UNITY HOLDINGS, INC.SELECTED FINANCIAL
DATA

28






UNITY HOLDINGS, INC.SELECTED FINANCIAL
DATA

|UNITY HOLDINGS, INC.                      |         |         |           |           |          
|----------------------------------------- | ------- | ------- | --------- | --------- | ---------
|SELECTED FINANCIAL DATA                   |         |         |           |           |          
|(Dollars in 000s)                         |         | 2007    | 2006      | 2005      | 2004     
|STATEMENT OF CONDITION                    |         |         |           |           |          
|Assets:                                   |         |         |           |           |          
|Cash & Due From Banks                     | 6,312   | 4,972   | 3,765     | 2,817     | 2,898    
|Federal Funds Sold \ Int. Earning Deps    | 4,054   | 248     | 857       | 3,800     | 59       
|Investment Securities                     | 28,808  | 22,355  | 21,145    | 15,488    | 12,281   
|Gross Loans                               |         | 243,030 | 224,117   | 195,599   | 167,333  
|Loan Loss Provision                       | 3,281   | 2,791   | 2,445     | 2,259     | 1,866    
|Net Loans                                 |         | 239,749 | 221,326   | 193,154   | 165,074  
|Fixed Assets                              |         | 11,417  | 11,813    | 9,402     | 8,091    
|Other Assets                              |         | 11,662  | 5,859     | 5,011     | 4,191    
|TOTAL ASSETS                              |         | 302,002 | 266,573   | 233,334   | 199,461  
|Liabilities & Capital:                    |         |         |           |           |          
|Non-maturity Deposits                     | 132,822 | 128,348 | 113,668   | 77,340    | 44,646   
|Time Dep's                                |         | 121,562 | 81,136    | 69,651    | 84,070   
|Total Deposits                            |         | 254,384 | 209,484   | 183,319   | 161,410  
|FHLB & Other Borrowings                   | 22,250  | 33,850  | 29,250    | 19,150    | 13,109   
|Guaranteed subordinated debentures        | 3,093   | 3,093   | 3,093     | 3,093     | 3,093    
|Borrowings                                |         | 25,343  | 36,943    | 32,343    | 22,243   
|Other Liabilties                          |         | 1,469   | 2,042     | 974       | 843      
|TOTAL LIABILITIES                         | 281,196 | 248,469 | 216,636   | 184,496   | 146,562  
|Redeemable KSOP shares                    | 662     | 506     | 106       | 82        | 74       
|Capital                                   |         | 20,144  | 17,598    | 16,592    | 14,883   
|TOTAL LIAB. & CAPITAL                     | 302,002 | 266,573 | 233,334   | 199,461   | 159,849  
|                                          |         |         |           |           |          
|INCOME STATEMENT                          |         |         |           |           |          
|Interest Income                           |         | 22,829  | 18,942    | 14,435    | 10,949   
|Interest Expense                          |         | 11,808  | 8,967     | 6,114     | 3,930    
|Net Interest Income                       | 11,021  | 9,975   | 8,321     | 7,019     | 5,975    
|Provision for Loan Losses                 | 738     | 461     | 221       | 732       | 495      
|Net Int Income after LL Prov              | 10,283  | 9,514   | 8,100     | 6,287     | 5,480    
|Noninterest Income                        | 2,116   | 1,598   | 1,296     | 1,090     | 1,070    
|Noninterest Expense                       | 8,460   | 8,104   | 6,479     | 4,993     | 4,515    
|Income Before Taxes                       | 3,939   | 3,008   | 2,917     | 2,384     | 2,035    
|Income Tax Expense                        | 1,330   | 1,010   | 954       | 773       | 673      
|DIRECT NET INCOME                         | 2,609   | 1,998   | 1,963     | 1,611     | 1,362    
|                                          |         |         |           |           |          
|AVERAGE BALANCES                          |         |         |           |           |          
|Gross Loans                               |         | 241,083 | 207,771   | 178,667   | 150,704  
|Earning Assets                            |         | 272,599 | 231,127   | 202,736   | 166,420  
|Assets                                    |         | 295,135 | 248,627   | 217,312   | 175,840  
|Deposits                                  |         | 238,648 | 199,600   | 175,995   | 141,075  
|Borrowings & guaranteed subordinated debt | 35,772  | 30,452  | 23,848    | 19,284    | 8,965    
|Stockholders Equity                       | 18,807  | 17,095  | 15,738    | 14,235    | 12,512   
|                                          |         |         |           |           |          
|Shares outstanding at year end            | 987,557 | 990,030 | 1,014,510 | 1,013,510 | 1,013,510
|Weighted Avg Shares  (undiluted)          | 989,820 | 993,036 | 1,014,154 | 1,013,510 | 1,010,719
|                                          |         |         |           |           |          
|KEY RATIOS                                |         |         |           |           |          
|Return on Average Assets                  | 0.88    | 0.80    | 0.90      | 0.92      | 0.99     
|Return on Average Equity                  | 13.87   | 11.69   | 12.47     | 11.32     | 10.89    
|Dividend Payout Ratio                     | 0.00    | 0.00    | 0.00      | 0.00      | 0.00     
|Net Interest Margin                       | 4.04    | 4.32    | 4.10      | 4.22      | 4.35     
|Equity To Assets                          |         | 6.67    | 6.60      | 7.11      | 7.46     
|Earnings Per Share (undiluted)            | 2.64    | 2.01    | 1.94      | 1.59      | 1.35     
|Average Book Value per Share              | 19.04   | 17.27   | 15.51     | 14.05     | 12.35    
|                                          |         |         |           |           |          
|                                          |         |         |           |           |          

29




Management's Discussion and
Analysis

Of Financial Condition and Results of
Operations

The following is a
discussion of our financial condition and the financial condition of our bank
subsidiary, Unity National Bank, at December 31, 2007 and 2006 and the results
of operations for the years then ended. The purpose of this discussion is to
focus on information about our financial condition and results of operations
that are not otherwise apparent from our audited consolidated financial
statements.  Reference should be made to those statements and the selected
financial data presented elsewhere in this report for an understanding of the
following discussion and analysis.

