                                                                                        |                                                                                                       |
| Net income per      common share:                              |                                                                                                                                        |                                                                                                                                        |                                                                                                                                        |                                                                                                       |
| Basic                                                          |  $                   0.11                                             |  $                   0.11                                             |  $                   0.16                                             |  $                   0.19            |
| Diluted                                                        |                       0.11                                  |                       0.11                                  |                       0.16                                  |                       0.19 |
|                                                           |                                                                                                                                        |                                                                                                                                        |                                                                                                                                        |                                                                                                       |

----

----

----

----

----

----

----

| (a) | Exhibits |
|-----|----------|

| Exhibit      No. | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2                | Agreement      and Plan of Reorganization dated as of June 28, 1999 between Bancorp and      the Bank (incorporated by reference to Exhibit 2 to Bancorp’s Current      Report on Form 8-K dated December 1, 1999 (Commission File No.      000-29599)).                                                                                                                                                                                                                                   |
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3(i)             | Certificate      of Incorporation of Bancorp, (incorporated by reference to Exhibit 3(i) to      Bancorp’s Current Report on Form 8-K dated December 1, 1999 (Commission      File No. 000-29599)).                                                                                                                                                                                                                                                                                        |
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3(i)(A)          | Certificate      of Amendment of Certificate of Incorporation of Patriot National Bancorp,      Inc. dated July 16, 2004 (incorporated by reference to Exhibit 3(i)(A) to      Bancorp's Annual Report on Form 10-KSB for the year ended December 31,      2004 (Commission File No. 000-29599)).                                                                                                                                                                                                |
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3(i)(B)          | Certificate      of Amendment of Certificate of Incorporation of Patriot National Bancorp,      Inc. dated June 15, 2006 (incorporated by reference to Exhibit 3(i)(B) to      Bancorp's Quarterly Report on Form 10-Q for the quarter ended      September 30, 2006 (Commission File No.    000-29599)).                                                                                                                                                                              |
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3(ii)            | Amended      and Restated By-laws of Bancorp (incorporated by reference to Exhibit 3.2      to Bancorp’s Current Report on Form 8-K dated December 26, 2007      (Commission File No. 1-32007)).                                                                                                                                                                                                                                                                                           |
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4                | Reference      is made to the Rights Agreement dated April 19, 2004 by and between      Patriot National Bancorp, Inc. and Registrar and Transfer Company filed as      Exhibit 99.2 to Bancorp’s Report on Form 8-K filed on April 19, 2004, and      the First Amendment to the Rights Agreement dated      January 23, 2008 files as Exhibit 4.1 to Bancorp’s Report on      form 8-K dated January 24, 2008 which are incorporated herein by      reference. |
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10(a)(1)         | 2001      Stock Appreciation Rights Plan of Bancorp (incorporated by reference to      Exhibit 10(a)(1) to Bancorp’s Annual Report on Form 10-KSB for the year      ended December 31, 2001 (Commission File No.      000-29599)).                                                                                                                                                                                                                                               |

----

| Exhibit      No. | Description                                                                                                                                                                                                                                                                                                                                                             |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |                                                                                                                                                                                                                                                                                                                                                                    |
| 10(a)(3)         | Employment      Agreement, dated as of October 23, 2000, as amended by a First Amendment,      dated as of March 21, 2001, among the Bank, Bancorp and Charles F.      Howell (incorporated by reference to Exhibit 10(a)(4) to Bancorp’s Annual      Report on Form 10-KSB for the year ended December 31, 2000 (Commission      File No. 000-29599)). |
|             |                                                                                                                                                                                                                                                                                                                                                                    |
| 10(a)(4)         | Change      of Control Agreement, dated as of January 1, 2007 among      Angelo De Caro, and Patriot National Bank and      Bancorp  (incorporated by reference to Exhibit 10(a)(4) to      Bancorp's Annual Report on Form 10-K for the year ended December 31, 2006      (Commission File No. 000-29599)).                              |
|             |                                                                                                                                                                                                                                                                                                                                                                    |
| 10(a)(5)         | Employment      Agreement dated as of January 1, 2008 among Patriot National      Bank, Bancorp and Robert F. O’Connell  (incorporated by      reference to Exhibit 10(a)(5) to Bancorp's Annual Report on Form 10-K for      the year ended December 31, 2007 (Commission File No.      000-29599)).                                         |
|             |                                                                                                                                                                                                                                                                                                                                                                    |
| 10(a)(6)         | Change      of Control Agreement, dated as of January 1, 2007 among      Robert F. O’Connell and Patriot National Bank and      Bancorp  (incorporated by reference to Exhibit 10(a)(6) to      Bancorp's Annual Report on Form 10-K for the year ended December 31, 2006      (Commission File No. 000-29599)).                    |
|             |                                                                                                                                                                                                                                                                                                                                                                    |
| 10(a)(9)         | License      agreement dated July 1, 2003 between Patriot National Bank and      L. Morris Glucksman (incorporated by reference to Exhibit 10(a)(9) to      Bancorp’s Annual Report on Form 10-KSB for the year ended December 31,      2003 (Commission File No. 000-29599)).                                                                     |
|             |                                                                                                                                                                                                                                                                                                                                                                    |
| 10(a)(10)        | Employment      Agreement dated as of January 1, 2007 among Patriot National      Bank, Bancorp and Charles F. Howell  (incorporated by reference      to Exhibit 10(a)(10) to Bancorp's Annual Report on Form 10-K for the year      ended December 31, 2006 (Commission File No.  000-29599)).                                                    |
|             |                                                                                                                                                                                                                                                                                                                                                                    |
| 10(a)(11)        | Change      of Control Agreement, dated as of January 1, 2007 among      Charles F. Howell, Patriot National Bank and      Bancorp  (incorporated by reference to Exhibit 10(a)(11) to      Bancorp's Annual Report on Form 10-K for the year ended December 31, 2006      (Commission File No. 000-29599)).                              |

----

| Exhibit      No. | Description                                                                                                                                                                                                                                                                                                                     |
|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |                                                                                                                                                                                                                                                                                                                            |
| 10(a)(12)        | 2005      Director Stock Award Plan (incorporated by reference to Exhibit 10(a)(12)      to Bancorp’s Quarterly Report on Form 10-Q for the quarter ended      June 30, 2006 (Commission File No.  000-295999)).                                                                                                |
|             |                                                                                                                                                                                                                                                                                                                            |
| 10(a)(13)        | Change      of Control Agreement, dated as of January 1, 2007 between      Martin G. Noble and Patriot National Bank (incorporated by      reference to Exhibit 10(a)(13) to Bancorp's Annual Report on Form 10-K for      the year ended December 31, 2006 (Commission File No.      000-29599)).          |
|             |                                                                                                                                                                                                                                                                                                                            |
| 10(a)(14)        | Change      of Control Agreement, dated as of January 1, 2007 among      Philip W. Wolford, Patriot National Bank and Bancorp      (incorporated by reference to Exhibit 10(a)(14) to Bancorp's Annual Report      on Form 10-K for the year ended December 31, 2006 (Commission File No.      000-29599)). |
|             |                                                                                                                                                                                                                                                                                                                            |
| 10(a)(15)        | Formal      Written Agreement between Patriot National Bank and the Office of the      Comptroller of the Currency (incorporated by reference to Exhibit      10(a)(15) to Bancorp’s Current Report on Form 8-K dated February 9, 2009      (Commission File No. 000-29599)).                                             |
|             |                                                                                                                                                                                                                                                                                                                            |
| 10(c)            | 1999      Stock Option Plan of the Bank (incorporated by reference to Exhibit 10(c)      to Bancorp’s Current Report on Form 8-K dated December 1, 1999 (Commission      File No. 000-29599)).                                                                                                                            |
|             |                                                                                                                                                                                                                                                                                                                            |
| 14               | Code      of Conduct for Senior Financial Officers (incorporated by reference to      Exhibit 14 to Bancorp’s Annual Report on Form 10-KSB for the year ended      December 31, 2004 (Commission File No. 000-29599)).                                                                                                    |
|             |                                                                                                                                                                                                                                                                                                                            |
| 21               | Subsidiaries      of Bancorp (Incorporated by reference to Exhibit 21 to Bancorp’s Annual      Report on Form 10-KSB for the year ended December 31, 1999 (Commission      File No. 000-29599)).                                                                                                                          |
|             |                                                                                                                                                                                                                                                                                                                            |
| 23               | Consent      of McGladrey & Pullen, LLP.                                                                                                                                                                                                                                                                                    |
|             |                                                                                                                                                                                                                                                                                                                            |
| 31(1)            | Rule      13a-14(a)/15d-14(a) Certification of Chief Executive    Officer                                                                                                                                                                                                                                                       |
|             |                                                                                                                                                                                                                                                                                                                            |
| 31(2)            | Rule      13a-14(a)/15d-14(a) Certification of Chief Financial    Officer                                                                                                                                                                                                                                                       |
|             |                                                                                                                                                                                                                                                                                                                            |
| 32               | Section      1350 Certification                                                                                                                                                                                                                                                                                                 |

----

|   | Patriot      National Bancorp, Inc.                     |
|--------|---------------------------------------------------------|
|   | (Registrant)                                            |
|   |                                                    |
|   |                                                    |
|   | By:  /s/   Angelo      De Caro |
|   | Name:      Angelo De Caro                               |
|   | Title:      Chairman & Chief ExecutiveOfficer       |

|    /s/  Angelo De      Caro                                                                                                  | March 31,      2009 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|
| Angelo      De Caro, Chairman, Chief Executive                                                                                                        | Date                |
| Officer      and Director                                                                                                                             |                |
|                                                                                                                                                  |                |
|                                                                                                                                                  |                |
|   /s/   Robert F.      O’Connell                                                                                       | March 31,      2009 |
| Robert      F. O’Connell                                                                                                                        | Date                |
| Senior      Executive Vice President,                                                                                                                 |                |
| Chief      Financial Officer and Director                                                                                                             |                |
|                                                                                                                                                  |                |
|                                                                                                                                                  |                |
|   /s/   Todd C.      Scaccia                 | March 31,      2009 |
| Todd      C. Scaccia                                                                                                                                  | Date                |
| Vice      President & Controller                                                                                                                  |                |
|                                                                                                                                                  |                |
|                                                                                                                                                  |                |
|   /s/  John J.      Ferguson                                                                                                      | March 30,      2009 |
| John      J. Ferguson                                                                                                                                 | Date                |
| Director                                                                                                                                              |                |
|                                                                                                                                                  |                |
|                                                                                                                                                  |                |
|   /s/  Brian A.      Fitzgerald                                                                                                   | March 31,      2009 |
| Brian      A. Fitzgerald                                                                                                                              | Date                |
| Director                                                                                                                                              |                |

