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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark one)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2008

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number: 000-52946





VIRGINIA SAVINGS BANCORP, INC.

(Exact name of registrant in its Charter)







|                                                              |  |                                      
|------------------------------------------------------------- |  | -------------------------------------
|VIRGINIA                                                      |  | 20-8947933                           
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (I. R. S. EmployerIdentification No.)

600 Commerce Avenue, Front Royal, Virginia 22630

(Address of Principal Executive Offices) (Zip Code)

(540) 635-4137

Registrants telephone number, including area code





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                           |  |                             
|-------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈        
|Non-accelerated filer   ̈   |  | Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).     ̈  Yes    x  No

As of March 31, 2008, there were issued and outstanding 1,899,984 shares of the registrants common stock.









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VIRGINIA SAVINGS BANCORP, INC.

QUARTERLY REPORT ON FORM 10-Q

March 31, 2008

INDEX





|                                                                                                     |  |                                                                                      |  |        
|---------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------ |  | -------
|PART I - FINANCIAL INFORMATION                                                                      
|Item 1 -                                                                                             |  | Financial Statements                                                                 |  |        
|                                                                                                     | 
|Consolidated Statements of Financial Conditionas of March 31, 2008 and December 31, 2007 (Unaudited) |  | Page 3                                                                              
|                                                                                                     | 
|Consolidated Statements of Operations, Three MonthsEnded March 31, 2008 and 2007 (Unaudited)         |  | Page 4                                                                              
|                                                                                                     | 
|Consolidated Statements of Cash Flows, Three MonthsEnded March 31, 2008 and 2007 (Unaudited)         |  | Page 5                                                                              
|                                                                                                     | 
|Notes to Financial Statements                                                                        |  | Page 6                                                                              
|                                                                                                     |  |                                                                                     
|Item 2 -                                                                                             |  | Managements Discussion and Analysis of FinancialCondition and Results of Operations |  | Page 9 
|                                                                                                     |  |                                                                                     
|Item 4 -                                                                                             |  | Controls and Procedures                                                              |  | Page 21
|                                                                                                    
|PART II - OTHER INFORMATION                                                                         
|                                                                                                     |  |                                                                                     
|Item 1 -                                                                                             |  | Legal Proceedings                                                                    |  | Page 21
|                                                                                                     |  |                                                                                     
|Item 6 -                                                                                             |  | Exhibits                                                                             |  | Page 21
|                                                                                                     | 
|Signatures                                                                                           |  | Page 22                                                                             



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PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

VIRGINIA SAVINGS BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

Unaudited



|                                                                                                                             |  |                |             |                   |   |            
|---------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | ----------------- | - | -----------
|                                                                                                                             |  | March 31, 2008 |             | December 31, 2007
|Assets                                                                                                                       |  |                |             |                   |   |            
|Cash and due from banks                                                                                                      |  | $              | 3,446,998   |                   | $ | 4,096,011  
|Interest bearing deposits                                                                                                    |  |                | 4,005,215   |                   |   | 681,411    
|Federal funds sold                                                                                                           |  |                | 282,000     |                   |   | 263,000    
|                                                                                                                             |  |                |             |                   |   |            
|Total cash and cash equivalents                                                                                              |  |                | 7,734,213   |                   |   | 5,040,422  
|                                                                                                                             |  |               
|Investment securities held to maturity                                                                                       |  |                | 21,009,999  |                   |   | 34,009,811 
|Loans held for sale                                                                                                          |  |                | 531,666     |                   |   | 532,927    
|Loans receivable, net of loan loss allowances of $748,000 and $702,200 at March 31, 2008 and December 31, 2007,
respectively |  |                | 111,324,660 |                   |   | 111,481,387
|Premises and equipment, net                                                                                                  |  |                | 5,181,824   |                   |   | 4,714,399  
|Federal Home Loan Bank of Atlanta Stock, at cost                                                                             |  |                | 511,300     |                   |   | 917,300    
|Investment in title company                                                                                                  |  |                | 158,039     |                   |   | 158,039    
|Accrued interest receivable                                                                                                  |  |                | 691,156     |                   |   | 930,792    
|Mortgage servicing rights                                                                                                    |  |                | 232,710     |                   |   | 241,003    
|Foreclosed real estate                                                                                                       |  |                | 641,541     |                   |   | 653,941    
|Other assets                                                                                                                 |  |                | 181,899     |                   |   | 175,874    
|                                                                                                                             |  |                |             |                   |   |            
|Total Assets                                                                                                                 |  | $              | 148,199,007 |                   | $ | 158,855,895
|                                                                                                                             |  |                |             |                   |   |            
|Liabilities and Stockholders Equity                                                                                         |  |                |             |                   |   |            
|Liabilities                                                                                                                  |  |                |             |                   |   |            
|Deposits                                                                                                                     |  | $              | 129,571,745 |                   | $ | 133,230,122
|Advances from Federal Home Loan Bank of Atlanta                                                                              |  |                | 5,000,000   |                   |   | 11,800,000 
|Advances from borrowers for taxes and insurance                                                                              |  |                | 85,911      |                   |   | 30,646     
|Other liabilities                                                                                                            |  |                | 257,389     |                   |   | 467,868    
|                                                                                                                             |  |                |             |                   |   |            
|Total Liabilities                                                                                                            |  |                | 134,915,045 |                   |   | 145,528,636
|                                                                                                                             |  |                |             |                   |   |            
|Stockholders Equity                                                                                                         |  |                |             |                   |   |            
|Preferred stock, $10.00 par (500,000 shares authorized and 100,000 shares issued and outstanding)                            |  |                | 1,000,000   |                   |   | 1,000,000  
|Common stock, $1.00 par (5,000,000 shares authorized and 1,899,984 shares issued and outstanding)                            |  |                | 1,899,984   |                   |   | 1,899,984  
|Additional paid-in capital                                                                                                   |  |                | 1,266,014   |                   |   | 1,266,014  
|Retained earnings                                                                                                            |  |                | 9,117,964   |                   |   | 9,161,261  
|                                                                                                                             |  |                |             |                   |   |            
|Total stockholders equity                                                                                                   |  |                | 13,283,962  |                   |   | 13,327,259 
|                                                                                                                             |  |                |             |                   |   |            
|Total Liabilities and Stockholders Equity                                                                                   |  | $              | 148,199,007 |                   | $ | 158,855,895
|                                                                                                                             |  |                |             |                   |   |            

The accompanying notes are an integral part of these financial statements.