Forward-Looking
Statements

We may from time to time
make written or oral forward-looking statements, including statements contained
in filings with the Securities and Exchange Commission and our reports to
stockholders.  Statements made in this report, other than those concerning
historical information, should be considered forward-looking and subject to
various risks and uncertainties.  Forward-looking statements are made based
upon management's belief as well as assumptions made by, and information
currently available to, management pursuant to "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995.  Our actual results may
differ materially from the results anticipated in forward-looking statements due
to a variety of factors, including governmental monetary and fiscal policies,
deposit levels, loan demand, loan collateral values, securities portfolio
values, interest rate risk management, the effects of competition in the banking
business from other commercial banks, thrifts, mortgage banking firms, consumer
finance companies, credit unions, securities brokerage firms, insurance
companies, money market funds and other financial institutions operating in our
market area and elsewhere, including institutions operating through the
Internet, changes in governmental regulation relating to the banking industry,
including regulations relating to branching and acquisitions, failure of
assumptions underlying the establishment of reserves for loan losses, including
the value of collateral underlying delinquent loans and other factors.  We
caution that these factors are not exclusive.  We do not undertake to
update any forward-looking statement that may be made from time to time by us,
or on our behalf.

Critical Accounting
Policies

We have
adopted various accounting policies which govern the application of accounting
principles generally accepted in the United States of America in the preparation
of our financial statements.  Our significant accounting policies are
described in the footnotes to the consolidated financial statements at December
31, 2007.

Certain
accounting policies involve significant judgments and assumptions by us which
have a material impact on the carrying value of certain assets and
liabilities.  We consider these accounting policies to be critical
accounting policies.  The judgments and assumptions we use are based on
historical experience and other factors, which we believe to be reasonable under
the circumstances.  Because of the nature of the judgments and assumptions
we make, actual results could differ from these judgments and estimates which
could have a material impact on our carrying values of assets and liabilities
and our results of operations.

We believe the allowance
for loan losses is a critical accounting policy that requires the most
significant judgments and estimates used in
preparation of our consolidated financial statements.  Refer to the portion
of this discussion that addresses our allowance for loan losses for a
description of our processes and methodology for determining our allowance for
loan losses.

30




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Overview

Our 2007 results were
highlighted by reporting net income of $2,609,162.  The Company continued
to leverage its equity base through strong loan and deposit growth coupled with
operating expense control.  The Company grew its market share in markets
and sub-markets where expansion had recently taken place.

Financial Condition at
December 31, 2007 and 2006

As of December 31, 2007,
we had total assets of $302.0 million, an increase of 13.3% over December 31,
2006.  Total interest-earning assets were $275.9 million at
December 31, 2007 or 91.4% of total assets, compared to 93% for 2006. 
Our primary interest-earning assets at December 31, 2007 were loans, which made
up 88% of total interest-earning assets at December 31, 2007 as compared to 91%
at December 31, 2006.  Our loan to total funding ratio was 87.8% at
December 31, 2007 and 92.1% at December 31, 2006.  Increased funding levels
from deposit growth of $44.9 million were used primarily to fund loan growth of
$18.9 million and investment growth of $6.5 million.  The deposit balance
increases also allowed for a decrease in external borrowings of $11.6
million.

Fed funds sold stood at
$3.9 million as of December 31, 2007, compared to no Fed funds sold at the end
of 2006.  These funds represent excess cash on hand, primarily due to the
large deposit growth.  However, loan demand began to weaken in the fourth
quarter, so these funds were not immediately deployed in the loan
portfolio.  Approximately $3.2 million in funds was used to purchase bank
owned life insurance to be used as a cost recovery vehicle, offsetting employee
benefit expense.

Liquidity and Capital
Resources

The purpose of liquidity
management is to ensure that there are sufficient cash flows to satisfy demands
for credit, deposit withdrawals, and other needs.  Traditional sources of
liquidity include asset maturities and growth in core deposits.  A company
may achieve its desired liquidity objectives from the management of assets and
liabilities and through funds provided by operations.  Funds invested in
short-term marketable instruments and the continuous maturing of other earning
assets are sources of liquidity from the asset perspective.  The liability
base provides sources of liquidity through deposit growth, the maturity
structure of liabilities, and accessibility to external sources of
funds.

The high growth rate in
our deposit portfolio allowed for decreasing our position in external
borrowings.  Federal Home Loan Bank ("FHLB") advances were $22.3 million at
December 31, 2007 compared to $33.9 million at December 31, 2006.  As FHLB
advances matured, they were not replaced.  Some advances were paid off
early, with no material prepayment penalties.  Secondary market time
deposits stood at $17.2 million at December 31, 2007 compared to $16.5 million
for the same period last year.

Scheduled loan payments
are a relatively stable source of funds, but loan payoffs and deposit flows
fluctuate significantly, being influenced by interest rates and general economic
conditions and competition.   We attempt to price our deposits to meet
our asset/liability objectives consistent with local market conditions.