----

|    /s/   John A.      Geoghegan | March 31,      2009 |
|---------------------------------------------------------------|---------------------|
| John      A. Geoghegan                                        | Date                |
| Director                                                      |                |
|                                                          |                |
|                                                          |                |
|   /s/   L. Morris      Glucksman     | March 31,      2009 |
| L.      Morris Glucksman                                      | Date                |
| Director                                                      |                |
|                                                          |                |
|                                                          |                |
|   /s/   Charles F.      Howell       | March 31,      2009 |
| Charles      F. Howell                                        | Date                |
| Director                                                      |                |
|                                                          |                |
|                                                          |                |
|   /s/   Michael F.      Intrieri     | March 31,      2009 |
| Michael      F. Intrieri                                      | Date                |
| Director                                                      |                |
|                                                          |                |
|                                                          |                |
|   /s/   Raymond B.      Smyth        | March 31,      2009 |
| Raymond      B. Smyth                                         | Date                |
| Director                                                      |                |
|                                                          |                |
|                                                          |                |
|   /s/   Philip W.      Wolford       | March 31,      2009 |
| Philip      W. Wolford                                        | Date                |
| Director                                                      |                |

----

----

| REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 1           |
|--------------------------------------------------------------|-------------|
|                                                         |        |
|                                                         |        |
| CONSOLIDATED      FINANCIAL STATEMENTS                       |        |
| Consolidated      balance sheets                             | 2           |
| Consolidated      statements of income                       | 3           |
| Consolidated      statements of shareholders’ equity   | 4           |
| Consolidated      statements of cash flows                   | 5 -      6  |
| Notes      to consolidated financial statements              | 7 -      49 |

----

----

| PATRIOT NATIONAL BANCORP, INC. AND      SUBSIDIARY                                                     |                                                                                                                                                                |                                                                                                                                                                |
|--------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                   |                                                                                                                                                                |                                                                                                                                                                |
| CONSOLIDATED      BALANCE SHEETS                                                                       |                                                                                                                                                                |                                                                                                                                                                |
| December      31, 2008 and 2007                                                                        |                                                                                                                                                                |                                                                                                                                                                |
|                                                                                                   | 2008                                                                                                                                                                | 2007                                                                                                                                                                |
| ASSETS                                                                                                 |                                                                                                                                                                |                                                                                                                                                                |
| Cash      and due from banks (Note 2):                                                                 |                                                                                                                                                                |                                                                                                                                                                |
| Noninterest      bearing deposits and cash                                                             |  $           3,045,708                                                                                  |  $           2,691,841                                                                                  |
| Interest      bearing deposits                                                                         |               1,240,525                                                                       |                   68,405                                                  |
| Federal      funds sold                                                                                |             20,000,000                                                                                  |             11,000,000                                                                                  |
| Short-term      investments                                                                            |                  316,518                                                       |                  251,668                                                       |
| Cash      and cash equivalents                                                                         |             24,602,751                                                                                  |             14,011,914                                                                                  |
|                                                                                                   |                                                                                                                                                                |                                                                                                                                                                |
| Available      for sale securities (at fair value) (Note 3)                                            |             51,979,677                                                                                  |             67,290,040                                                                                  |
| Federal      Reserve Bank stock                                                                        |               1,913,200                                                                       |               1,911,700                                                                       |
| Federal      Home Loan Bank stock (Note 8)                                                             |               4,508,300                                                                       |               2,656,100                                                                       |
| Loans      receivable (net of allowance for loan losses:  2008      $16,247,070;             |                                                                                                                                                                |                                                                                                                                                                |
|  2007      $5,672,620 (Notes 4 and 18)                                                            |            788,568,687                                                                                       |            685,885,990                                                                                       |
| Accrued      interest and dividends receivable                                                         |               4,556,755                                                                       |               4,576,018                                                                       |
| Premises      and equipment, net (Notes 5 and 9)                                                       |               7,948,501                                                                       |               7,805,565                                                                       |
| Deferred      tax asset, net (Note 10)                                                                 |               8,680,075                                                                       |               2,788,024                                                                       |
| Goodwill      and other intangible assets (Note 11)                                                    |                   85,896                                                  |               1,469,075                                                                       |
| Cash      surrender value of life insurance (Note 12)                                                  |             19,135,105                                                                                  |             18,193,684                                                                                  |
| Other      assets (Notes 6 and 8)                                                                      |               1,380,031                                                                       |                  942,144                                                       |
| Total      assets                                                                                      |  $        913,358,978                                                                                                  |  $        807,530,254                                                                                                  |
|                                                                                                   |                                                                                                                                                                |                                                                                                                                                                |
| LIABILITIES      AND SHAREHOLDERS' EQUITY                                                              |                                                                                                                                                                |                                                                                                                                                                |
| Deposits      (Notes 7 and 18):                                                                        |                                                                                                                                                                |                                                                                                                                                                |
| Noninterest      bearing deposits                                                                      |  $          50,194,400                                                                                       |  $          51,925,991                                                                                       |
| Interest      bearing deposits                                                                         |            734,626,951                                                                                       |            620,473,418                                                                                       |
| Total      deposits                                                                                    |            784,821,351                                                                                       |            672,399,409                                                                                       |
|                                                                                                   |                                                                                                                                                                |                                                                                                                                                                |
| Repurchase      agreements (Note 8)                                                                    |               7,000,000                                                                       |               7,000,000                                                                       |
| Federal      Home Loan Bank borrowings (Note 8)                                                        |             50,000,000                                                                                  |             47,500,000                                                                                  |
| Junior      subordinated debt owed to unconsolidated trust (Note 8)                                    |               8,248,000                                                                       |               8,248,000                                                                       |
| Accrued      expenses and other liabilities                                                            |               4,515,483                                                                       |               5,547,478                                                                       |
| Total      liabilities                                                                                 |            854,584,834                                                                                       |            740,694,887                                                                                       |
|                                                                                                   |                                                                                                                                                                |                                                                                                                                                                |
| Commitments      and Contingencies (Notes 8, 9 and 16)                                                 |                                                                                                                                                                |                                                                                                                                                                |
|                                                                                                   |                                                                                                                                                                |                                                                                                                                                                |
| Shareholders'      equity (Notes 14 and 17)                                                            |                                                                                                                                                                |                                                                                                                                                                |
| Preferred      stock, no par value; 1,000,000 shares authorized,                                       |                                                                                                                                                                |                                                                                                                                                                |
| no      shares issued                                                                                  |                            - |                            - |
|    Common      stock, $2 par value: 60,000,000 shares authorized; shares                |                                                                                                                                                                |                                                                                                                                                                |
|       issued      2008 4,755,114; outstanding 4,743,409; 2007 issued and |               9,510,228                                                                       |               9,493,688                                                                       |
|       outstanding:  2007      - 4,746,844                      |                                                                                                                                                                |                                                                                                                                                                |
| Additional      paid-in capital                                                                        |             49,634,337                                                                                  |             49,549,119                                                                                  |
| Retained      (deficit) earnings                                                                       |                 (119,886)                                                           |               7,846,060                                                                       |
|    Less:      Treasury stock at cost:  2008 11,705 shares                     |                 (160,025)                                                           |                            - |
| Accumulated      other comprehensive loss - net unrealized loss                                        |                                                                                                                                                                |                                                                                                                                                                |
| on      available for sale securities, net of taxes                                                    |                  (90,510)                                                      |                  (53,500)                                                      |
| Total      shareholders' equity                                                                        |             58,774,144                                                                                  |             66,835,367                                                                                  |
|                                                                                                   |                                                                                                                                                                |                                                                                                                                                                |
| Total      liabilities and shareholders' equity                                                        |  $        913,358,978                                                                                                  |  $        807,530,254                                                                                                  |
|                                                                                                   |                                                                                                                                                                |                                                                                                                                                                |
| See      Notes to Consolidated Financial Statements.                                                   |                                                                                                                                                                |                                                                                                                                                                |