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VIRGINIA SAVINGS BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited



|                                                    |  |                              |           |   |      |   |           |  
|--------------------------------------------------- |  | ---------------------------- | --------- | - | ---- | - | --------- | -
|                                                    |  | Three Months Ended March 31, |          
|                                                    |  | 2008                         |           |   | 2007 |  
|Interest Income                                     |  |                              |           |   |      |   |           |  
|Interest and fees on loans                          |  | $                            | 1,886,109 |   |      | $ | 2,403,128 |  
|Interest and dividends on investments               |  |                              | 265,275   |   |      |   | 310,696   |  
|Other interest income                               |  |                              | 22,451    |   |      |   | 36,131    |  
|                                                    |  |                              |           |   |      |   |           |  
|Total Interest Income                               |  |                              | 2,173,835 |   |      |   | 2,749,955 |  
|                                                    |  |                              |           |   |      |   |           |  
|Interest Expense                                    |  |                              |           |   |      |   |           |  
|Interest on deposits                                |  |                              | 1,053,970 |   |      |   | 999,607   |  
|Interest on short-term borrowings                   |  |                              | 115,798   |   |      |   | 312,369   |  
|                                                    |  |                              |           |   |      |   |           |  
|Total Interest Expense                              |  |                              | 1,169,768 |   |      |   | 1,311,976 |  
|                                                    |  |                              |           |   |      |   |           |  
|Net interest income                                 |  |                              | 1,004,067 |   |      |   | 1,437,979 |  
|Provision (decrease in provision) for loan losses   |  |                              | 75,216    |   |      |   | (6,027    | )
|                                                    |  |                              |           |   |      |   |           |  
|Net interest income after loan loss provision       |  |                              | 928,851   |   |      |   | 1,444,006 |  
|                                                    |  |                              |           |   |      |   |           |  
|Other Income                                        |  |                              |           |   |      |   |           |  
|Other loan fees and late charges                    |  |                              | 58,528    |   |      |   | 69,181    |  
|Income from mortgage banking activities             |  |                              | 32,657    |   |      |   | 56,534    |  
|Fees from transaction accounts                      |  |                              | 277,715   |   |      |   | 142,622   |  
|All other income                                    |  |                              | 4,178     |   |      |   | 390       |  
|                                                    |  |                              |           |   |      |   |           |  
|Total Other Income                                  |  |                              | 373,078   |   |      |   | 268,727   |  
|                                                    |  |                              |           |   |      |   |           |  
|Non-Interest Expenses                               |  |                              |           |   |      |   |           |  
|Salaries and employee benefits                      |  |                              | 704,993   |   |      |   | 669,629   |  
|Director compensation                               |  |                              | 63,229    |   |      |   | 60,361    |  
|Occupancy, furniture and equipment expenses         |  |                              | 85,855    |   |      |   | 86,865    |  
|Professional fees                                   |  |                              | 67,522    |   |      |   | 45,473    |  
|Data processing expenses                            |  |                              | 219,792   |   |      |   | 208,070   |  
|Marketing expenses                                  |  |                              | 50,025    |   |      |   | 49,500    |  
|Provision for losses on foreclosed real estate      |  |                              | 12,400    |   |      |   |          |  
|Other expenses                                      |  |                              | 149,060   |   |      |   | 147,517   |  
|                                                    |  |                              |           |   |      |   |           |  
|Total Non-Interest Expenses                         |  |                              | 1,352,876 |   |      |   | 1,267,415 |  
|                                                    |  |                              |           |   |      |   |           |  
|(Loss) income before income tax (benefit) provision |  |                              | (50,947   | ) |      |   | 445,318   |  
|Income tax (benefit) provision                      |  |                              | (26,400   | ) |      |   | 149,500   |  
|                                                    |  |                              |           |   |      |   |           |  
|Net (loss) income                                   |  | $                            | (24,547   | ) |      | $ | 295,818   |  
|                                                    |  |                              |           |   |      |   |           |  
|Basic and diluted (loss) earnings per share         |  | $                            | (0.01     | ) |      | $ | 0.15      |  
|Dividends declared per common share                 |  | $                            |          |   |      | $ | 0.09      |  
|                                                    |  |                              |           |   |      |   |           |  

The accompanying notes are an integral part of these financial statements.





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VIRGINIA SAVINGS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited



|                                                                                         |  |                              |             |   |      |   |            |  
|---------------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ---- | - | ---------- | -
|                                                                                         |  | Three Months Ended March 31, |            
|                                                                                         |  | 2008                         |             |   | 2007 |  
|Cash Flows From Operating Activities:                                                    |  |                              |             |   |      |   |            |  
|Net (loss) Income                                                                        |  | $                            | (24,547     | ) |      | $ | 295,818    |  
|Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |                              |             |   |      |   |            |  
|Provision (reduction in provision) for loan losses                                       |  |                              | 75,216      |   |      |   | (6,027     | )
|Provision for losses on foreclosed real estate                                           |  |                              | 12,400      |   |      |   |           |  
|Loans originated for sale                                                                |  |                              |            |   |      |   | (788,300   | )
|Proceeds from loans sold                                                                 |  |                              |            |   |      |   | 1,403,637  |  
|Gains on sale of mortgage loans                                                          |  |                              |            |   |      |   | (25,346    | )
|Depreciation expense                                                                     |  |                              | 51,163      |   |      |   | 48,717     |  
|Amortization of mortgage servicing rights                                                |  |                              | 8,293       |   |      |   | 11,576     |  
|Decrease in interest receivable                                                          |  |                              | 239,636     |   |      |   | 187,329    |  
|(Decrease) increase in current and deferred income taxes                                 |  |                              | (47,300     | ) |      |   | 137,600    |  
|(Decrease) increase in other assets and liabilities, net                                 |  |                              | (78,453     | ) |      |   | 27,035     |  
|                                                                                         |  |                              |             |   |      |   |            |  
|Net cash provided by operating activities                                                |  |                              | 236,408     |   |      |   | 1,292,039  |  
|                                                                                         |  |                             
|Cash Flows from Investing Activities:                                                    |  |                              |             |   |      |   |            |  
|Net redemption of Federal Home Loan Bank Stock                                           |  |                              | 406,000     |   |      |   | 184,700    |  
|Maturity or call of investment securities                                                |  |                              | 13,000,000  |   |      |   |           |  
|Net decrease in loans receivable                                                         |  |                              | 47,098      |   |      |   | 3,282,498  |  
|Investment in title company                                                              |  |                              |            |   |      |   | (158,039   | )
|Purchase of premises and equipment                                                       |  |                              | (518,588    | ) |      |   | (113,371   | )
|                                                                                         |  |                              |             |   |      |   |            |  
|Net cash provided by investing activities                                                |  |                              | 12,934,510  |   |      |   | 3,195,788  |  
|                                                                                         |  |                             
|Cash Flows from Financing Activities:                                                    |  |                              |             |   |      |   |            |  
|Net decrease in deposits                                                                 |  |                              | (3,658,377  | ) |      |   | (695,662   | )
|Decrease in Advances From Federal Home Loan Bank                                         |  |                              | (6,800,000  | ) |      |   | (4,000,000 | )
|Dividends declared                                                                       |  |                              | (18,750     | ) |      |   | (196,876   | )
|                                                                                         |  |                              |             |   |      |   |            |  
|Net cash used in financing activities                                                    |  |                              | (10,477,127 | ) |      |   | (4,892,538 | )
|                                                                                         |  |                              |             |   |      |   |            |  
|Net increase (decrease) in cash and cash equivalents                                     |  |                              | 2,693,791   |   |      |   | (404,711   | )
|Cash and cash equivalents at beginning of period                                         |  |                              | 5,040,422   |   |      |   | 7,067,472  |  
|                                                                                         |  |                              |             |   |      |   |            |  
|Cash and cash equivalents at end of period                                               |  | $                            | 7,734,213   |   |      | $ | 6,662,761  |  
|                                                                                         |  |                              |             |   |      |   |            |  
|Supplemental Disclosures of Cash Flow Information:                                       |  |                              |             |   |      |   |            |  
|Cash paid during the period for:                                                         |  |                              |             |   |      |   |            |  
|Interest                                                                                 |  | $                            | 1,196,928   |   |      | $ | 1,329,032  |  
|Income taxes                                                                             |  | $                            | 22,100      |   |      | $ |           |  