Our liquidity and
capital resources are monitored on a periodic basis by management and Federal
regulatory authorities.  As determined under guidelines established by the
Asset/Liability Committee and acceptable current banking practices, our core
liquidity ratio was 11.19% at December 31, 2007.  The Company's liquidity
position was strong at December 31, 2007, a reflection of the strong deposit
growth and moderate loan demand.

31




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

At December 31, 2007, we
had loan commitments outstanding of approximately $37.5 million.  Because
these commitments generally have fixed expiration dates and many will expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.  If needed, we have the ability to
borrow and purchase federal funds from other financial institutions.  At
December 31, 2007, we had an arrangement with a correspondent commercial bank
for short-term unsecured advances of $4.5 million. Also in place with a
correspondent commercial bank is a security repurchase agreement utilizing
securities available for sale as the underlying collateral with a line of
secured credit of approximately $4 million.   At December 31, 2007, we
also had over $44.9 million available (subject to adequate collateral) at the
Federal Home Loan Bank.  By having this readily available credit, our
secondary liquidity ratio was 67.2%, substantially higher than our 20% minimum
directive.

At December 31, 2007,
our capital levels were compliant with regulatory minimum capital
requirements.  Our stockholders' equity increased primarily due to net
income of $2,609,162.  The parent company injected $1.3 million to the
subsidiary for capital strength, borrowing $250,000 on its line of credit to
fund a portion of this investment.  The Bank paid the parent company
$300,000 in the form of an internal dividend during the year to allow for payoff
of the line of credit.  For regulatory purposes, the net unrealized losses
on securities available for sale are excluded in the computation of the capital
ratios.

In the future, our
primary source of funds available to Unity Holdings, Inc. will be the payment of
dividends by the Bank.  Banking regulations limit the amount of the
dividends that may be paid without prior approval of the bank's regulatory
agency.  Currently, the Bank can pay $6.8 million in dividends without
regulatory approval.

The minimum capital
requirements to be considered "well capitalized" under prompt corrective action
provisions and the actual capital ratios for us and the Bank as of December 31,
2007 are as follows:

|                           | Actual       |  | Regulatory
|-------------------------- | ------------ |  | ----------
|                           | Consolidated |  | Bank      
|Leverage capital ratio     | 9.07%        |  | 7.73%     
|Risk-based capital ratios: |              |  |           
|Core capital               | 10.61%       |  | 9.40%     
|Total capital              | 11.86%       |  | 10.65%    

These ratios may decline
as asset growth continues, but are expected to exceed the regulatory minimum
requirements.  Anticipated future earnings will keep these ratios at
satisfactory levels.  We have adequate cash resources and a line of credit
available at the holding company level to maintain "well-capitalized" status at
the subsidiary bank.

We believe that our
liquidity and capital resources are adequate and will meet our foreseeable short
and long-term needs.  We anticipate that we will have sufficient funds
available to meet current loan commitments and to fund or refinance, on a timely
basis, our other material commitments and liabilities.

Management is not aware
of any known trends, events or uncertainties, other than those discussed above,
that will have or that are reasonably likely to have a material effect on our
liquidity, capital resources or operations.  Management is also not aware
of any current recommendations by the regulatory authorities that, if they were
implemented, would have such an effect.



Effects of
Inflation

The impact of inflation
on banks differs from its impact on non-financial institutions.  Banks, as
financial intermediaries, have assets which are primarily monetary in nature and
that tend to fluctuate in concert with inflation.  A bank can reduce the
impact of inflation if it can manage its rate sensitivity gap.  This gap
represents the difference between rate sensitive assets and rate sensitive
liabilities.  We, through our asset/liability committee, attempt to
structure the assets and liabilities and manage the rate sensitivity gap,
thereby seeking to minimize the potential effects of inflation.  For
information on the management of our interest rate sensitive assets and
liabilities, see "Asset/Liability Management".

32




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Results of
Operations For The Years Ended
December 31, 2007 and 2006

Net Interest
Income

Our results of
operations are determined by our ability to manage interest income and expense
effectively, to minimize loan and investment losses, to generate non-interest
income, and to control operating expenses.  Because interest rates are
determined by market forces and economic conditions, our ability to generate net
interest income depends on our ability to obtain an adequate net interest spread
between the rate we pay on interest-bearing liabilities and the rate we earn on
interest-earning assets.

Our tax equivalent net
yield on average interest-earning assets was 4.09% in 2007 as compared to 4.37%
in 2006.  Average net interest-bearing assets grew $41.5 million between
December 31, 2006 and December 31, 2007.  Average loans accounted for $33.3
million of the increase.  Average interest-bearing liabilities increased by
$41.7 million with average time deposits and money market deposits accounting
for the vast majority of this increase.  The rate earned on average
interest-earning assets increased to 8.37% in 2007 from 8.20% in 2006.  The
rate paid on average interest-bearing liabilities increased to 4.61% in 2007
from 4.19% in 2006.  The average loan growth was the largest increase in
the Bank's recent history, surpassing last year's growth amount by approximately
$4.3 million.  The growth came in large volumes at various times of the
year, prompting Management to seek funding quickly.  Most of the external
funding increase came in time deposits, which carried a cost of 5.15% for 2007
as compared to 4.45% for 2006.  Not only did the new growth in time
deposits carry the new rate, but also the replacement of cheaper time deposits
that matured during 2007 also carried the higher rates.  While our gap
position shows us as slightly liability sensitive, we have found that the
competitiveness in our markets keeps deposit rates from falling in concordance
with movements by the Federal Reserve.  As the Fed moved rates down 100
basis points over the last four months of 2007, our loans tied to prime repriced
quickly and our funding matured favorably, giving us a chance to reprice the
funding as well.  However, funding costs did not move down as quickly as
loan yields.  As the Fed continues to tighten rates in the future,
Management foresees further margin tightening.