----

| PATRIOT NATIONAL BANCORP, INC. AND      SUBSIDIARY       |                                                                                                                            |                                                                                                                            |                                                                                                                            |
|----------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| CONSOLIDATED      STATEMENTS OF OPERATIONS               |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Years      Ended December 31, 2008, 2007 and 2006        |                                                                                                                            |                                                                                                                            |                                                                                                                            |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
|                                                     | 2008                                                                                                                            | 2007                                                                                                                            | 2006                                                                                                                            |
| Interest      and Dividend Income                        |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Interest      and fees on loans                          |  $    52,484,054                                                                                       |  $    46,948,772                                                                                       |  $    34,052,444                                                                                       |
| Interest      on investment securities                   |         2,324,817                                                                       |         2,153,886                                                                       |         2,541,678                                                                       |
| Dividends      on investment securities                  |            803,704                                                       |         1,667,587                                                                       |            815,014                                                       |
| Interest      on federal funds sold                      |            129,475                                                       |         1,079,233                                                                       |            582,952                                                       |
| Other      interest income                               |               8,196                                       |              12,679                                            |              17,438                                            |
| Total      interest and dividend income                  |        55,750,246                                                                            |        51,862,157                                                                            |        38,009,526                                                                            |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Interest      Expense                                    |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Interest      on deposits (Note 7)                       |        25,968,124                                                                            |        26,524,400                                                                            |        16,151,297                                                                            |
| Interest      on Federal Home Loan Bank borrowings       |         1,725,699                                                                       |            511,027                                                       |         1,240,582                                                                       |
| Interest      on subordinated debt                       |            535,659                                                       |            690,696                                                       |            672,971                                                       |
| Interest      on other borrowings                        |            309,585                                                       |              41,187                                            |               4,798                                       |
| Total      interest expense                              |        28,539,067                                                                            |        27,767,310                                                                            |        18,069,648                                                                            |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Net      interest income                                 |        27,211,179                                                                            |        24,094,847                                                                            |        19,939,878                                                                            |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Provision      for Loan Losses (Note 4)                  |        11,289,772                                                                            |              75,000                                            |         1,040,000                                                                       |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Net      interest income after provision for loan losses |        15,921,407                                                                            |        24,019,847                                                                            |        18,899,878                                                                            |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Noninterest      (Loss) Income                           |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Mortgage      brokerage referral fees                    |            237,933                                                       |            736,195                                                       |         1,240,545                                                                       |
| Loan      application, inspection and processing fees    |            355,526                                                       |            212,896                                                       |            300,907                                                       |
| Fees      and service charges                            |            990,843                                                       |            839,311                                                       |            644,845                                                       |
| Loss      on impaired investment securities              |        (3,167,285)                                                                           |                      - |                      - |
| Gain      on redemption of investment securities         |                      - |               5,000                                       |                      - |
| Earnings      on cash surrender value of life insurance  |            941,421                                                       |            193,684                                                       |                      - |
| Other      income                                        |            492,454                                                       |            246,829                                                       |            172,852                                                       |
| Total      noninterest (loss) income                     |           (149,108)                                                           |         2,233,915                                                                       |         2,359,149                                                                       |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Noninterest      Expenses                                |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Salaries      and benefits (Notes 9 and 15)              |        12,092,917                                                                            |        11,851,598                                                                            |        10,436,127                                                                            |
| Occupancy      and equipment expense, net                |         5,526,910                                                                       |         4,457,770                                                                       |         2,797,089                                                                       |
| Data      processing and other outside services          |         1,874,216                                                                       |         1,809,795                                                                       |         1,322,423                                                                       |
| Advertising      and promotional expenses                |            814,374                                                       |            713,246                                                       |            703,007                                                       |
| Professional      services                               |         1,167,669                                                                       |            704,771                                                       |            531,611                                                       |
| Loan      administration and processing expenses         |            303,338                                                       |            195,408                                                       |            163,930                                                       |
| Regulatory      assessments                              |            725,613                                                       |            582,897                                                       |            184,732                                                       |
| Other      real estate operations (Note 6)               |                      - |           (152,009)                                                           |             (19,715)                                                |
| Other      operating expenses                            |         2,077,377                                                                       |         1,875,360                                                                       |         1,457,668                                                                       |
| Goodwill      impairment (Note 11)                       |         1,365,491                                                                       |                      - |                      - |
| Total      noninterest expenses                          |        25,947,905                                                                            |        22,038,836                                                                            |        17,576,872                                                                            |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| (Loss)      income before income taxes                   |       (10,175,606)                                                                                |         4,214,926                                                                       |         3,682,155                                                                       |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Benefit      (Provision) for Income Taxes (Note 10)      |         3,064,000                                                                       |        (1,537,000)                                                                           |        (1,267,000)                                                                           |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Net      (loss) income                                   |  $     (7,111,606)                                                                                |  $      2,677,926                                                                            |  $      2,415,155                                                                            |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Basic      (loss) income per share (Note 14)             |  $            (1.50)                                           |  $             0.56                                       |  $             0.67                                       |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Diluted      (loss) income per share (Note 14)           |  $            (1.50)                                           |  $             0.56                                       |  $             0.66                                       |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| Dividends      per share                                 |  $              0.180                                |  $              0.180                                |  $              0.175                                |
|                                                     |                                                                                                                            |                                                                                                                            |                                                                                                                            |
| See      Notes to Consolidated Financial Statements.     |                                                                                                                            |                                                                                                                            |                                                                                                                            |

----

| PATRIOT NATIONAL BANCORP, INC. AND      SUBSIDIARY   |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |
|------------------------------------------------------|---------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| CONSOLIDATED      STATEMENTS OF SHAREHOLDERS' EQUITY |
| Years      Ended December 31, 2008, 2007 and 2006    |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                | Accumulated |   |
|                                                 |  Number      of                                                                                    |                                                                                                          | Additional                                                                                                          | Retained                                                                                                            |                                                                                                                | Other |   |
|                                                 |  Outstanding                                                                                       | Common                                                                                                        | Paid-in                                                                                                             | Earnings                                                                                                            | Treasury                                                                                                            | Comprehensive |   |
|                                                 |  Shares                                                                                            | Stock                                                                                                         | Capital                                                                                                             | (Deficit)                                                                                                           | Stock                                                                                                               | Loss | Total |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Balance      at December 31, 2005                    |     3,230,649                                                                       |  $    6,461,298                                                                      |  $    21,709,224                                                                           |  $      4,308,242                                                                |  $                 -      |  $     (1,104,149) |  $     31,374,615 |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Comprehensive      income                            |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Net      income                                      |                  - |                   - |                    - |        2,415,155                                                                 |                                                                                                                |                    - |         2,415,155 |
| Unrealized      holding gain on available for        |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| sale      securities, net of taxes (Note 19)         |                  - |                   - |                    - |                    - |                                                                                                                |          423,187 |           423,187 |
| Total      comprehensive income                      |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |         2,838,342 |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Dividends      ($0.175 per share)                    |                  - |                   - |                    - |         (701,385)                                                           |                                                                                                                |                    - |          (701,385) |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Issuance      of capital stock (Note 14)             |     1,508,845                                                                       |      3,017,690                                                                       |      27,754,083                                                                            |                    - |                                                                                                                |                    - |       30,771,773 |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Balance      at December 31, 2006                    |     4,739,494                                                                       |      9,478,988                                                                       |      49,463,307                                                                            |        6,022,012                                                                 |                    - |         (680,962) |       64,283,345 |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Comprehensive      income                            |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Net      income                                      |                  - |                   - |                    - |        2,677,926                                                                 |                                                                                                                |                    - |         2,677,926 |
| Unrealized      holding gain on available for        |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| sale      securities, net of taxes (Note 19)         |                  - |                   - |                    - |                    - |                                                                                                                |          627,462 |           627,462 |
| Total      comprehensive income                      |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |         3,305,388 |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Dividends      ($0.180 per share)                    |                  - |                   - |                    - |         (853,878)                                                           |                                                                                                                |                    - |          (853,878) |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Issuance      of capital stock (Note 14)             |           7,350                                       |          14,700                                                  |            85,812                                            |                    - |                                                                                                                |                    - |           100,512 |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Balance,      December 31, 2007                      |     4,746,844                                                                       |      9,493,688                                                                       |      49,549,119                                                                            |        7,846,060                                                                 |                    - |           (53,500) |       66,835,367 |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Comprehensive      income (loss)                     |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Net      loss                                        |                  - |                   - |                    - |       (7,111,606)                                                                     |                                                                                                                |                    - |        (7,111,606) |
| Unrealized      holding loss on available for        |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| sale      securities, net of taxes (Note 19)         |                  - |                   - |                    - |                    - |                                                                                                                |           (37,010) |            (37,010) |
| Total      comprehensive income (loss)               |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |        (7,148,616) |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Dividends      ($0.180 per share)                    |                  - |                   - |                    - |         (854,340)                                                           |                                                                                                                |                    - |          (854,340) |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Treasury      Stock                                  |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Stock      purchased under buyback                   |         (11,705)                                                |                                                                                                          |                                                                                                                |                                                                                                                |         (160,025)                                                           |   |          (160,025) |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Issuance      of capital stock (Note 14)             |           8,270                                       |          16,540                                                  |            83,943                                            |                                                                                                                |                                                                                                                |   |           100,483 |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Other                                                |                                                                                                    |                                                                                                          |             1,275                                       |                                                                                                                |                                                                                                                |   |               1,275 |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| Balance,      December 31, 2008                      |     4,743,409                                                                       |  $  9,510,228                                                                                  |  $  49,634,337                                                                                       |  $      (119,886)                                                                |  $      (160,025)                                                                |  $       (90,510) |  $   58,774,144 |
|                                                 |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
| See      Notes to Consolidated Financial Statements. |                                                                                                    |                                                                                                          |                                                                                                                |                                                                                                                |                                                                                                                |   |   |