The accompanying notes are an integral part of these financial statements.





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VIRGINIA SAVINGS BANCORP, INC.

NOTES TO FINANCIAL STATEMENTS

Note 1  Basis of Presentation

The accompanying
unaudited condensed consolidated financial statements of Virginia Savings Bancorp, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), for
interim financial information and in accordance with the instructions to Form 10-Q and Item 310 of Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.

In preparing the consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for any other interim period
or the entire year ending December 31, 2008. The unaudited consolidated financial statements and related notes thereto presented herein should be read in conjunction with the audited consolidated financial statements and footnotes included in
the Companys annual report on Form 10-KSB for the year ended December 31, 2007.

Note 2  Capital and Earnings Per Share

Basic net (loss) income per share was computed on the weighted average number of shares outstanding. Diluted earnings per share are computed on a weighted
average basis under the if converted method assuming conversion as of January 1, 2008 and 2007. Potential converted shares represent the conversion of the 100,000 shares of convertible preferred stock of the wholly owned subsidiary
of the Company, Virginia Savings Bank, F.S.B. (the Bank), that is convertible in the ratio of two shares of common stock to three shares of preferred stock. There was no dilutive impact as the Company reported a loss for the quarter
ended March 31, 2008 and the assumed conversion was anti-dilutive for the three months ended March 31, 2007. With the exception of preferred stock dividends, there were no adjustments to net (loss) income in the computation of diluted
earnings per share for any of the periods presented. The following table shows the computation of basic and diluted (loss) earnings per share for the three months ended March 31, 2008 and 2007.



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|                                            |  |                              |           |   |      |   |           |  
|------------------------------------------- |  | ---------------------------- | --------- | - | ---- | - | --------- | -
|                                            |  | Three Months Ended March 31, |          
|                                            |  | 2008                         |           |   | 2007 |  
|Net (loss) Income                           |  | $                            | (24,547   | ) |      | $ | 295,818   |  
|Preferred Stock Dividends                   |  |                              | *         |   |      |   | (18,750   | )
|                                            |  |                              |           |   |      |   |           |  
|Net (loss) Income Available to Common Stock |  | $                            | (24,547   | ) |      | $ | 277,068   |  
|                                            |  |                             
|Weighted average shares outstanding         |  |                              | 1,899,984 |   |      |   | 1,899,984 |  
|Basic and Diluted(Loss) Earnings Per Share  |  | $                            | (0.01     | ) |      | $ | 0.15      |  
|                                            |  |                              |           |   |      |   |           |  



|* | Not applicable to the computation due to the loss incurred.
|- | -----------------------------------------------------------

Note 3
 Guarantees

The Bank issues stand-by letters of credit that are unconditional commitments guaranteeing performance by a customer to a third
party. These guarantees are issued primarily to support private borrowing arrangements, generally limited to real estate transactions. The credit risk involved in issuing these guarantees is essentially the same as that involved in extending loans
to customers. At March 31, 2008 and December 31, 2007, the Bank had approximately $242,900 and $268,900, respectively, of stand-by letters of credit outstanding with current expiration dates through September 10, 2009.

The Bank also issues standard representations, warranties and indemnifications in the course of selling mortgage loans. The Bank has not been required to act on such
guarantees in the past and does not believe that any payments pursuant to them would materially change the financial condition or results of operations as presented herein.

Note 4  Fair Value of Financial Instruments

In September 2006, the Financial Accounting Standards
Board, (FASB), issued Statement of Financial Accounting Standard, (SFAS), No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP, and
expands disclosures about fair value measurements. FASB Statement No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and for interim periods within those fiscal years.

The primary effect upon the Company following adoption of SFAS
157 was to expand the required disclosures regarding the methods used to determine fair values. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are
as follows:



|         |  |                                                                                                                                          
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Level 1: |  | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.



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|         |  |                                                                                                                                                                                
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | 
|Level 2: |  | Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.          
|         | 
|Level 3: |  | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market
activity).

An asset or liabilitys level within the fair value hierarchy is based on the lowest level of input that is
significant to the fair value measurement.