Provision for Loan
Losses

The provision for loan
losses was approximately $738,000 and $462,000 in 2007 and 2006,
respectively.  The amounts provided were due primarily to the growth of the
portfolio and to our assessment of the inherent risk in the portfolio. 
Loan loss experience for the Bank is low compared to other banks of similar
size.  Net charge-offs for 2007 were $249,000 as compared to $115,000 for
2006.  The 2007 charge-offs represent 0.10% of average loans, which
compares favorably to the 0.18% posted by our national peer group. 
Management continually evaluates its loan loss reserve for adequacy.  The
allowance for loan losses as a percentage of total loans was 1.35% at December
31, 2007 and 1.25% at December 31, 2006.  The increase in the ratio was out
of an abundance of caution during the economic downturn.  The Bank does not
have as large a concentration in construction lending as some of its
peers.

Other
Income

Other income consists of
service charges on deposit accounts, mortgage loan origination fees, investment
services, and other miscellaneous revenues and fees.  Other income was
$2,116,000 in 2007 as compared to $1,620,000 for 2006.  Gains on the sale
of other real estate for 2007 were $224,000 as compared to $43,000 for
2006.  The Bank moved some problem loans from 2006 into other real estate
in the first part of 2007 and were able to earn enough on the sale to recover
expenses incurred on managing these loans.  Trust and brokerage revenue
increased approximately $130,000 for the year ended December 31, 2007 over the
same period in 2006.  The Bank added another investment representative to
service our outer-office network, which was very successful.  NSF fee
income increased $211,000 in 2007 over 2006 levels.  Income from additional
bank owned life insurance, which acts as a cost recovery vehicle, increased
$88,000.  Mortgage fee income decreased $158,000 in 2007 when compared to
the previous year.

33




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Other
Expenses

Other expense consists
primarily of salary, occupancy, and other fixed overhead costs associated with
the business.  Other expenses were $8,459,000 for the year ended December
31, 2007 and $8,125,000 for the year ended December 31, 2006.  Personnel
expense increased approximately $403,000 for 2007 when compared to 2006,
primarily in the addition of customer contact staff.  There were few
additions to the support staff.  Occupancy expense increased $68,000 for
2007 over 2006, primarily associated with a full year's cost of the new Calhoun
office, which came online in August 2006.  Other non-interest expense
decreased $115,000 for 2007 when compared to the year ended December 31,
2006.  Loan related expenses decreased $186,000.  Costs associated
with a few large problem loans in 2006 were not present in 2007, as these loan
issues got resolved in the first quarter of 2007.

Income
Tax

Income tax expense was
$1,330,000 in 2007 as compared to $1,011,000 in 2006.  The rate of income
tax compared to pretax income was 34% in 2007 and 2006.

Asset/Liability
Management

Our objective is to
manage assets and liabilities to provide a satisfactory, consistent level of
profitability within the framework of established cash, loan, investment,
borrowing, and capital policies.  Specific officers are charged with the
responsibility for monitoring policies and procedures designed to ensure
acceptable composition of the asset/liability mix. Management's overall
philosophy is to support asset growth primarily through growth of core deposits
of all categories made by local individuals, partnerships, and
corporations.

Our asset/liability mix
is monitored on a regular basis with a report reflecting the interest
rate-sensitive assets and interest rate-sensitive liabilities being prepared and
presented to the Bank's Board of Directors on a quarterly basis.  The
objective of this policy is to monitor interest rate-sensitive assets and
liabilities so as to minimize the impact of substantial movements in interest
rates on earnings.  An asset or liability is considered to be interest
rate-sensitive if it will reprice or mature within the time period analyzed,
usually one year or less. The interest rate-sensitivity gap is the difference
between the interest-earning assets and interest-bearing liabilities scheduled
to mature or reprice within such time period.  A gap is considered
"asset-sensitive" when the amount of interest rate-sensitive assets exceeds the
amount of interest rate-sensitive liabilities.  A gap is considered
"liability-sensitive" when the amount of interest rate-sensitive liabilities
exceeds the interest rate-sensitive assets.  During a period of rising
interest rates, a liability-sensitive gap would tend to affect net interest
income adversely, while an asset-sensitive gap would tend to result in an
increase in net interest income. Conversely, during a period of falling interest
rates, a liability-sensitive gap would tend to result in an increase in net
interest income, while an asset-sensitive gap would tend to affect net interest
income adversely.  If our assets and liabilities were equally flexible and
moved concurrently, the impact of any increase or decrease in interest rates on
net interest income would be minimal.

34




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

A simple interest rate
"gap" analysis by itself may not be an accurate indicator of how net interest
income will be affected by changes in interest rates.  Accordingly, we also
evaluate how the repayment of particular assets and liabilities is impacted by
changes in interest rates.  Income associated with interest-earning assets
and costs associated with interest-bearing liabilities may not be affected
uniformly by changes in interest rates.  In addition, the magnitude and
duration of changes in interest rates may have a significant impact on net
interest income.  For example, although certain assets and liabilities may
have similar maturities or periods of repricing, they may react in different
degrees to changes in market interest rates.  Interest rates on certain
types of assets and liabilities fluctuate in advance of changes in general
market rates, while interest rates on other types may lag behind changes in
general market rates.  In addition, certain assets, such as adjustable rate
mortgage loans, have features (generally referred to as "interest rate caps and
floors") that limit changes in interest rates.  Prepayment and early
withdrawal levels also could deviate significantly from those assumed in
calculating the interest rate gap.  The ability of many borrowers to
service their debts also may decrease during periods of rising interest
rates.