----

| PATRIOT NATIONAL      BANCORP, INC. AND SUBSIDIARY                             |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
|--------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
|                                                                           |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| CONSOLIDATED      STATEMENTS OF CASH FLOWS                                     |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Years      Ended December 31, 2008, 2007 and 2006                              |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
|                                                                           |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
|                                                                           | 2008                                                                                                                                        | 2007                                                                                                                            | 2006                                                                                                                            |
|                                                                           |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Cash      Flows from Operating Activities                                      |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Net      (loss) income                                                         |  $       (7,111,606)                                                                                |  $      2,677,926                                                                            |  $      2,415,155                                                                            |
| Adjustments      to reconcile net (loss) income to net cash provided by        |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| operating      activities:                                                     |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Amortization      and accretion of investment premiums and discounts, net      |              131,456                                                       |            181,727                                                       |            231,541                                                       |
| Amortization      and accretion of purchase loan premiums and discounts, net   |                37,732                                            |              96,738                                            |              74,948                                            |
| Amortization      of core deposit intangible                                   |                17,688                                            |              18,576                                            |                2,440                                 |
| Provision      for loan losses                                                 |          11,289,772                                                                            |              75,000                                            |          1,040,000                                                                 |
| Loss      on impaired investment securities                                    |            3,167,285                                                                 |                      - |                      - |
| Impairment      of goodwill                                                    |            1,365,491                                                                 |                      - |                      - |
| Gain      on sale of other real estate owned                                   |                        - |             (86,473)                                                |                      - |
| Gain      on redemption of investment security                                 |                        - |               (5,000)                                     |                      - |
| Depreciation      and amortization of premises and equipment                   |            1,632,985                                                                 |          1,211,775                                                                 |            644,472                                                       |
| Payment      of fees to directors in common stock                              |                49,932                                            |              49,961                                            |              24,928                                            |
| Earnings      on cash surrender value of life insurance                        |             (941,421)                                                           |           (193,684)                                                           |                      - |
| Loss      on disposal of bank premises and equipment                           |                      46            |                3,035                                 |                5,262                                 |
| Deferred      income taxes                                                     |           (5,869,368)                                                                     |           (258,035)                                                           |           (498,342)                                                           |
| Change      in assets and liabilities:                                         |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| (Decrease)      increase in deferred loan fees                                 |             (849,073)                                                           |            165,288                                                       |            531,050                                                       |
| Decrease      (increase) in accrued interest and dividends receivable          |                19,263                                            |         (1,033,845)                                                                     |         (1,096,756)                                                                     |
| Increase      in other assets                                                  |             (437,887)                                                           |               (9,667)                                     |             (19,022)                                                |
| (Decrease)      increase in accrued expenses and other liabilities             |           (1,031,841)                                                                     |          1,547,361                                                                 |            972,477                                                       |
| Net      cash provided by operating activities                                 |            1,470,454                                                                 |          4,440,683                                                                 |          4,328,153                                                                 |
|                                                                           |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Cash      Flows from Investing Activities                                      |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Purchases      of available for sale securities                                |         (18,366,036)                                                                                |       (14,947,542)                                                                                |         (2,050,000)                                                                     |
| Proceeds      from redemptions of available for sale securities                |          19,000,000                                                                            |          3,005,000                                                                 |          1,000,000                                                                 |
| Principal      repayments on available for sale securities                     |          11,317,968                                                                            |        12,580,945                                                                            |        13,079,953                                                                            |
| Cash      received in conjunction with branch acquisition                      |                        - |                      - |          2,586,471                                                                 |
| Purchase      of Federal Reserve Bank stock                                    |                 (1,500)                                     |                      - |           (889,400)                                                           |
| Purchase      of Federal Home Loan Bank stock                                  |           (1,852,200)                                                                     |         (1,438,900)                                                                     |         (1,430,500)                                                                     |
| Proceeds      from repurchase of excess stock by the Federal Home Loan    Bank |                        - |                      - |          1,510,000                                                                 |
| Net      increase in loans                                                     |       (113,161,128)                                                                                           |     (179,338,861)                                                                                           |     (145,120,717)                                                                                           |
| Capital      improvements to other real estate owned                           |                        - |           (156,700)                                                           |                      - |
| Proceeds      from sale of other real estate owned                             |                        - |          1,077,515                                                                 |                      - |
| Purchase      of life insurance                                                |                        - |       (18,000,000)                                                                                |                      - |
| Purchases      of premises and equipment                                       |           (1,775,967)                                                                     |         (5,329,514)                                                                     |         (1,866,442)                                                                     |
| Net      cash used in investing activities                                     |       (104,838,863)                                                                                           |     (202,548,057)                                                                                           |     (133,180,635)                                                                                           |
|                                                                           |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Cash      Flows from Financing Activities                                      |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Net      (decrease) increase in demand, savings and money market      deposits |          43,490,488                                                                            |         (9,960,503)                                                                     |         (3,663,822)                                                                     |
| Net      increase in time certificates of deposit                              |          68,931,454                                                                            |      120,908,248                                                                                       |      142,893,727                                                                                       |
| Net      increase (decrease) of FHLB borrowings                                |            2,500,000                                                                 |        39,500,000                                                                            |         (1,000,000)                                                                     |
| Increase      in borrowings under repurchase agreements                        |                        - |          7,000,000                                                                 |                      - |
| Proceeds      from issuance of common stock                                    |                50,551                                            |              50,551                                            |        30,746,845                                                                            |
| Other                                                                          |                  1,275                                 |                      - |                      - |
| Payment      under stock buyback program                                       |             (160,025)                                                           |                      - |                      - |
| Dividends      paid on common stock                                            |             (854,497)                                                           |           (853,547)                                                           |           (617,334)                                                           |
| Net      cash provided by financing activities                                 |        113,959,246                                                                                       |      156,644,749                                                                                       |      168,359,416                                                                                       |
|                                                                           |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Net      increase (decrease) in cash and cash equivalents                      |          10,590,837                                                                            |       (41,462,625)                                                                                |        39,506,934                                                                            |
|                                                                           |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Cash      and cash equivalents                                                 |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Beginning                                                                      |          14,011,914                                                                            |        55,474,539                                                                            |        15,967,605                                                                            |
|                                                                           |                                                                                                                                        |                                                                                                                            |                                                                                                                            |
| Ending                                                                         |  $      24,602,751                                                                                       |  $    14,011,914                                                                                       |  $    55,474,539                                                                                       |
|                                                                           |                                                                                                                                        |                                                                                                                            |                                                                                                                            |

----

| PATRIOT NATIONAL BANCORP, INC. AND      SUBSIDIARY                                                 |                                                                                                                                        |                                                                                                                            |                                                                 |
|----------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------|
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
| CONSOLIDATED      STATEMENTS OF CASH FLOWS, Continued                                              |                                                                                                                                        |                                                                                                                            |                                                                 |
| Years      Ended December 31, 2008, 2007 and 2006                                                  |                                                                                                                                        |                                                                                                                            |                                                                 |
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
|                                                                                               | 2008                                                                                                                                        | 2007                                                                                                                            | 2006                                                                 |
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
| Supplemental      Disclosures of Cash Flow Information                                             |                                                                                                                                        |                                                                                                                            |                                                                 |
| Cash      paid for:                                                                                |                                                                                                                                        |                                                                                                                            |                                                                 |
| Interest                                                                                           |  $      28,340,521                                                                                       |  $    27,654,868                                                                                       |  $    17,932,039                            |
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
| Income      taxes                                                                                  |  $        1,816,392                                                                            |  $      1,607,055                                                                            |  $      1,914,020                 |
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
| Supplemental      Disclosure of Noncash Investing and Financing                                    |                                                                                                                                        |                                                                                                                            |                                                                 |
| Activities                                                                                         |                                                                                                                                        |                                                                                                                            |                                                                 |
| Unrealized      holding gains (losses) on available for sale securities                            |                                                                                                                                        |                                                                                                                            |                                                                 |
| arising      during the period                                                                     |  $           (59,692)                                                           |  $      1,012,035                                                                            |  $         682,562 |
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
| Accrued      dividends declared on common stock                                                    |  $           213,453                                                            |  $         213,608                                                            |  $         213,277 |
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
| Transfer      of loan to other real estate owned                                                   |  $                     -      |  $                   -      |  $         834,341 |
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
| Details      of branch acquisition:                                                                |                                                                                                                                        |                                                                                                                            |                                                                 |
|           Fair      value of assets acquired     |  $                     -      |  $                   -      |  $         560,000 |
|           Fair      value of liabilities assumed |                        - |                      - |         (3,146,471)          |
|          Net      cash received                       |  $                     -      |  $                   -      |  $     (2,586,471)                     |
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
|                                                                                               |                                                                                                                                        |                                                                                                                            |                                                                 |
| See      Notes to Consolidated Financial Statements.                                               |                                                                                                                                        |                                                                                                                            |                                                                 |

----

----

| Note      1.   | Nature      of Operations and Summary of Significant Accounting    Policies |
|--------------------------|-----------------------------------------------------------------------------|

----

----

----

----

----

----

----

----

----

----

----

----

----

----

| Level      1 | Quoted      prices in active markets for identical assets and    liabilities.                                                                                                                                                                                                                                                                                                                      |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                                                                                                                                                                                                                               |
| Level      2 | Observable      inputs other than Level 1 prices such as quoted prices for similar assets      or liabilities in active markets, quoted prices in markets that are not      active; and model-based valuation techniques for which all significant      inputs are observable or can be corroborated by observable market data for      substantially the full term of the assets or  liabilities. |

----

----

| Level      3 | Unobservable      inputs that are supported by little or no market activity and that are      significant to the fair value of the assets or      liabilities.  Level 3 assets and liabilities include financial      instruments whose value is determined using pricing models, discounted      cash flow methodologies, or similar techniques, as well as instruments for      which the determination of fair value requires significant management      judgment or estimation. |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

| Note      2.   | Restrictions      on Cash and Due From Banks |
|--------------------------|----------------------------------------------|

| Note      3.   | Available-for-Sale      Securities |
|--------------------------|------------------------------------|

|   | 2008                                              | AmortizedCost | GrossUnrealizedGains | GrossUnrealizedLosses | FairValue                                                                                               |
|--------|---------------------------------------------------|---------------|----------------------|-----------------------|---------------------------------------------------------------------------------------------------------|
|   |                                              |          |                 |                  |                                                                                                    |   |   |   |   |
|   | U.S.      Government sponsored agency obligations | $             | 10,000,000           | $                     |                 102,248 | $ |    - | $ | 10,102,248 |
|   | Mortgage-backed      securities                   |          | 38,246,799           |                  | 231,766                                                                                                 |   | (479,996) |   | 37,998,569 |
|   |                                              |          | 48,246,799           |                  | 334,014                                                                                                 |   | (479,996) |   | 48,100,817 |
|   | Money      market preferred equity securities     |          | 3,878,860            |                  | -                                                                              |   | -      |   | 3,878,860 |
|   |                                              | $             | 52,125,659           | $                     | 334,014                                                                                                 | $ | (479,996) | $ | 51,979,677 |