For assets that the Company measures at fair value on a recurring basis, the fair value measurements by level
within the fair value hierarchy used at March 31, 2008 are as follows:



|                          |  |                |           |          |   |           |  |            |         |  |   |          
|------------------------- |  | -------------- | --------- | -------- | - | --------- |  | ---------- | ------- |  | - | ---------
|                          |  | March 31, 2008 |           | Level 1* |   | Level 2** |  | Level 3***
|Loans held for sale       |  | $              | 531,666   |          | $ |          |  | $          | 531,666 |  | $ |         
|Impaired loans            |  |                | 5,053,497 |          |   |           |  |            |         |  |   | 5,053,497
|Foreclosed real estate    |  |                | 641,541   |          |   |           |  |            |         |  |   | 641,541  
|Mortgage servicing rights |  |                | 232,710   |          |   |          |  |            |        |  |   | 232,710  
|                          |  |                |           |          |   |           |  |            |         |  |   |          
|Total                     |  | $              | 6,459,414 |          | $ |          |  | $          | 531,666 |  | $ | 5,927,748



|* | Quoted prices in active markets for identical assets
|- | ----------------------------------------------------

|** | Significant other observable inputs
|-- | -----------------------------------

|*** | Significant unobservable inputs
|--- | -------------------------------

The following valuation techniques were
used to measure the fair value of assets in the table above.

Loans held for sale  Fair values on fixed rate loans held for sale were based on
a market approach. Fixed rate loans are not quoted on an exchange, but are traded in active markets that have prices obtained from a market participant, the Federal Home Loan Mortgage Corporation (FHLMC), to which the Company has sold
similar loans for a number of years. As of March 31, 2008, all fair values on held for sale fixed rate loans were obtained from this source and were based on actual market quotations for similar loans with the same maturity and interest rate.

Loans Loans included in the above table are those which were accounted for under SFAS 114, Accounting by Creditors for Impairment of a
Loan, under which the Company has measured impairment generally based on the fair value of the loans collateral. Fair value is determined based upon independent third party appraisals of the properties, or discounted cash flows based upon
the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances less their valuation allowances as
determined under SFAS 114.



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Foreclosed real estate  Fair values of foreclosed real estate were based on independent third party
appraisals of the properties or discounted cash flows based upon the expected sales proceeds upon disposition of the assets. These values were generally determined based on the sales prices of similar properties in the proximate vicinity. These
assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Mortgage servicing
rights The Company accounts for mortgage servicing rights at the lower of their carrying amount or fair value and has measured the fair value of the mortgage servicing rights based upon the discounted cash flows of the assets future
income streams. The Company obtains published data from the FHLMC for similar conventional mortgage loans that match critical data elements used in the determination of fair values of the loans serviced. These assets are included as Level 3 fair
values, based upon the lowest level of input that is significant to the fair value measurements.

Impaired loans decreased approximately $77,100 in the
quarter ended March 31, 2008. Two loans totaling approximately $111,000 in an impaired status at December 31, 2007 were paid in full and another loan with a principal balance of $207,000 was declassified from impairment because it was paid
current by its guarantor. One new loan with a principal balance of $241,000 was added to impaired loans during the quarter.

As a result of fair value
measurements performed as of March 31, 2008, $46,500 of specific loan loss provisions on impaired loans was added to loan loss allowances on real estate loans and an increase of $12,400 was added to the valuation allowance on a foreclosed real
estate property through a charge against income. There was no significant activity impacting the fair value of loans held for sale and mortgage servicing rights during the quarter ended March 31, 2008.

Item 2 - Managements Discussion and Analysis of Financial Conditions and Results of Operations

Forward-Looking Statements

This quarterly report of the Company contains forward-looking statements within the meaning of the
Securities Exchange Act of 1934. The words will, believe, expect, should, and anticipate and words of similar construction are intended in part to help identify forward-looking statements.
All forward-looking statements involve risks and uncertainty and certain factors could cause actual results to differ materially from the anticipated results or other expectations expressed in forward-looking statements. Risks and uncertainties that
may affect future results include, but are not limited to, changes in the economy, interest rate movements,



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timely developments of technology resources for customer services and operating systems, the impact of competitive services and pricing, Congressional
legislation and similar matters. Management cautions readers not to place undue reliance on forward-looking statements, which are subject to influence by the foregoing risk factors and unanticipated future events.

Critical Accounting Policies

The
Companys accounting policies are in accordance with accounting principles generally accepted in the United States and conform to practices generally followed in the banking industry. Certain of these policies involve a significant amount of
judgment and estimates based on assumptions for which the actual results are uncertain. Different assumptions in the preparation of these estimates could result in material changes in the Companys financial position and results of operations.
Our judgments and estimates are based upon historical experience and other factors management believes to be reasonable within the context of the circumstances in which they are applied.

There are four areas of accounting policy and practice that are particularly sensitive to managements judgment and in which significant estimates are used. These are allowances for losses on loans, allowances
for losses on foreclosed real estate, allowances for losses on mortgage servicing rights, and other than temporary impairment of investment securities. Other accounting policies also involve the use of judgment and significant estimates but the
impact of these processes are not material to the Companys financial condition or results of operations.

The Financial Accounting Standards Board
(FASB) Statement Number 114, Accounting by Creditors for Impairment of a Loan (FASB 114), provides guidelines for the valuation of impaired loans. More extensive guidelines have been published by bank
regulatory bodies. The latter provide for the classification of problem loans as sub-standard, doubtful and loss. There is also a regulatory special mention category for performing loans that are the subject of heightened management concern as
potential problem loans.

It is the Banks general policy to place loans in a non-accrual status when they become 90 days delinquent. Loans may,
however, be placed in a non-accrual status regardless of their term of delinquency if the borrower exhibits signs of financial distress or if the collateral property decreases in value below the loan balance. Generally, if a borrower has multiple
loans, all of his loans will be placed in a non-accrual status if there are indications that the borrower is having serious financial difficulties. Once loans other than low balance consumer loans are placed in a non-accrual status, they will be
evaluated for individual impairment. At March 31, 2008, the Bank had 23 loans in a non-accrual status with regard to interest income. Of these 23 loans, 22 were evaluated for individual impairment. The remaining loan is a small balance consumer
loan.

The 22 loans evaluated for individual impairment were to five borrowers. These evaluations resulted in additions to specific loan loss allowances
totaling $46,500 on three loans to two



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borrowers. No loss allowances were required on the remaining loans for various reasons including pending sales of collateral properties and an abundance of
collateral values that exceeded loan balances.

Under FASB Statement Number 5, Accounting for Contingencies (FASB 5), loan
loss allowances on large groups of homogeneous loans are provided based upon the Banks historical loss experience for similar types of loans. As part of its loan loss analysis under FASB 5, management also considers concentrations of credit
and current economic conditions as they may impact borrowers ability to meet their financial obligations.