Changes in interest
rates also affect our liquidity position.  We currently price deposits in
response to market rates and it is management's intention to continue this
policy.  If deposits are not priced in response to market rates, a loss of
deposits could occur that would negatively affect our liquidity
position.

The following table sets
forth the distribution of the repricing of our interest-earning assets and
interest-bearing liabilities as of December 31, 2007, the interest
rate-sensitivity gap, the cumulative interest rate-sensitivity gap, the interest
rate-sensitivity gap ratio and the cumulative interest rate-sensitivity gap
ratio.  The table also sets forth the time periods in which
interest-earning assets and interest-bearing liabilities will mature or may
reprice in accordance with their contractual terms.  However, the table
does not necessarily indicate the impact of general interest rate movements on
the net interest margin as the repricing of various categories of assets and
liabilities is subject to competitive pressures and the needs of our
customers.  The non-maturity deposit portfolio, for example, can reprice in
its entirety at any time.  However, rate changes on several types of these
deposits happen rarely.  In addition, various assets and liabilities
indicated as repricing within the same period may in fact, reprice at different
times within such period and at different rates.

|                                                     |                                          |          |          | Within                  | Over Three | Over One    | After   |        
|---------------------------------------------------- | ---------------------------------------- | -------- | -------- | ----------------------- | ---------- | ----------- | ------- | -------
|                                                     |                                          |          |          | Three                   | Months To  | Year to     | Three   |        
|                                                     |                                          |          |          | Months                  | One Year   | Three Years | Years   | Total  
|                                                     |                                          |          |          | ( Dollars in Thousands)
|Interest-earning
      assets:                       |                                          |          |          |                         |            |            
|                                                     | Interest-bearing deposits
      in banks | 156      | -        | -                       | -          | 156        
|                                                     | Fed funds
    sold                       |          | 3,898    | -                       | -          | -           | 3,898  
|                                                     | Securities                               |          |          | -                       | 2,339      | 6,507       | 19,962  | 28,808 
|                                                     | Loans                                    |          |          | 117,807                 | 29,789     | 49,490      | 46,210  | 243,296
|                                                     | Total                                    |          |          | 121,861                 | 32,128     | 55,997      | 66,172  | 276,158
|                                                     |                                          |          |          |                         |            |             |         |        
|Interest-bearing
      liabilities:                  |                                          |          |          |                         |           
|                                                     | Interest-bearing demand
      deposits   | 17,924   | -        | -                       | -          | 17,924     
|                                                     | Savings & Money Market
      Deposits    | 97,310   | -        | -                       | -          | 97,310     
|                                                     | Time
Deposits                            |          | 32,537   | 60,779                  | 19,966     | 8,281       | 121,563
|                                                     | Federal Funds
      Purchased            |          | -        | -                       | -          | -           | -      
|                                                     | Other
    Borrowings                     |          | 450      | -                       | 11,000     | 10,800      | 22,250 
|                                                     | Subordinated
      Debentures            |          | 3,093    | -                       | -          | -           | 3,093  
|                                                     | Total                                    |          |          | 151,314                 | 60,779     | 30,966      | 19,081  | 262,140
|                                                     |                                          |          |          |                         |            |             |         |        
|Interest rate sensitivity
      gap                  |                                          | (29,453) | (28,651) | 25,031                  | 47,091     | 14,018     
|Cumulative interest rate
      sensitivity gap       | (29,453)                                 | (58,104) | (33,073) | 14,018                  |           
|Interest rate sensitivity
      gap ratio            | 0.81                                     | 0.53     | 1.81     | 3.47                    |           
|Cumulative interest rate
      sensitivity gap ratio | 0.81                                     | 0.73     | 0.86     | 1.05                    |           
|                                                     |                                          |          |          |                         |            |             |         |        

35




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

SELECTED FINANCIAL
INFORMATION AND STATISTICAL DATA

The following tables and
schedules set forth certain significant financial information and statistical
data with respect to: the distribution of assets, liabilities and stockholders'
equity, the interest rates we experience; our investment portfolio; our loan
portfolio, including types of loans, maturities, and sensitivities of loans to
changes in interest rates and information on nonperforming loans; summary of the
loan loss experience and allowance for loan losses; and types of
deposits.

INTEREST RATES AND
INTEREST DIFFERENTIALS

Average Balance Sheets,
Interest and Rates

36




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

|                                                 |        
|------------------------------------------------ | -------
|                                                 |        
|                                                 |        
|                                                 | Average
|                                                 | Balance
|(Dollars in
      Thousands)                     |        
|                                                 |        
|ASSETS                                           |        
|Interest earning
      assets:                   |        
|Interest bearing deposits
      in banks         | $      
|Federal funds
      sold                         | 4,778  
|Taxable Investments,
      amortized cost        | 19,860 
|Non-taxable investments,
      amortized cost    | 6,068  
|Loans                                            | 241,083
|Total
      interest earning assets              | 272,599
|Allowance for Loan
      losses                  | (3,008)
|Other assets                                     | 25,544 
|Total
      assets                               | $      
|                                                 |        
|LIABILITIES AND
      STOCKHOLDERS' EQUITY       |        
|Interest bearing
      liabilities:              |        
|Deposits:                                        |        
|Demand, including
      MMDA                     | $      
|Savings                                          | 6,402  
|Time                                             | 103,273
|Federal funds
      purchased                    | 323    
|FHLB advances & other
      borrowings           | 32,356 
|Guaranteed subodinated
      debentures          | 3,093  
|Total
      interest bearing liabilities         | 255,863
|                                                 |        
|Non-interest bearing
      demand deposits       | 18,557 
|Other
      liabilities                          | 1,908  
|Stockholders'
      equity                       | 18,807 
|Total
      liabilities and stockholders' equity | $      
|                                                 |        
|Net interest
      income                        |        
|                                                 |        
|Net interest
      spread                        |        
|Net interest margin
      (TE)                   |        
|                                                 |        

The table below shows
the year-to-date average balance for each category of interest earning assets
and interest-bearing liabilities for the indicated periods and the average rate
of interest earned or paid thereon.