----

----

|   | 2007                                              | AmortizedCost | GrossUnrealizedGains | GrossUnrealizedLosses | FairValue                       |
|--------|---------------------------------------------------|---------------|----------------------|-----------------------|---------------------------------|
|   |                                              |          |                 |                  |                            |   |   |   |   |
|   | U.S.      Government sponsored agency obligations | $             | 17,000,000           | $                     | -      | $ | (75,352) | $ | 16,924,648 |
|   | Mortgage-backed      securities                   |          | 41,336,808           |                  | 177,547                         |   | (188,485) |   | 41,325,870 |
|   |                                              |          | 58,336,808           |                  | 177,547                         |   | (263,837) |   | 58,250,518 |
|   | Money      market preferred equity securities     |          | 9,039,522            |                  | -      |   | -      |   | 9,039,522 |
|   |                                              | $             | 67,376,330           | $                     | 177,547                         | $ | (263,837) | $ | 67,290,040 |

|   | 2008   | Less      Than 12 Months |           | 12      Months or More |      | Total          |
|--------|--------|--------------------------|----------------|------------------------|-----------|----------------|
|   |   | FairValue                | UnrealizedLoss |                   | FairValue | UnrealizedLoss |   | FairValue | UnrealizedLoss |

|   | U.S.      Government sponsored  |   |       |   |                              |   |   |      |   |      |   |   |       |   |      |
|--------|---------------------------------|--------|------------|--------|-----------------------------------|--------|--------|-----------|--------|-----------|--------|--------|------------|--------|-----------|
|   | agency      obligations         | $      | -          | $      | -                                 |   | $      | -         | $      | -         |   | $      | -          | $      | -         |
|   | Mortgage-backed      securities |   | 14,593,894 |   |  (317,703)                   |   |   | 5,527,631 |   | (162,293) |   |   | 20,125,525 |   | (479,996) |
|   | Totals                          | $      | 14,593,894 | $      |     (317,703) |   | $      | 5,527,631 | $      | (162,293) |   | $      | 20,125,525 | $      | (479,996) |

|   | 2007   | Less      Than 12 Months |           | 12      Months or More |      | Total          |
|--------|--------|--------------------------|----------------|------------------------|-----------|----------------|
|   |   | FairValue                | UnrealizedLoss |                   | FairValue | UnrealizedLoss |   | FairValue | UnrealizedLoss |

|   | U.S.      Government sponsored  |   |      |   |   |   |   |       |   |      |   |   |       |   |      |
|--------|---------------------------------|--------|-----------|--------|--------|--------|--------|------------|--------|-----------|--------|--------|------------|--------|-----------|
|   | agency      obligations         | $      | 1,999,375 | $      | (625)  |   | $      | 13,925,273 | $      | (74,727)  |   | $      | 15,924,648 | $      | (75,352)  |
|   | Mortgage-backed      securities |   | -         |   | -      |   |   | 14,916,970 |   | (188,485) |   |   | 14,916,970 |   | (188,485) |
|   | Totals                          | $      | 1,999,375 | $      | (625)  |   | $      | 28,842,243 | $      | (263,212) |   | $      | 30,841,618 | $      | (263,837) |

----

----

|  | ·   | Federal      Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”) – $1.05      million.  As a result of actions taken on September 7, 2008 by      the United States Treasury Department and the Federal Housing Finance      Agency with respect to placing Freddie Mac into receivership, the      Company’s investment in FHLMC preferred equity securities was deemed to be      other-than-temporarily impaired and a write-down of $1.05 million was      recorded during the third quarter of2008. |
|--|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·   | Other      Auction Rate Preferred Securities – $2.1 million.  The Company      has investments in six auction rate preferred securities of companies      primarily in the financial services sector.  The illiquidity in      the auction rate market has resulted in significant declines in market      value for these investments.  As management is unable to predict      near term prospects for recovery of these securities, impairment charges      totaling $2.1 million were recorded during the fourth quarter of      2008. |
|--|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                            |   | Amortized  |   | Fair       |
|--------|---------------------------------|--------|------------|--------|------------|
|   |                            |   | Cost       |   | Value      |
|   | Maturity:                       |   |       |   |       |
|   | 1-5      years                  | $      | 10,000,000 | $      | 10,102,248 |
|   | Mortgage-backed      securities |   | 38,246,799 |   | 37,998,569 |
|   | Total                           | $      | 48,246,799 | $      | 48,100,817 |

----

----

| Note      4.   | Loans      Receivable and Allowance for LoanLosses |
|--------------------------|----------------------------------------------------|

|   |                             |   | 2008         |   | 2007        |
|--------|----------------------------------|--------|--------------|--------|-------------|
|   |                             |   |         |   |        |
|   | Real      estate:                |   |         |   |        |
|   | Commercial                       | $      | 262,570,339  | $      | 233,121,685 |
|   | Residential                      |   | 170,449,780  |   | 110,154,838 |
|   | Construction                     |   | 257,117,081  |   | 254,296,326 |
|   | Construction      to permanent   |   | 35,625,992   |   | 37,701,509  |
|   | Commercial                       |   | 33,860,527   |   | 27,494,531  |
|   | Consumer      installment        |   | 993,707      |   | 1,270,360   |
|   | Consumer      home equity        |   | 45,022,128   |   | 29,154,498  |
|   | Total      loans                 |   | 805,639,554  |   | 693,193,747 |
|   |                             |   |         |   |        |
|   | Premiums      on purchased loans |   | 158,072      |   | 195,805     |
|   | Net      deferred loan fees      |   | (981,869)    |   | (1,830,942) |
|   | Allowance      for loan losses   |   | (16,247,070) |   | (5,672,620) |
|   | Loans      receivable, net       | $      | 788,568,687  | $      | 685,885,990 |

|   |                            |   | 2008       |   | 2007                            |   | 2006      |
|--------|---------------------------------|--------|------------|--------|---------------------------------|--------|-----------|
|   |                            |   |       |   |                            |   |      |
|   | Balance,      beginning of year | $      | 5,672,620  | $      | 5,630,432                       | $      | 4,588,335 |
|   | Provision      for loan losses  |   | 11,289,772 |   | 75,000                          |   | 1,040,000 |
|   | Recoveries      of loans        |   |       |   |                            |   |      |
|   | previously      charged-off     |   | 904        |   | -      |   | 3,190     |
|   | Loans      charged-off          |   | (716,226)  |   | (32,812)                        |   | (1,093)   |
|   | Balance,      end of year       | $      | 16,247,070 | $      | 5,672,620                       | $      | 5,630,432 |

----

----

|   |                                                                                                                      |   | 2008       |   | 2007      |
|--------|---------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|-----------|
|   |                                                                                                                      |   |       |   |      |
|   | Impaired      loans receivable for which there is a related     allowance      for credit losses | $      | 42,535,777 | $      | 1,332,359 |
|   |                                                                                                                      |   |       |   |      |
|   | Impaired      loans receivable for which there is no related allowance      for credit losses                             | $      | 37,620,136 | $      | 2,499,281 |
|   |                                                                                                                      |   |       |   |      |
|   | Allowance      for credit losses related to impaired loans                                                                | $      | 4,211,954  | $      | 250,000   |

----

----

| Note      5.   | Premises      and Equipment |
|--------------------------|-----------------------------|

|   |                                                 |   | 2008        |   | 2007        |
|--------|------------------------------------------------------|--------|-------------|--------|-------------|
|   |                                                 |   |        |   |        |
|   | Construction      in progress                        | $      | 614,393     | $      | 9,750       |
|   | Leasehold      improvements                          |   | 7,413,636   |   | 6,951,026   |
|   | Furniture,      equipment and software               |   | 5,772,969   |   | 5,115,177   |
|   |                                                 |   | 13,800,998  |   | 12,075,953  |
|   | Less:      accumulated depreciation and amortization |   | (5,852,497) |   | (4,270,388) |
|   |                                                 | $      | 7,948,501   | $      | 7,805,565   |

| Note      6.   | Other      Real Estate Operations |
|--------------------------|-----------------------------------|

|                                             |                                                                            |                                                                                                                             |
|--------------------------------------------------|---------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|
|                                             | 2007                                                                            | 2006                                                                                                                             |
|                                             |                                                                            |                                                                                                                             |
| Gain      on sale of other real estate           |  $           86,473 |  $                    - |
| Rental      income from other real estate owned  | 91,931                                                                          | 20,458                                                                                                                           |
| Expenses      of holding other real estate owned | (26,395)                                                                        | (743)                                                                                                                            |
| Income      from other real estate operations    |  $         152,009            |  $           19,715                                                  |

----

----

| Note      7.   | Deposits |
|--------------------------|----------|

|   |                                       |   | 2008        |   | 2007        |
|--------|--------------------------------------------|--------|-------------|--------|-------------|
|   |                                       |   |        |   |        |
|   | Noninterest      bearing                   | $      | 50,194,400  | $      | 51,925,991  |
|   | Interest      bearing:                     |   |        |   |        |
|   | Time      certificates, less than $100,000 |   | 405,298,436 |   | 300,502,281 |
|   | Time      certificates, $100,000 or more   |   | 195,502,087 |   | 231,366,788 |
|   | Money      market                          |   | 68,241,790  |   | 34,880,837  |
|   | Savings                                    |   | 46,040,086  |   | 34,261,389  |
|   | NOW                                        |   | 19,544,552  |   | 19,462,123  |
|   | Total      interest bearing                |   | 734,626,951 |   | 620,473,418 |
|   | Total      deposits                        | $      | 784,821,351 | $      | 672,399,409 |

|   | Due      within: |   |        |   |
|--------|------------------|--------|-------------|--------|
|   | 1      year      | $      | 535,386,282 |   |
|   | 1-2      years   |   | 26,709,619  |   |
|   | 2-3      years   |   | 7,083,844   |   |
|   | 3-4      years   |   | 3,297,456   |   |
|   | 4-5      years   |   | 28,323,322  |   |
|   |             | $      | 600,800,523 |   |

| Note      8.   | Borrowings |
|--------------------------|------------|

----

----

----

----

| Note 8.  Contractual      Maturities |                  |                                                                                                                                                    |                                                                                                                                                    |
|------------------------------------------------|-----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                           |                  |                                                                                                                                                    |                                                                                                                                                    |   |
|                                           |                  | Fixed                                                                                                                                                   | Floating                                                                                                                                                |   |
|                                           |                  | Rate                                                                                                                                                    | Rate                                                                                                                                                    | Total |
|                                           |                  |                                                                                                                                                    |                                                                                                                                                    |   |
|                                           | 2009                  |  $                      -            |  $                      -            |  $                      - |
|                                           | 2010                  |                          - |                          - |                          - |
|                                           | 2011                  |                          - |                          - |                          - |
|                                           | 2012                  |       10,000,000                                                                                                          |                          - |       10,000,000 |
|                                           | 2013                  |       20,000,000                                                                                                          |                          - |       20,000,000 |
|                                           | Thereafter            |       27,000,000                                                                                                          |         8,248,000                                                                                               |       35,248,000 |
|                                           | Total      borrowings |  $  57,000,000                                                                                                                           |  $     8,248,000                                                                                                          |  $  65,248,000 |

| Note      9.   | Commitments      and Contingencies |
|--------------------------|------------------------------------|