Management identified four classifications
of loans that represent high concentrations of credit. Each of these credit concentration areas fall in a range of 100% to 200% of shareholders equity. These loan products are home equity lines of credit, balloon loans, non-residential real
estate loans and builder construction loans. Of particular concern to management and the board of directors is the concentration of loans to builders for the speculative construction of homes, which at March 31, 2008 approximated $11.7 million.
Home equity lines of credit and balloon lines are collateralized by residential one-to-four family properties, and had balances of approximately $12.7 million and $30.3 million, respectively, at March 31, 2008. Non-residential real estate loans
approximated $22.0 million at March 31, 2008.

Builder construction loans are of concern because of the softness in the Banks market area for
homes priced above $200,000. That softness is evident in the inventory of unsold homes as compared to a year earlier and price deflation that continues to worsen. Management is closely monitoring this situation and reviews the status of each builder
construction loan with the board of directors on a monthly basis.

As mentioned above, management also has increasing concern over credit concentrations in
balloon loans and home equity lines of credit (HELOC). Half of the twenty-two loans evaluated for individual impairment at March 31, 2008 were balloon loans. Managements evaluation of problem loans as of March 31, 2008
did not indicate any significant deterioration in non-performing loans during the current quarter, therefore no changes were made in the percentage loss allowances used for the various loan groupings at December 31, 2007.

Management believes that as of March 31, 2008 the loan loss allowances provided are adequate to absorb the losses inherent in the Banks loan portfolio. We,
however, caution that continued deterioration of real estate values and general economic conditions may result in the need for further additions to loan loss allowances if collateral values fall below loan balances on non-performing loans, and home
builders and other large borrowers who depend upon sales of real estate properties for repayment of their loans do not realize sufficient cash flows to repay their loans in full when they become due.

While management segments the loan portfolio into several categories for purposes of evaluating the adequacy of loan loss allowances and makes tentative allocations of
reserves to specific loan products, all general loss reserves are available to absorb losses from any sector of the loan portfolio.



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The Bank evaluates the fair value of foreclosed real estate. Such evaluations are based upon observable market values of
comparable properties obtained through appraisals when available. In the absence of adequate appraisal values, the properties are valued using the discounted present value of the anticipated future cash flows. In addition to the appraisal values,
the Bank considers costs which may be necessary to make the property salable, and selling costs to dispose of the property. The net realizable value derived through this process is measured against the recorded book value of the foreclosed real
estate. The Bank establishes an initial allowance for loss for any excess of book value over the fair value of the property through a charge against the allowance for loan losses. Foreclosed real estate properties are evaluated for impairment not
less frequently than quarterly after the initial evaluation is performed at the time of acquisition. Any increase or decrease to the allowance for losses on foreclosed real estate made after the initial valuation is recorded as a charge or credit to
income.

At March 31, 2008, the Bank had three properties that were acquired through foreclosure in prior accounting periods. These properties were
evaluated for impairment as of March 31, 2008 and one of the properties required an additional write down of $12,400.

FASB Statement Number 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, requires that mortgage servicing rights be evaluated for impairment on a periodic basis. It has been the Banks policy to make such
evaluations on a quarterly basis prior to the publication of public and regulatory financial reports. Impairment evaluation of mortgage servicing rights is a complex process involving several key assumptions. Among the factors considered are: the
original contract term of the underlying mortgages, the contractual interest rates, the remaining term of the mortgages, current interest rates and managements original and current assumptions as to the anticipated life of the mortgages.

The anticipated life of the mortgages is greatly impacted by pre-payment speed which is the most critical assumption made by management both in the
original recording of the mortgage servicing rights and in subsequent impairment evaluations. The longer the mortgage life, the higher the value of the mortgage servicing rights will be because the servicing rights will continue to generate income
into the future in the form of loan servicing fees. The Bank obtains published pre-payment speeds for similar conventional mortgage loans that match the Banks contract interest rates, year originated, and the original terms of the loans
serviced. Such data was used by management in its March 31, 2008 measurement of impairment of its mortgage servicing rights. At that date, the Banks mortgage servicing rights were not impaired and no valuation allowance was recorded on
the Banks books.

The Bank reviews its investment securities portfolio on a quarterly basis to identify and evaluate investments that have
indications of possible other than temporary impairment. Such securities are written down to their net realizable value when there is impairment in value that



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is other than temporary. The determination of whether or not other than temporary impairment exists is a matter of judgment. At March 31, 2008, the
Companys investment portfolio had a market value approximately $32,000 in excess of book value. No individual securities had significant unrealized losses. Factors considered in determining whether a loss is temporary include the length of
time and the extent to which fair value has been less than the cost basis, the financial condition and credit quality of the security issuer, and the Banks ability to hold the investment securities for a period of time sufficient to allow for
any anticipated recovery in market value.

Financial Condition

At March 31, 2008, the total assets of the Company were $148.2 million, a decrease of $10.7 million since December 31, 2007. During the first quarter of 2008, loans receivable remained essentially unchanged
from the December 31, 2007 yearend balance. The Banks loan disbursements to customers were $8.8 million during the first quarter of 2008 compared to $11.7 million in the same period in 2007. Loan principal repayments were $8.9 million for
the three months year-to-date (YTD) in 2008 versus $14.2 million during the three months YTD in 2007. The foregoing loan disbursement and loan principal repayment amounts include activity in the Banks revolving lines of credit.

Investment securities decreased $13.0 million in the quarter just ended. Recent reductions in short-term interest rates by the Federal Reserve caused
interest rates on bonds to decrease. This made it attractive to the issuing agencies to call the bonds at their eligible call dates.

Deposits decreased
$3.7 million during the three months YTD in 2008. Core deposit accounts, primarily checking and passbook savings accounts, increased $1.2 million since the beginning of the year. Certificate of deposit accounts decreased $4.9 million during the same
time period. At March 31, 2008, advances from the Federal Home Loan Bank of Atlanta (FHLB) were $5.0 million, a decrease of $6.8 million since December 31, 2007. Proceeds from called investment securities were used to repay
FHLB advances.

Asset Quality

Asset quality refers to the underlying credit characteristics of borrowers and the likelihood that defaults on contractual loan payments will result in charge-offs of loan balances. Asset quality is generally a function of economic
conditions, but can be managed through conservative underwriting and sound collection policies and procedures. At March 31, 2008, the Bank had problem assets of approximately $8.6 million or 5.8% of total assets, that were classified
sub-standard. At December 31, 2007, similarly classified assets were $7.9 million and equaled 5.0% of assets. Non-accrual loans, for which only cash income is recognized, were $5.1 million at March 31, 2008 and at December 31, 2007.
See Critical Accounting Policies for a discussion of the Banks policy and procedure for developing loan loss allowances.