Non-accrual loans and
the interest income which was recorded on these loans, if any, are included in
the yield calculation for loans in all periods reported.

(TE) - Tax
Equivalent.  Loan fees of $1,121,000 and $1,204,000 are included in the
yields for 2007 and 2006, respectively.

37




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Rate and Volume
Analysis

|                                           | 2007 vs.
      2006         
|------------------------------------------ | ----------------------------
|                                           | Rate                        
|                                           | (Dollars in
      Thousands)
|Income from interest-earning assets:       |                             
|Interest bearing deposits in banks         | $                           
|Federal funds sold                         | (5)                         
|Taxable Investments, amortized cost        | 36                          
|Non-taxable investments, amortized cost    | (2)                         
|Loans                                      | 511                         
|Total interest income                      | $                           
|                                           |                             
|Expense from interest-bearing
liabilities: |                             
|Demand, including MMDA                     | $                           
|Savings                                    | 38                          
|Time                                       | 597                         
|Federal funds purchased                    | 7                           
|FHLB advances & other borrowings           | 165                         
|Guaranteed subodinated debentures          | 13                          
|Total interest bearing
      liabilities   | $                           
|                                           |                             
|NET INTEREST INCOME                        | $                           
|                                           |                             

The following table
shows a summary of the changes in interest income and interest expense resulting
from changes in volume and changes in rates for each major category of interest
earning assets and interest-bearing liabilities for 2007 over 2006.  The
changes in interest income and interest expense attributable to both volume and
rate have been allocated proportionately on a consistent basis to the change due
to volume and the change due to rate.

38




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

INVESTMENT
PORTFOLIO



Types of
Investments

Our securities
portfolio, consisting of U.S. Government sponsored agencies, mortgage-backed,
municipal and restricted equity securities, amounted to $28.8 million at
December 31, 2007, compared to $22.5 million at December 31, 2006.  Most of
the Company's funds were used to fund strong loan growth rather than in the
investment portfolio.  We have not specifically identified any securities
for sale in future periods that, if so designated, would require a charge to
operations if the market value would not be reasonably expected to recover prior
to the time of sale.

The carrying amounts of
securities and the corresponding interest yield, which are all classified as
available for sale, are summarized as follows:

|                                            |       | December 31,
      2007      |       
|------------------------------------------- | ----- | ---------------------------- | ------
|                                            |       |                              |       
|                                            |       | Amortized                    |       
|                                            |       | Cost                         |       
|                                            |       | (Dollars in
      Thousands) |       
|U.S. Government sponsored agency securities | $     | 15,744                       |       
|Mortgage-backed securities                  | 4,843 |                              | 4,814 
|Municipal securities                        | 6,011 |                              | 6,069 
|Restricted equity securities                | 2,138 |                              | 2,138 
|                                            |       | $                            | 28,736
|                                            |       |                              |       
|                                            |       |                              |       
|                                            |       | December 31,
      2006      |       
|                                            |       |                              |       
|                                            |       | Amortized                    |       
|                                            |       | Cost                         |       
|                                            |       | (Dollars in
      Thousands) |       
|U.S. Government sponsored agency securities | $     | 10,239                       |       
|Mortgage-backed securities                  | 3,727 |                              | 3,647 
|Municipal securities                        | 5,961 |                              | 6,049 
|Restricted equity securities                | 2,540 |                              | 2,540 
|                                            |       | $                            | 22,467
|                                            |       |                              |       
|                                            |       |                              |       

39




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS



Maturities

The amounts of debt
securities are shown in the following table according to contractual maturity
classifications (1) one year or less, (2) after one through three years, (3)
after three through five years, (4) after five through ten years, and (5) after
ten years.  Restricted equity securities are not included in the table
because they have no contractual maturity.

|                    |       | December 31,
      2007      |        |       |     
|------------------- | ----- | ---------------------------- | ------ | ----- | ----
|                    |       |                              |        |       |     
|                    |       | Amortized                    |        | Fair  |     
|                    |       | Cost                         |        | Value |     
|                    |       | (Dollars in
      Thousands) |        |       |     
|One Year or Less    | $     | 200                          |        | $     | 201 
|One to Three Years  | 6,499 |                              | 6,507  |       | 4.92
|Three to Five Years | 2,890 |                              | 2,904  |       | 5.42
|Five to Ten Years   | 7,391 |                              | 7,404  |       | 5.02
|Over Ten Years      | 9,618 |                              | 9,654  |       | 5.71
|                    |       | $                            | 26,598 |       | $   
|                    |       |                              |        |       |     
|                    |       |                              |        |       |     

LOAN
PORTFOLIO

We generally require
that loans collateralized by real estate not exceed the collateral values by the
following percentages for each type of real estate loan as follows:

One- to
      four-family residential properties
    85%Construction loans
      on one- to four-family residential properties
    80%Nonresidential
      property
    80%


For commercial,
consumer, and other non-real estate loans, we require collateral commensurate
with the repayment ability and creditworthiness of the borrower.