----

----

|   | Years      EndingDecember      31, |   |   | Amount                                                     |   |
|--------|------------------------------------|--------|--------|------------------------------------------------------------|--------|
|   |                               |   |   |                                                       |   |
|   | 2009                               |   |   | $        2,510,644 |   |
|   | 2010                               |   |   | 2,516,239                                        |   |
|   | 2011                               |   |   | 2,374,046                                   |   |
|   | 2012                               |   |   | 2,029,958                                   |   |
|   | 2013                               |   |   | 1,756,987                                   |   |
|   | Thereafter                         |   |   | 5,045,880                                   |   |
|   |                               |   |   | $            16,233,754           |   |

----

----

----

----

| Note      10.   | Income      Taxes |
|---------------------------|-------------------|

|   |     |                                      |                                | 2008                                                    | 2007                                                           | 2006                                                           |   |
|--------|----------|-------------------------------------------|-------------------------------------|---------------------------------------------------------|----------------------------------------------------------------|----------------------------------------------------------------|--------|
|   |     |                                      |                                |                                                    |                                                           |                                                           |   |
|   | Current  |                                      |                                |                                                    |                                                           |                                                           |
|   |     | Federal                                   |  $   1,954,300  |  $   1,335,303                      |  $   1,408,384                             |                                                           |
|   |     | State                                     |                                |         851,478 |         459,732        |         356,958        |   |
|   |     |                                      | Total                               |      2,805,778                 |      1,795,035                        |      1,765,342                        |   |
|   |     |                                      |                                |                                                    |                                                           |                                                           |   |
|   | Deferred |                                      |                                |                                                    |                                                           |                                                           |
|   |     | Federal                                   |     (4,739,525) |        (208,350)     |        (402,384)            |                                                           |
|   |     | State                                     |                                |     (1,130,253)                     |          (49,685) |          (95,958) |   |
|   |     |                                      | Total                               |     (5,869,778)                     |        (258,035)            |        (498,342)            |   |
|   |     |                                      |                                |                                                    |                                                           |                                                           |   |
|   |     | (Benefit)      Provision for income taxes |  $  (3,064,000)      |  $   1,537,000                      |  $   1,267,000                             |                                                           |

|   |                                                 |                                                               |                                                                                                                | 2008                                                                                                                | 2007                                                                                                                | 2006   |   |
|--------|------------------------------------------------------|--------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |                                                 |                                                               |                                                                                                                |                                                                                                                |                                                                                                                |   |   |
|   | (Benefit)      Provision for income taxes at         |                                                               |                                                                                                                |                                                                                                                |                                                                                                                |
|   |                                                 | statutory      Federal rate                                        |  $  (3,459,700)                                                                                      |  $   1,433,100                                                                                  |  $   1,251,900                                                                                  |   |
|   | State      taxes, net of Federal benefit (provision) |        (522,300)                |         231,800                                                             |         200,100                                                             |                                                                                                                |
|   | Dividends      received deduction                    |        (118,000)                |        (122,600)                                                                 |          (77,500)                                                      |                                                                                                                |
|   | Nondeductible      expenses                          |           40,700 |           56,300                                                  |           56,300                                                  |                                                                                                                |
|   | Amortization      of goodwill                        |          (11,300)     |          (11,100)                                                      |                    - |                                                                                                                |
|   | Goodwill      impairment                             |         397,600            |                    - |                    - |                                                                                                                |
|   | Change      in cash surrender value                  |                                                               |                                                                                                                |                                                                                                                |                                                                                                                |
|   |                                                 | of      life insurance                                             |        (366,700)                                                                 |          (77,400)                                                      |                    - |   |
|   | Over      (under) accrual of income tax provision    |         157,300            |           21,880                                                  |        (159,489)                                                                 |                                                                                                                |
|   | Increase      in valuation allowance                 |         824,000            |                    - |                    - |                                                                                                                |
|   | Other                                                |                                                               |            (5,600)                                           |             5,020                                       |            (4,311)                                           |   |
|   |                                                 | Total      (benefit) provision for income taxes                    |  $  (3,064,000)                                                                                      |  $   1,537,000                                                                                  |  $   1,267,000                                                                                  |   |

----

----

|   |                          |                               |                                                               |                                                                                                                | 2008                                                                          | 2007                               |   |
|--------|-------------------------------|------------------------------------|--------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------|------------------------------------|--------|
|   |                          |                               |                                                               |                                                                                                                |                                                                          |                               |   |
|   | Deferred      tax assets:     |                               |                                                               |                                                                                                                |
|   |                          | Allowance      for loan losses     |  $   6,328,234                                 |  $   2,209,485                                                                                  |                                                                          |
|   |                          | Nonaccrual      interest           |      1,188,953                            |           77,222                                                  |                                                                          |
|   |                          | Investment      impairment charges |      1,233,658                            |                    - |                                                                          |
|   |                          | Investment      securities         |           55,473 |           32,790                                                  |                                                                          |
|   |                          | Premises      and equipment        |         553,232            |         391,724                                                             |                                                                          |
|   |                          | Accrued      expenses              |         139,913            |         124,239                                                             |                                                                          |
|   |                          | Other                              |                                                               |           32,944                                                  |             4,956 |                               |
|   |                          |                               | Gross      deferred tax assets                                     |      9,532,407                                                                             |      2,840,416                                       |                               |
|   |                          | Valuation      allowance           |        (824,000)                |                    - |                                                                          |
|   |                          |                               | Deferred      tax assets, net of                                   |                                                                                                                |                                                                          |                               |
|   |                          |                               | valuation      allowance                                           |      8,708,407                                                                             |      2,840,416                                       |                               |
|   |                          |                               |                                                               |                                                                                                                |                                                                          |                               |   |
|   | Deferred      tax liabilities |                               |                                                               |                                                                                                                |
|   |                          | Tax      bad debt recapture        |           28,332 |           49,580                                                  |                                                                          |
|   |                          | Other                              |                                                               |                    - |             2,812 |                               |
|   |                          |                               | Gross      deferred tax liabilities                                |           28,332                                                  |           52,392            |                               |
|   |                          |                               |                                                               | Deferred      tax asset, net                                                                                        |  $   8,680,075                                            |  $   2,788,024 |   |
|   |                          |                               |                                                               |                                                                                                                |                                                                          |                               |   |

|   |                                                          |                                                |                                                |                                                | 2008                                         | 2007                                     | 2006   |   |
|--------|---------------------------------------------------------------|-----------------------------------------------------|-----------------------------------------------------|-----------------------------------------------------|----------------------------------------------|------------------------------------------|--------|--------|
|   |                                                          |                                                |                                                |                                                |                                         |                                     |   |   |
|   | Deferred      tax provision (benefit) allocated to equity     |  $      (22,683) |  $     384,573        |  $     259,375        |                                         |
|   |                                                          |                                                |                                                |                                                |                                         |                                     |   |   |
|   | Deferred      tax provision (benefit) allocated to operations |     (5,869,368)                 |        (258,035) |        (498,342) |                                         |
|   |                                                          |                                                |                                                |                                                |                                         |                                     |   |   |
|   |                                                          |                                                | Total      deferred tax benefit                     |  $  (5,892,051)                      |  $     126,538 |  $    (238,967) |   |

----

----

| Note      11.   | Goodwill      and other intangible assets |
|---------------------------|-------------------------------------------|

|   |                                            | 2008                                                                                                                                                          | 2007                                                                                                                                                          | 2006                                                                                                                                                          |
|--------|-------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Goodwill:                                       |                                                                                                                                                          |                                                                                                                                                          |                                                                                                                                                          |
|   | Balance      as of January 1,                   |  $          1,365,491                                                                                  |  $          1,365,491                                                                                  |  $          1,365,491                                                                                  |
|   | Goodwill      Impairment                        |             1,365,491                                                                             |                           - |                           - |
|   | Balance      as of December 31,                 |                           - |             1,365,491                                                                             |             1,365,491                                                                             |
|   |                                            |                                                                                                                                                          |                                                                                                                                                          |                                                                                                                                                          |
|   | Core      Deposit Intangible:                   |                                                                                                                                                          |                                                                                                                                                          |                                                                                                                                                          |
|   | Balance      as of January 1,                   |                103,584                                                             |                122,160                                                             |                124,600                                                             |
|   | Amortization      expense                       |                  17,688                                                  |                  18,576                                                  |                    2,440                                       |
|   | Balance      as of December 31,                 |                  85,896                                                  |                103,584                                                             |                122,160                                                             |
|   |                                            |                                                                                                                                                          |                                                                                                                                                          |                                                                                                                                                          |
|   | Total      goodwill and other intangible assets |  $              85,896                                                             |  $          1,469,075                                                                                  |  $          1,487,651                                                                                  |

|   | Years      EndingDecember      31, |   |   |  Amount                                 |   |
|--------|------------------------------------|--------|--------|----------------------------------------------|--------|
|   |                               |   |   |                                         |   |
|   | 2009                               |   |   |        $     16,792 |   |
|   | 2010                               |   |   | 15,902                                       |   |
|   | 2011                               |   |   | 15,011                                       |   |
|   | 2012                               |   |   | 14,121                                       |   |
|   | 2013                               |   |   | 13,230                                       |   |
|   | Thereafter                         |   |   | 10,840                                       |   |
|   |                               |   |   | $       85,896                          |   |

----

----

| Note      12.   | Cash      Surrender Value of Life Insurance |
|---------------------------|---------------------------------------------|

| Note      13.   | Significant      Fourth Quarter Adjustments(Unaudited) |
|---------------------------|--------------------------------------------------------|

----

----

| Note      14.   | Shareholders’      Equity |
|---------------------------|---------------------------------|

----

----

|   |                                          | 2008    |
|--------|-----------------------------------------------|---------|
|   |                                          | NetLoss | Shares | Per      ShareAmount |
|   | Basic      and Diluted Loss Per Share         |    |   |   |   |   |
|   | Loss      attributable to common shareholders | $       | (7,111,606) | 4,748,873 | $ | (1.50) |
|   |                                          |    |   |   |   |   |

|   |                                         | 2007      |
|--------|----------------------------------------------|-----------|
|   |                                         | NetIncome | Shares | Per      ShareAmount |
|   | Basic      Income Per Share                  |      |   |   |   |   |
|   | Income      available to common shareholders | $         | 2,677,926 | 4,742,609 | $ | 0.56 |
|   |                                         |      |   |   |   |   |
|   | Effect      of Dilutive Securities           |      |   |   |   |   |
|   | Stock      options outstanding               |      | -      | 32,652 |   | -      |
|   |                                         |      |   |   |   |   |
|   | Diluted      Income Per Share                |      |   |   |   |   |
|   | Income      available to common shareholders |      |   |   |   |   |
|   | plus      assumed conversions                | $         | 2,677,926 | 4,775,261 | $ | 0.56 |