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Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

The Company experienced a $24,500 loss for the quarter ended March 31, 2008, a decrease of $320,300 from the $295,800 of net income for the first
quarter of 2007. Net interest income decreased $433,900, a 30.2% decrease from the same period last year. Other income increased $104,400, an increase of 38.8%. Non-interest expense increased $85,500, or 6.7%, and pre-tax income decreased by
$496,300.

Net interest margin, the difference between interest income and interest expense, is the primary source of operating revenues for the Company.
Table 1 below presents, for the quarters ended March 31, 2008 and 2007, the average balances, related interest income and expense amounts, and average yields and costs which influence the Banks net interest margin. Table 2 reflects the
changes in interest income and interest expense between the periods which resulted from changes in average volumes and average rates.



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|                      |  |        
|--------------------- |  | -------
|Average Balance Sheet |  | Table 1
|Dollars in thousands  |  |        



|                                   |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|---------------------------------- |  | ------------------------------------ | ------- | -------------- | ---- | ---------- |  | ---- | ------------- |  | -------------- | ------- | ---------- | - | ----- |  | ---- | -
|                                   |  | For The Three Months Ended March 31, |        
|                                   |  | 2008                                 |         |                | 2007 |           
|                                   |  | AverageVolume                        |         | Income/Expense |      | Yield/Rate |  |      | AverageVolume |  | Income/Expense |         | Yield/Rate |  
|Assets                             |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Interest Earning Assets            |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Loans receivable (1)               |  | $                                    | 112,371 |                | $    | 1,886      |  | 6.71 | %             |  | $              | 127,362 |            | $ | 2,403 |  | 7.55 | %
|Investment securities (2)          |  |                                      | 30,196  |                |      | 253        |  | 3.35 | %             |  |                | 34,010  |            |   | 290   |  | 3.41 | %
|FHLB Stock                         |  |                                      | 799     |                |      | 12         |  | 6.01 | %             |  |                | 1,420   |            |   | 21    |  | 5.92 | %
|Other interest earning assets (3)  |  |                                      | 1,628   |                |      | 23         |  | 5.65 | %             |  |                | 1,868   |            |   | 36    |  | 7.71 | %
|                                   |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Total Interest Earning Assets      |  |                                      | 144,994 |                |      | 2,174      |  | 6.00 | %             |  |                | 164,660 |            |   | 2,750 |  | 6.68 | %
|                                   |  |                                      |         |                |      |           
|Other Assets                       |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Cash and due from banks            |  |                                      | 3,970   |                |      |            |  |      |               |  |                | 4,536   |            |   |       |  |      |  
|Premises and equipment, net        |  |                                      | 4,876   |                |      |            |  |      |               |  |                | 3,524   |            |   |       |  |      |  
|Accrued interest receivable        |  |                                      | 754     |                |      |            |  |      |               |  |                | 928     |            |   |       |  |      |  
|Mortgage servicing rights          |  |                                      | 238     |                |      |            |  |      |               |  |                | 280     |            |   |       |  |      |  
|Other assets                       |  |                                      | 971     |                |      |            |  |      |               |  |                | 584     |            |   |       |  |      |  
|                                   |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Total Other Assets                 |  |                                      | 10,809  |                |      |            |  |      |               |  |                | 9,852   |            |   |       |  |      |  
|                                   |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Total Assets                       |  | $                                    | 155,803 |                |      |            |  |      |               |  | $              | 174,512 |            |   |       |  |      |  
|                                   |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Interest-Bearing Liabilities       |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Checking accounts                  |  | $                                    | 19,748  |                | $    | 29         |  | 0.59 | %             |  | $              | 20,350  |            | $ | 9     |  | 0.18 | %
|Money market accounts              |  |                                      | 2,072   |                |      | 4          |  | 0.77 | %             |  |                | 3,035   |            |   | 5     |  | 0.66 | %
|Passbook savings                   |  |                                      | 17,687  |                |      | 64         |  | 1.45 | %             |  |                | 18,724  |            |   | 51    |  | 1.09 | %
|Certificates of deposit            |  |                                      | 85,371  |                |      | 957        |  | 4.48 | %             |  |                | 84,530  |            |   | 935   |  | 4.42 | %
|Short-term borrowings              |  |                                      | 10,130  |                |      | 116        |  | 4.58 | %             |  |                | 23,069  |            |   | 312   |  | 5.41 | %
|                                   |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Total Interest-Bearing Liabilities |  |                                      | 135,008 |                |      | 1,170      |  | 3.47 | %             |  |                | 149,708 |            |   | 1,312 |  | 3.51 | %
|                                   |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Non-interest bearing deposits      |  |                                      | 6,656   |                |      |            |  |      |               |  |                | 9,853   |            |   |       |  |      |  
|Other Liabilities                  |  |                                      | 836     |                |      |            |  |      |               |  |                | 976     |            |   |       |  |      |  
|Stockholders equity (4)           |  |                                      | 13,303  |                |      |            |  |      |               |  |                | 13,975  |            |   |       |  |      |  
|                                   |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Total Liabilities and Equity       |  | $                                    | 155,803 |                |      |            |  |      |               |  | $              | 174,512 |            |   |       |  |      |  
|                                   |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  
|Net Interest Income/Margin         |  |                                      |         |                | $    | 1,004      |  | 2.52 | %             |  |                |         |            | $ | 1,438 |  | 3.17 | %
|                                   |  |                                      |         |                |      |            |  |      |               |  |                |         |            |   |       |  |      |  



|(1) | Includes loans held for sale and non-accrual loans.
|--- | ---------------------------------------------------

|(2) | Includes mortgage backed securities.
|--- | ------------------------------------

|(3) | The yield on other interest earning assets is computed using average daily general ledger balances. Due to the Banks issuance of large dollar amounts of cashier checks in 2007
and 2008, this balance is significantly less than the interest earning balances at our correspondent bank because of float.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Average balances are based on average daily balances except for stockholders equity which is computed on month end balances.
|--- | -----------------------------------------------------------------------------------------------------------------------------