The specific economic
and credit risks associated with our loan portfolio, especially the real estate
portfolio, include, but are not limited to, a general downturn in the economy
which could affect unemployment rates in our market area, general real estate
market deterioration, interest rate fluctuations, deteriorated or non-existing
collateral, title defects, inaccurate appraisals, financial deterioration of
borrowers, fraud, and any violation of banking protection laws. 
Construction lending can also present other specific risks to the lender such as
whether developers can find builders to buy lots for home construction, whether
the builders can obtain financing for the construction, whether the builders can
sell the home to a buyer, and whether the buyer can obtain permanent
financing.  Currently, real estate values and employment trends in our
market area are stable.  However, global uncertainties could negatively
impact the local economy.

40




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

We attempt to reduce
these economic and credit risks not only by adhering to loan to value
guidelines, but also by investigating the creditworthiness of the borrower and
monitoring the borrower's financial position.  Also, we establish and
periodically review our lending policies and procedures.  National banking
regulations limit exposure by prohibiting loan relationships that exceed 15% of
the Bank's statutory capital.  Because of the Company's capital strength,
the Company qualifies for the OCC's pilot lending program, which increases the
lending limit to 25% of statutory capital.

Types of
Loans

The amounts of loans
outstanding at the indicated dates are shown in the following table according to
the type of loan.

|                                       | 2007    |         | 2007   |      | 2006    |   | 2006   
|-------------------------------------- | ------- | ------- | ------ | ---- | ------- | - | -------
|                                       | Total   |         | %      |      | Total   |   | %      
|(Dollars in
      Thousands)           |         |         |        |      |         |   |        
|Commercial, financial and agricultural | $       | 19,599  |        | 8.1% |         | $ | 13,726 
|Real estate - construction             | 47,529  |         | 19.5%  |      | 43,293  |   | 19.3%  
|Real estate - mortgage                 | 168,880 |         | 69.4%  |      | 160,832 |   | 71.7%  
|Consumer, installment and other        | 7,288   |         | 3.0%   |      | 6,574   |   | 2.9%   
|                                       | 243,296 |         | 100.0% |      | 224,425 |   | 100.0% 
|Unearned income                        | (266)   |         |        |      | (308)   |   |        
|Allowance for loan losses              | (3,281) |         |        |      | (2,791) |   |        
|Loans, net                             | $       | 239,749 |        |      |         | $ | 221,325

Maturities and
Sensitivities of Loans to Changes in Interest Rates

Total loans as of
December 31, 2007 are shown in the following table according to contractual
maturity.

|                              | Commercial                   |        | Construction |   | Other  |  | Total 
|----------------------------- | ---------------------------- | ------ | ------------ | - | ------ |  | ------
|                              | (Dollars in
      Thousands)
|Within Three Months           | $                            | 9,751  |              | $ | 39,964 |  | $     
|Over Three Months to One Year | 3,658                        |        | 6,777        |   | 19,355 |  | 29,790
|Over One Year to Three Years  | 3,108                        |        | 627          |   | 45,755 |  | 49,490
|Over Three Years              | 3,082                        |        | 161          |   | 39,821 |  | 43,064
|                              | $                            | 19,599 |              | $ | 47,529 |  | $     
|                              |                              |        |              |   |        |  |       

The following table
summarizes loans at December 31, 2007 with due dates after one year that have
predetermined and floating or adjustable interest rates.

|                                      | (Dollars           
|------------------------------------- | -------------------
|                                      | in
      Thousands)
|Predetermined interest rates          | $                  
|Floating or adjustable interest rates | 38,228             
|                                      | $                  
|                                      |                    

41




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Risk
Elements

Information with respect
to nonaccrual, past due, restructured and other problem loans at
December 31, 2007 and 2006 is as follows:

|                                                                |  |        | December
      31,
|--------------------------------------------------------------- |  | ------ | ------------------
|                                                                |  |        | 2007              
|Nonperforming loans:                                            |  |        |                   
|Nonaccrual loans                                                |  |        | 3,145             
|Restructured loans                                              |  |        | -                 
|Other real estate owned                                         |  |        | 2,338             
|Total nonperforming loans                                       |  |        | 5,483             
|                                                                |  |        |                   
|Potential problem loans:                                        |  |        |                   
|Loans 90 days or more past due and still
accruing               |  | 791    |                   
|Total nonperforming and potential problem
      loans           |  | 6,274  |                   
|                                                                |  |        |                   
|Nonperforming assets to total loans and other real
      estate |  | 2.56%  |                   
|Reserve for loan losses to nonperforming loans                  |  | 52.29% |                   
|                                                                |  |        |                   
|Interest at contracted rates (a)                                |  |        | 41                
|Interest recorded as income                                     |  |        | 0                 
|Reduction of Interest Income for period                         |  |        | 41                

It is our policy to
discontinue the accrual of interest income when, in the opinion of management,
collection of interest becomes doubtful.  This status is accorded interest
when (1) there is a significant deterioration in the financial condition of the
borrower and full repayment of principal and interest is not expected and (2)
the principal or interest is more than ninety days past due, unless the loan is
both well-secured and in the process of collection.

Nonaccrual loans at
December 31, 2007 were $3,145,000, compared to $4,235,000 at December 31,
2006.  The bulk of the outstanding nonaccrual loan balances for 2006 were
collected with no losses.  Some balances were transferred into other real
estate.  Management does not foresee any significant losses in either the
nonaccrual portfolio or the real estate owned portfolio.  Each situation
has been analyzed and adequate provisions to the loan loss reserve, if deemed
necessary,  are established.