----

----

|   |                                         | 2006      |
|--------|----------------------------------------------|-----------|
|   |                                         | NetIncome | Shares | Per      ShareAmount |
|   | Basic      Income Per Share                  |      |   |   |   |   |
|   | Income      available to common shareholders | $         | 2,415,155 | 3,621,250 | $ | 0.67 |
|   |                                         |      |   |   |   |   |
|   | Effect      of Dilutive Securities           |      |   |   |   |   |
|   | Stock      options outstanding               |      | -      | 41,897 |   | (0.01) |
|   |                                         |      |   |   |   |   |
|   | Diluted      Income Per Share                |      |   |   |   |   |
|   | Income      available to common shareholders |      |   |   |   |   |
|   | plus      assumed conversions                | $         | 2,415,155 | 3,663,147 | $ | 0.66 |

|   | 2008 |   | 2007 |   | 2006 |
|--------|------|--------|------|--------|------|

|   | Number      of Shares |   | Weighted-Average      Exercise Price |   | Number      of Shares |   | Weighted-Average      Exercise Price |   | Number      of Shares |   | Weighted-Average      Exercise Price |
|--------|-----------------------|--------|--------------------------------------|--------|-----------------------|--------|--------------------------------------|--------|-----------------------|--------|--------------------------------------|

| Outstanding      at beginning   |   |   |   |   |   |   |   |   |   |   |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| of      year                    | 60,000 | $      | 10.13  |   | 65,000 | $      | 10.13  |   | 73,000 | $      | 10.13  |
| Exercised                       | 5,000  |   | 10.11  |   | 5,000  |   | 10.11  |   | 8,000  |   | 10.11  |
| Outstanding      at end of year | 55,000 |   | 10.13  |   | 60,000 |   | 10.13  |   | 65,000 |   | 10.13  |
|                            |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable      at end of year | 55,000 |   | 10.13  |   | 60,000 |   | 10.13  |   | 65,000 |   | 10.13  |

----

----

----

----

| Note      15.   | 401(k)      Savings Plan |
|---------------------------|--------------------------|

----

----

| Note      16.   | Financial      Instruments With Off-Balance-SheetRisk |
|---------------------------|-------------------------------------------------------|

|   |                                     |   | 2008        |   | 2007        |   |
|--------|------------------------------------------|--------|-------------|--------|-------------|--------|
|   |                                     |   |        |   |        |   |
|   | Commitments      to extend credit:       |   |        |   |        |   |
|   | Future      loan commitments             | $      | 9,237,000   | $      | 69,060,424  |   |
|   | Unused      lines of credit              |   | 56,640,392  |   | 55,273,450  |   |
|   | Undisbursed      construction loans      |   | 72,694,600  |   | 118,619,531 |   |
|   | Financial      standby letters of credit |   | 1,481,600   |   | 1,217,391   |   |
|   |                                     | $      | 140,053,592 | $      | 244,170,796 |   |

----

----

| Note      17.   | Regulatory      Matters |
|---------------------------|-------------------------|

----

----

|   | Actual | For      CapitalAdequacy      Purposes | To      Be WellCapitalized      UnderPrompt      CorrectiveAction      Provisions |
|--------|--------|----------------------------------------|-----------------------------------------------------------------------------------|

|   | 2008                                          |   | Amount | Ratio  |   | Amount | Ratio  |   | Amount | Ratio  |
|--------|-----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|   |                                          |   |   |   |   |   |   |   |   |   |
|   | The      Company:                             |   |   |   |   |   |   |   |   |   |
|   |                                          |   |   |   |   |   |   |   |   |   |
|   | Total      Capital (to Risk Weighted Assets)  | $      | 74,289 | 10.27% | $      | 58,143 | 8.00%  | $      | N/A    | N/A    |
|   | Tier      I Capital (to Risk Weighted Assets) |   | 65,161 | 9.01%  |   | 29,066 | 4.00%  |   | N/A    | N/A    |
|   | Tier      I Capital (Average Assets)          |   | 65,161 | 7.23%  |   | 36,146 | 4.00%  |   | N/A    | N/A    |

|   | The      Bank:                                |   |   |   |   |   |   |   |   |   |
|--------|-----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|   |                                          |   |   |   |   |   |   |   |   |   |
|   | Total      Capital (to Risk Weighted Assets)  | $      | 73,913 | 10.22% | $      | 58,074 | 8.00%  | $      | 72,593 | 10.00% |
|   | Tier      I Capital (to Risk Weighted Assets) |   | 64,787 | 8.96%  |   | 29,030 | 4.00%  |   | 43,544 | 6.00%  |
|   | Tier      I Capital (to Average Assets)       |   | 64,787 | 7.19%  |   | 36,090 | 4.00%  |   | 45,112 | 5.00%  |

|   | Actual | For      CapitalAdequacy      Purposes | To      Be WellCapitalized      UnderPrompt      CorrectiveAction      Provisions |
|--------|--------|----------------------------------------|-----------------------------------------------------------------------------------|

|   | 2007                                          |   | Amount | Ratio  |   | Amount | Ratio  |   | Amount | Ratio  |
|--------|-----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|   |                                          |   |   |   |   |   |   |   |   |   |
|   | The      Company:                             |   |   |   |   |   |   |   |   |   |
|   |                                          |   |   |   |   |   |   |   |   |   |
|   | Total      Capital (to Risk Weighted Assets)  | $      | 79,093 | 12.17% | $      | 51,992 | 8.00%  | $      | N/A    | N/A    |
|   | Tier      I Capital (to Risk Weighted Assets) |   | 73,420 | 11.30% |   | 25,989 | 4.00%  |   | N/A    | N/A    |
|   | Tier      I Capital (Average Assets)          |   | 73,420 | 9.42%  |   | 31,176 | 4.00%  |   | N/A    | N/A    |

|   | The      Bank:                                |   |   |   |   |   |   |   |   |   |
|--------|-----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|   |                                          |   |   |   |   |   |   |   |   |   |
|   | Total      Capital (to Risk Weighted Assets)  | $      | 78,111 | 12.03% | $      | 51,944 | 8.00%  | $      | 64,930 | 10.00% |
|   | Tier      I Capital (to Risk Weighted Assets) |   | 72,438 | 11.15% |   | 25,987 | 4.00%  |   | 38,980 | 6.00%  |
|   | Tier      I Capital (to Average Assets)       |   | 72,438 | 9.30%  |   | 31,156 | 4.00%  |   | 38,945 | 5.00%  |

----

----

| Note      18.   | Related      Party Transactions |
|---------------------------|---------------------------------|

|   |                            |   | 2008        |   | 2007      |   |
|--------|---------------------------------|--------|-------------|--------|-----------|--------|
|   |                            |   |        |   |      |   |
|   | Balance,      beginning of year | $      | 891,605     | $      | 51,181    |   |
|   | Additional      loans           |   | 7,623,555   |   | 1,172,123 |   |
|   | Repayments                      |   | (5,068,477) |   | (331,699) |   |
|   | Balance,      end of year       | $      | 3,446,683   | $      | 891,605   |   |

----

----

| Note      19.   | Other      Comprehensive Income |
|---------------------------|---------------------------------|

|   |   | 2008 |
|--------|--------|------|

|   |   | Before-TaxAmount | Tax      Effect | Net-of-TaxAmount |
|--------|--------|------------------|-----------------|------------------|

|   | Unrealized      holding losses arising during period | $      | (3,226,977) | $      | 1,256,341                                    | $      | (1,970,636) |
|--------|------------------------------------------------------|--------|-------------|--------|--------------------------------------------------------|--------|-------------|
|   |                                                 |   |        |   |                                                   |   |        |
|   | Add      reclassification adjustment for losses      |   |        |   |                                                   |   |        |
|   | recognized      in net income                        | $      | 3,167,285   | $      | (1,233,659)                                       | $      | 1,933,626   |
|   |                                                 |   |        |   |                                                   |   |        |
|   | Unrealized      holding loss on available for sale   |   |        |   |                                                   |   |        |
|   | securities,      net of taxes                        | $      | (59,692)    | $      |       22,682   | $      | (37,010)    |

|   |   | 2007 |
|--------|--------|------|

|   |   | Before-TaxAmount | Tax      Effect | Net-of-TaxAmount |
|--------|--------|------------------|-----------------|------------------|

|   | Unrealized      holding gains arising during period | $      | 1,012,035                       | $      | (384,573)                       | $      | 627,462                         |
|--------|-----------------------------------------------------|--------|---------------------------------|--------|---------------------------------|--------|---------------------------------|
|   |                                                |   |                            |   |                            |   |                            |
|   | Add      reclassification adjustment for gains      |   |                            |   |                            |   |                            |
|   | recognized      in net income                       |   | -      |   | -      |   | -      |
|   |                                                |   |                            |   |                            |   |                            |
|   | Unrealized      holding gain on available for sale  |   |                            |   |                            |   |                            |
|   | securities,      net of taxes                       | $      | 1,012,035                       | $      | (384,573)                       | $      | 627,462                         |

|   |   | 2006 |
|--------|--------|------|

|   |   | Before-TaxAmount | Tax      Effect | Net-of-TaxAmount |
|--------|--------|------------------|-----------------|------------------|

|   | Unrealized      holding gains arising during period | $      | 682,562                         | $      | (259,375)                       | $      | 423,187                         |
|--------|-----------------------------------------------------|--------|---------------------------------|--------|---------------------------------|--------|---------------------------------|
|   |                                                |   |                            |   |                            |   |                            |
|   | Add      reclassification adjustment for gains      |   |                            |   |                            |   |                            |
|   | recognized      in net income                       |   | -      |   | -      |   | -      |
|   |                                                |   |                            |   |                            |   |                            |
|   | Unrealized      holding gain on available for sale  |   |                            |   |                            |   |                            |
|   | securities,      net of taxes                       | $      | 682,562                         | $      | (259,375)                       | $      | 423,187                         |