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|                                          |  |                                           |         |   |      |   |      |          |  |   |       |   |  |   |      |  
|----------------------------------------- |  | ----------------------------------------- | ------- | - | ---- | - | ---- | -------- |  | - | ----- | - |  | - | ---- | -
|Analysis of Change in Net Interest Income |  |                                           | Table 2 |  
|Dollars in thousands                      |  |                                           |         |  
|                                          | 
|                                          |  | Three Months Ended March 31, 2008 vs 2007 |        
|                                          |  | Increase (Decrease) Due to                |        
|                                          |  | Volume                                    |         |   | Rate |   |      | Vol/Rate |  |   | Total |  
|Interest Income on:                       |  |                                           |         |   |      |   |      |          |  |   |       |   |  |   |      |  
|Loans Receivable (1)                      |  | $                                         | (283    | ) |      | $ | (265 | )        |  | $ | 31    |   |  | $ | (517 | )
|                                          |  |                                           |         |  
|Investment Securities                     |  |                                           | (33     | ) |      |   | (5   | )        |  |   | 1     |   |  |   | (37  | )
|FHLB Stock                                |  |                                           | (9      | ) |      |   |     |          |  |   |      |   |  |   | (9   | )
|                                          |  |                                           |         |   |      |   |      |          |  |   |       |   |  |   |      |  
|Interest & Dividends on Investments       |  |                                           | (42     | ) |      |   | (5   | )        |  |   | 1     |   |  |   | (46  | )
|Other Interest Earning Investments        |  |                                           | (4      | ) |      |   | (10  | )        |  |   | 1     |   |  |   | (13  | )
|                                          |  |                                           |         |   |      |   |      |          |  |   |       |   |  |   |      |  
|Total Interest on Earning Assets          |  |                                           | (329    | ) |      |   | (280 | )        |  |   | 33    |   |  |   | (576 | )
|                                          |  |                                           |         |  
|Interest Expense on:                      |  |                                           |         |   |      |   |      |          |  |   |       |   |  |   |      |  
|Checking Accounts                         |  |                                           |        |   |      |   | 21   |          |  |   | (1    | ) |  |   | 20   |  
|Money Market                              |  |                                           | (1      | ) |      |   |     |          |  |   |      |   |  |   | (1   | )
|Passbook                                  |  |                                           | (3      | ) |      |   | 17   |          |  |   | (1    | ) |  |   | 13   |  
|Certificates of Deposit                   |  |                                           | 9       |   |      |   | 13   |          |  |   |      |   |  |   | 22   |  
|                                          |  |                                           |         |   |      |   |      |          |  |   |       |   |  |   |      |  
|Interest on Deposits                      |  |                                           | 5       |   |      |   | 51   |          |  |   | (2    | ) |  |   | 54   |  
|                                          |  |                                           |         |  
|Short-term Borrowings                     |  |                                           | (175    | ) |      |   | (48  | )        |  |   | 27    |   |  |   | (196 | )
|                                          |  |                                           |         |   |      |   |      |          |  |   |       |   |  |   |      |  
|Total Interest on Liabilities             |  |                                           | (170    | ) |      |   | 3    |          |  |   | 25    |   |  |   | (142 | )
|                                          |  |                                           |         |   |      |   |      |          |  |   |       |   |  |   |      |  
|Net Interest Income                       |  | $                                         | (159    | ) |      | $ | (283 | )        |  | $ | 8     |   |  | $ | (434 | )
|                                          |  |                                           |         |   |      |   |      |          |  |   |       |   |  |   |      |  



|(1) | Includes loans held for sale.
|--- | -----------------------------

Net interest income decreased $434,000
from first quarter 2007 to the first quarter 2008. This is the net of a $576,000 decrease in interest income and a decrease of $142,000 in interest expense.

Interest on loans receivable decreased $517,000 in 2008 from 2007. Table 2 above indicates that the decrease in interest income from loans was due to a decrease in the average volume of loans outstanding and a decrease in income caused by
lower interest rates in the current period. The average balance of loans outstanding, as reported in Table 1, decreased by $15.0 million from 2007 to 2008, while the average yield on loans receivable decreased by 84 basis points. In 2008, loans
receivable had an average yield of 6.71%, which is down from 7.55% in 2007. The data in Table 2 indicates that the lower volume of loans outstanding in 2008 decreased interest income by $283,000, and that lower interest rates decreased income by
$265,000. The Bank had an average balance of $5.1 million of non-performing loans during the quarter just ended. The average contractual interest rate on these loans was 8.13%. The amount of non-accrual interest on these loans was $104,000 for the
quarter. The effect of this decrease in interest on loans receivable was a decrease in average yield of 37 basis points.



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Other sources of interest and dividend income decreased by a total amount of $59,000. Interest income on other investment
securities decreased by $37,000 in 2008 from 2007 due to a lower average balance outstanding in 2008 and a lower average interest rate. The remaining sources of dividend and interest income decreased $22,000. The Banks overall yield on
interest earning assets was 6.00% in 2008, an 68 basis point decrease from the 6.68% achieved in 2007.

Interest expense decreased $142,000. Interest on
deposits increased by a total of $54,000, of which $51,000 was due to higher interest rates. Interest on short-term borrowings decreased $196,000. The average balance of borrowings decreased $12.9 million and caused interest expense to decrease
$175,000. Lower interest rates in 2008 caused interest expense to decrease $48,000. Because of a lack of growth in loans receivable in 2008, the Bank used a portion of the proceeds from investment security calls to reduced its use of borrowings from
the FHLB.

The Banks overall cost of interest bearing liabilities was flat, with a decrease of only 4 basis points, in 2008 versus 2007.

The Bank made a $75,200 provision for loan losses in the first quarter of 2008 as compared to a $6,000 reduction in its provision for loan losses in first quarter
2007. The Bank accounts for the credit risk associated with its lending activities through its provision for loan losses. The provision is the expense recognized in the statement of operations to adjust the loan loss allowance to an appropriate
balance as determined by the Banks credit risk analysis procedures. See Critical Accounting Policies for a discussion of the Banks methodology for determining loan loss allowances.

The $75,200 provision for loan losses recorded in 2008 was required due to charge-offs of uncollectable loans for which specific loan loss allowances had not been
provided in prior periods, and due to increases to loan loss allowances for non-performing loans. Loans evaluated for individual impairment under FASB 114 resulted in specific loan loss provisions totaling $46,500 during the quarter. Increased
levels of general loan loss allowances under FASB 5 resulted in increased loan loss provisions of approximately $28,700.

Total other income increased
$104,400, or 38.8%, from the three months ended March 31, 2007 to 2008.

Loan fees and late charges decreased $10,700, or 15.4% from 2007. This
decrease was due to a $8,000 decrease in late charges on delinquent loans and a $4,500 decrease in credit card fees following the sale of the Banks credit card portfolio late in 2007.