Loans that are
classified for regulatory purposes as loss, doubtful, substandard, or special
mention that have not been included in the table above do not represent or
result from trends or uncertainties that management reasonably expects will
materially impact future operating results, liquidity, or capital
resources.  These classified loans do not represent material credits about
which management is aware of any information that causes management to have
serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.



42




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

SUMMARY OF LOAN LOSS
EXPERIENCE

The following table
summarizes average loan balances for the year determined using the daily average
balances during the year; changes in the allowance for loan losses arising from
loans charged off; recoveries on loans previously charged off; additions to the
allowance which have been charged to operating expense; and the ratio of net
charge-offs during the year to average loans.

|                                                                                  | Year Ended
      December 31,
|--------------------------------------------------------------------------------- | -----------------------------
|                                                                                  | 2007                         
|                                                                                  | (Dollars in
      Thousands) 
|Average amount of loans outstanding                                               | $                            
|                                                                                  |                              
|Balance of allowance for loan losses at beginning of
      year                   | 2,791                        
|                                                                                  |                              
|Loans charged off:                                                                |                              
|Installment loans                                                                 | 123                          
|Real estate-mortgage                                                              | 118                          
|Commercial                                                                        | 97                           
|                                                                                  | 338                          
|                                                                                  |                              
|Loans recovered:                                                                  |                              
|Installment loans                                                                 | 46                           
|Real estate mortgage                                                              | 26                           
|Commercial                                                                        | 17                           
|                                                                                  | 89                           
|                                                                                  |                              
|Net charge-offs                                                                   | 249                          
|                                                                                  |                              
|Additions to allowance charged to operating expense
      during year             | 738                          
|Balance of allowance for loan losses at end of
    year                           | $                            
|                                                                                  |                              
|Ratio of net loans charged off during the year to
      average loans outstanding | 0.10%                        
|                                                                                  |                              
|                                                                                  |                              

43




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Allowance for Loan
Losses

Management continually
evaluates its loan loss reserve for adequacy.  Our evaluation considers
significant factors relative to the credit risk and loss exposure in the loan
portfolio, including past due and classified loans, historical experience,
underlying collateral values, and current economic conditions that may affect
the borrower's ability to repay.  The allowance for loan losses is
evaluated by segmenting the loan portfolio into unimpaired and impaired
loans.  The unimpaired loans are further segmented by loan type with an
allowance percentage applied to each type in order to establish a general
allowance for loan losses.  The allowance percentage determined is based
upon the historical loss experience of each loan category.  Further, we
allocate a reserve for the loan portfolio in general based on industry
standards.  The impaired loans are analyzed individually in order to
establish a specific allowance for loan losses.  This evaluation is
inherently subjective, as it requires estimates that are susceptible to
significant change.  Ultimately, losses may vary from current estimates and
future additions to the allowance may be necessary.  Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses as estimated at any point in time.  Management believes the
loan loss reserve is adequate at this time.

As of December 31, 2007
and 2006, our allocations of the allowance for loan losses do not specifically
correspond to the categories of loans listed below.   The following
table represents our best estimate for the allocation of the allowance for loan
losses to types of loans, as of the indicated dates.  The unallocated
portion represents excess reserves over our regular reserve
calculations.

|                                        | December 31,
      2007      |       | December 31,
      2006                               
|--------------------------------------- | ---------------------------- | ----- | ------------------------------------------------------
|                                        | Amount                       |       | Percent of
      Loans in each category to total loans
|                                        | (Dollars in
      Thousands) |       | (Dollars in
      Thousands)                          
|Commercial, financial and agricultural  | $                            | 273   |                                                       
|Real estate - construction              | $                            | 395   |                                                       
|Real estate - mortgage                  | $                            | 1,401 |                                                       
|Consumer, installment and other         | $                            | 232   |                                                       
|Specific allocation for impaired  loans | $                            | 912   |                                                       
|Unallocated                             | $                            | 67    |                                                       
|                                        | $                            | 3,280 |                                                       
|                                        |                              |       |                                                       
|                                        |                              |       |                                                       

44




MANAGEMENT'S
DISCUSSION AND ANALYSIS

OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

DEPOSITS

Average amount of
deposits and average rates paid thereon, classified as to noninterest-bearing
demand deposits, interest-bearing demand deposits, savings deposits, and time
deposits, for the year is presented below.

|                                        | December 31,
      2007      |         | December 31,
      2006     
|--------------------------------------- | ---------------------------- | ------- | ----------------------------
|                                        | Average                      |         |                             
|                                        | Balance
      (1)            | Percent |                             
|                                        | (Dollars in
      Thousands) |         | (Dollars in
      Thousands)
|Noninterest-bearing demand deposits     | $                            | 18,557  | N/A                         
|Interest-bearing demand deposits & MMDA | 110,416                      | 4.11%   |                             
|Savings Deposits                        | 6,402                        | 2.20%   |                             
|Time Deposits                           | 103,273                      | 5.15%   |                             
|                                        | $                            | 238,648 | 4.19%                       
|                                        |                              |         |                             

(1)  
Average balances were determined using the daily average balances during the
year.

The amounts of time
certificates of deposit issued in amounts of $100,000 or more as of December 31,
2007 are shown below by category, which is based on time remaining until
maturity of (1) three months or less, (2) over three through six months, (3)
over six through twelve months, and (4) over twelve months.

|                                      | (Dollars in
      Thousands) |       
|------------------------------------- | ---------------------------- | ------
|                                      |                              |       
|Three months or less                  | $                            | 21,205
|Over three months through six months  | 10,057                       |       
|Over six months through twelve months | 20,231                       |       
|Over twelve months                    | 11,280                       |       
|                                      | $                            | 62,773
|                                      |                              |       

45