----

----

| Note      20.   | Fair      Value of Financial Instruments and Interest Rate  Risk |
|---------------------------|------------------------------------------------------------------|

----

----

|                                     | Quoted Prices      inActive Marketsfor Identical      Assest(Level 1)                                                                                                                        |                Significant              Observable              Inputs              (Level 2) |         Significant  Unobservable  Inputs  (Level 3)                                                                            |  Balanceas ofDecember 31, 2008                                                                               |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                                                                                         |                                                                                                                                                                                                                                                               |                                                                                                                                                     |                                                                                                              |
| Securities      available-for-sale  | $                              -  | $                    51,979,677                                                                                                                                                         | $                        -  | $                     51,979,677  |

----

----

|                    | Quoted Prices      inActive Marketsfor Identical      Assest(Level 1)                                                                                                                        |  SignificantObservableInputs(Level      2)                                                                                                                                  |  SignificantUnobservableInputs(Level 3)                            |  Balanceas ofDecember 31, 2008                                                                   |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|
|               |                                                                                                                                                                                         |                                                                                                                                                                             |                                                                    |                                                                                                  |
| Impaired Loans (1) | $                              -  | $                            -  | $              58,741,888  | $              58,741,888  |

----

----

|   |                                                      | 2008                                                                              |                                                                              | 2007   |
|--------|-----------------------------------------------------------|-----------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|--------|
|   |                                                      | Recorded                                                                          |                                                                              |   | Recorded |   |
|   |                                                      | Book                                                                              |                                                                              |   | Book |   |
|   |                                                      | Balance                                                                           | Fair      Value                                                                   |   | Balance | Fair      Value |
|   | Financial      Assets:                                    |                                                                              |                                                                              |   |   |   |
|   | Cash      and noninterest bearing deposits due from banks |  $      3,046                                  |  $      3,046                                  |   |  $      2,692 |  $      2,692 |
|   | Interest-bearing      deposits due from banks             |           1,241                 |           1,241                 |   |                68 |                68 |
|   | Federal      funds sold                                   |        20,000                                  |        20,000                                  |   |        11,000 |        11,000 |
|   | Short-term      investments                               |              317 |              317 |   |              252 |              252 |
|   | Available-for-sale      securities                        |        51,980                                  |        51,980                                  |   |        67,290 |        67,290 |
|   | Federal      Reserve Bank stock                           |           1,913                 |           1,913                 |   |           1,912 |           1,912 |
|   | Federal      Home Loan Bank stock                         |           4,508                 |           4,508                 |   |           2,656 |           2,656 |
|   | Loans      receivable, net                                |      788,569                                             |      795,938                                             |   |      685,886 |      662,375 |
|   | Accrued      interest receivable                          |           4,557                 |           4,557                 |   |           4,576 |           4,576 |
|   |                                                      |                                                                              |                                                                              |   |   |   |
|   | Financial      Liabilities:                               |                                                                              |                                                                              |   |   |   |
|   | Demand      deposits                                      |  $    50,194                                             |  $    50,194                                             |   |  $    51,926 |  $    51,926 |
|   | Savings      deposits                                     |        46,040                                  |        46,040                                  |   |        34,261 |        34,261 |
|   | Money      market deposits                                |        68,242                                  |        68,242                                  |   |        34,881 |        34,881 |
|   | NOW      accounts                                         |        19,545                                  |        19,545                                  |   |        19,462 |        19,462 |
|   | Time      deposits                                        |      600,801                                             |      601,357                                             |   |      531,869 |      533,646 |
|   | FHLB      borrowings                                      |        50,000                                  |        50,106                                  |   |        47,500 |        47,599 |
|   | Securities      sold under repurchase agreements          |           7,000                 |           8,365                 |   |           7,000 |           7,271 |
|   | Subordinated      debt                                    |           8,248                 |           8,248                 |   |           8,248 |           8,248 |
|   | Accrued      interest payable                             |              493 |              493 |   |              295 |              295 |

----

----

| Note      21.   | Segment      Reporting |
|---------------------------|------------------------|

----

----

| BALANCE SHEETS                                  |                                                                                                                                  |                                                                                                                                  |   |
|-------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|--------|
| December      31, 2008 and 2007                 |                                                                                                                                  |                                                                                                                                  |   |
|                                            |                                                                                                                                  |                                                                                                                                  |   |
|                                            |                                                                                                                                  |                                                                                                                                  |   |
|                                            | 2008                                                                                                                                  | 2007                                                                                                                                  |   |
| ASSETS                                          |                                                                                                                                  |                                                                                                                                  |   |
| Cash      and due from banks                    |  $                  99,099             |  $                725,879                        |   |
| Investment      in subsidiaries                 |                 66,742,626                            |                 74,179,498                            |   |
| Other      assets                               |                      447,033 |                      450,326 |   |
| Total      assets                               |  $           67,288,758                                                   |  $           75,355,703                                                   |   |
|                                            |                                                                                                                                  |                                                                                                                                  |   |
| LIABILITIES      AND SHAREHOLDERS' EQUITY       |                                                                                                                                  |                                                                                                                                  |   |
| Borrowings                                      |                   8,248,000                 |                   8,248,000                 |   |
| Accrued      expenses and other liabilities     |                      266,614 |                      272,336 |   |
| Shareholders'      equity                       |                 58,774,144                            |                 66,835,367                            |   |
| Total      liabilities and shareholders' equity |  $           67,288,758                                                   |  $           75,355,703                                                   |   |
|                                            |                                                                                                                                  |                                                                                                                                  |   |

| STATEMENTS OF OPERATIONS                                       |                                                                                                   |                                                                                                   |                                                                                                   |   |
|----------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|--------|
| Years      Ended December 31, 2008, 2007 and 2006              |                                                                                                   |                                                                                                   |                                                                                                   |   |
|                                                           |                                                                                                   |                                                                                                   |                                                                                                   |   |
|                                                           | 2008                                                                                                   | 2007                                                                                                   | 2006                                                                                                   |   |
| Revenues                                                       |                                                                                                   |                                                                                                   |                                                                                                   |   |
| Dividends      from subsidiary bank                            |  $         920,838                                   |  $         897,381                                   |  $      1,182,946                                                   |   |
| Total      revenue                                             |               920,838            |               897,381            |            1,182,946                            |   |
|                                                           |                                                                                                   |                                                                                                   |                                                                                                   |   |
| Expenses                                                       |                                                                                                   |                                                                                                   |                                                                                                   |   |
| Interest      on subordinated debt                             |               552,118            |               711,967            |               693,699            |   |
| Other      expenses                                            |                 30,531 |                 30,000 |                 30,000 |   |
| Total      expenses                                            |               582,649            |               741,967            |               723,699            |   |
|                                                           |                                                                                                   |                                                                                                   |                                                                                                   |   |
| Income      before equity in undistributed                     |                                                                                                   |                                                                                                   |                                                                                                   |   |
|     net      income of subsidiaries        |               338,189            |               155,414            |               459,247            |   |
|                                                           |                                                                                                   |                                                                                                   |                                                                                                   |   |
| Equity      in undistributed net (loss) income of subsidiaries |          (7,449,795)                                      |            2,522,512                            |            1,955,909                            |   |
|                                                           |                                                                                                   |                                                                                                   |                                                                                                   |   |
| Net      (loss) income                                         |  $    (7,111,606)                                                             |  $      2,677,926                                                   |  $      2,415,156                                                   |   |

----

----

| STATEMENTS      OF CASH FLOWS                                      |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
|--------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|
| Years      Ended December 31, 2008, 2007 and 2006                  |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
|                                                               | 2008                                                                                                  | 2007                                                                                                                                        | 2006                                                                                                                                        |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Cash      Flows from Operating Activities                          |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Net      (loss) income                                             |  $    (7,111,606)                                                            |  $      2,677,926                                                                                        |  $      2,415,156                                                                                        |
| Adjustments      to reconcile net income to net cash provided by   |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| operating      activities:                                         |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Equity      in undistributed loss (income) of subsidiaries         |          7,449,795                                       |        (2,522,512)                                                                                       |        (1,955,909)                                                                                       |
| Payment      of fees to directors in common stock                  |               49,932            |               49,961                                                  |               24,928                                                  |
| Change      in assets and liabilities:                             |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Decrease      in other assets                                      |                 3,293 |                 4,403                                       |                 6,159                                       |
| (Decrease)      Increase in accrued expenses and other liabilities |               (5,566)           |                  (700)                                 |               18,884                                                  |
| Net      cash provided by operating activities                     |             385,848                       |             209,078                                                             |             509,218                                                             |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Cash      Flows from Investing Activities                          |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Net      investment in bank subsidiary                             |             (49,932)                      |             (49,961)                                                            |      (29,624,933)                                                                                                  |
| Net      cash used in investing activities                         |             (49,932)                      |             (49,961)                                                            |      (29,624,933)                                                                                                  |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Cash      Flows from Financing Activities                          |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Proceeds      from issuance of common stock                        |               51,826            |               50,551                                                  |        30,746,845                                                                                        |
| Payment      to repurchase common stock                            |           (160,025)                                 |                        - |                        - |
| Dividends      paid on common stock                                |           (854,497)                                 |           (853,547)                                                                       |           (617,334)                                                                       |
| Net      cash (used in) provided by financing activities           |           (962,696)                                 |           (802,996)                                                                       |        30,129,511                                                                                        |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Net      (decrease) increase in cash and cash equivalents          |           (626,780)                                 |           (643,879)                                                                       |          1,013,796                                                                             |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Cash      and cash equivalents                                     |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Beginning                                                          |             725,879                       |          1,369,758                                                                             |             355,962                                                             |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Ending                                                             |  $           99,099                       |  $         725,879                                                                        |  $      1,369,758                                                                                        |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Supplemental      Disclosures of Cash Flow Information             |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Cash      paid for interest                                        |  $         556,778                                  |  $         712,665                                                                        |  $         692,536                                                                        |
|                                                               |                                                                                                  |                                                                                                                                        |                                                                                                                                        |
| Accrued      dividends declared on common stock                    |  $         212,546                                  |  $         213,608                                                                        |  $         213,277                                                                        |

----