Income from mortgage banking activities decreased $23,900, or 42.2%. The Bank had no sales of loans to its primary correspondent in 2008 compared to first quarter 2007
during which it recorded gains on such sales of $25,300.



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Fees from transaction accounts increased 94.7% or $135,100 due to a $121,700 increase in insufficient fund fees. The Bank
introduced an overdraft protection program for customers during the second quarter of 2007 which contributed to the increase in insufficient fund fees. ATM fees increased $7,100 from last year. All other transaction account fees increased a net
amount of $6,300 in the current period over 2007.

Non-interest expenses increased $85,500, or 6.7%, in the three months ended March 31, 2008 compared
to 2007.

Salaries and employee benefits increased $35,400 or 5.3%. Salaries and wages increased $32,900. The Banks matching contribution to its
employee 401-K plan increased by $5,400. All other salary and benefits costs decreased a net amount of $2,900.

Professional fees increased $22,000. Legal
fees increased $6,600. Audit and tax fees increased $9,700. The remaining professional fees increased $5,700.

Data processing expenses increased $11,700
due to higher costs for processing deposit accounts.

The Company recognized an income tax benefit of $26,400 in the first quarter of 2008 versus an income
tax expense of $149,500 in the first quarter of 2007, a difference of $175,900. The effective tax rate for the quarter ended March 31, 2008 was a negative 51.8% versus a positive 33.6% in the first quarter of 2007. Interest on U.S. Government
agency securities is exempt from state taxation. This exemption had a proportionately greater impact on the state income tax calculation in 2008 because of the decline from a pre-tax income status in 2007 to a pre-tax loss status in 2008.

Liquidity and Capital Resources

At
March 31, 2008, the Company had approximately $7.7 million of liquid assets in the form of cash and cash equivalent investments. The Company also had $21.0 million of investment securities in the form of U. S. agency bonds that are classified
as held to maturity. The Company has the intent and ability to hold these investment securities to maturity, but these bonds are indirectly providing liquidity by serving as collateral for the Banks borrowings from the FHLB. As of
March 31, 2008, the Company has pledged $19.0 million of these bonds as collateral for its borrowings. The remaining $2.0 million of bonds is pledged as collateral for public deposits of Virginia counties. The Bank has approximately $33 million
of pre-approved credit from the FHLB with funding available on a same day basis. The Bank had $5.0 million of borrowings outstanding against this line of credit at March 31, 2008. The Companys current liquidity position is more than
adequate to meet its lending needs and to fund potential customer withdrawals from deposit accounts.

At March 31, 2008, the Companys common
stockholders equity was equal to 8.29% of total assets, as compared to 7.76% at December 31, 2007. Stockholders equity decreased by $43,300 during the first quarter of 2008. This is the sum of $24,500 in operating losses plus
dividends paid or accrued in the amount of $18,800.



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The Office of Thrift Supervision (OTS) regulations require savings banks to maintain minimum capital
standards: a 4.0% of tangible assets Tier 1 (core) capital requirement, and an 8.0% risk based capital requirement. These capital requirements are applicable to the Companys wholly owned subsidiary, Virginia Savings Bank, F.S.B. The OTS does
not have specific capital requirements applicable to thrift holding companies. Actual and required regulatory capital requirements at March 31, 2008 and 2007 follow:



|                 |  |                               |  |         |  |  |  |  |  | 
|---------------- |  | ----------------------------- |  | ------- |  |  |  |  |  | 
|Capital Position |  | Virginia Savings Bank, F.S.B. |  | Table 3



|               |  |                 |            |            |                              |   |                |                                                                |            |  |      |                |  |            |            |  |       |  
|-------------- |  | --------------- | ---------- | ---------- | ---------------------------- | - | -------------- | -------------------------------------------------------------- | ---------- |  | ---- | -------------- |  | ---------- | ---------- |  | ----- | -
|               |  | Capital Amounts |            |            | For CapitalAdequacy Purposes |   |                | To be Well CapitalizedUnder Prompt CorrectiveAction Provisions |           
|               |  | ActualAmount    |            | % ofAssets |                              |   | RequiredAmount |                                                                | % ofAssets |  |      | RequiredAmount |  | % ofAssets |           
|March 31, 2008 |  |                 |            |            |                              |   |                |                                                                |            |  |      |                |  |            |            |  |       |  
|Tangible (1)   |  | $               | 12,760,357 |            | 8.60                         | % |                | $                                                              | 2,225,626  |  | 1.50 | %              |  | $          | N/A        |  | N/A   |  
|Tier I (2)     |  |                 | 11,760,357 |            | 11.07                        | % |                |                                                                | N/A        |  | N/A  |                |  |            | 6,372,605  |  | 6.00  | %
|Core (1)       |  |                 | 11,760,357 |            | 7.93                         | % |                |                                                                | 5,935,003  |  | 4.00 | %              |  |            | 7,418,754  |  | 5.00  | %
|Total (2)      |  |                 | 13,373,057 |            | 12.59                        | % |                |                                                                | 8,496,807  |  | 8.00 | %              |  |            | 10,621,009 |  | 10.00 | %
|               |  |                 |            |            |                              |  
|March 31, 2007 |  |                 |            |            |                              |   |                |                                                                |            |  |      |                |  |            |            |  |       |  
|Tangible (1)   |  | $               | 13,846,140 |            | 8.02                         | % |                | $                                                              | 2,588,874  |  | 1.50 | %              |  | $          | N/A        |  | N/A   |  
|Tier I (2)     |  |                 | 12,846,140 |            | 10.70                        | % |                |                                                                | N/A        |  | N/A  |                |  |            | 7,206,714  |  | 6.00  | %
|Core (1)       |  |                 | 12,846,140 |            | 7.44                         | % |                |                                                                | 6,903,664  |  | 4.00 | %              |  |            | 8,629,580  |  | 5.00  | %
|Total (2)      |  |                 | 14,204,097 |            | 11.83                        | % |                |                                                                | 9,608,952  |  | 8.00 | %              |  |            | 12,011,190 |  | 10.00 | %



|(1) | To adjusted total assets.
|--- | -------------------------

|(2) | To risk-weighted assets.
|--- | ------------------------

To be considered a well-capitalized institution
under the Federal Deposit Insurance Corporation Improvement Act of 1991, the Bank must have a core capital ratio of at least 5.0%, a Tier I risk-based capital ratio of at least 6%, and a total risk-based capital ratio of at least 10%. The most
recent notification from the OTS categorized the Bank as well capitalized.

Off-Balance Sheet Arrangements

The Bank routinely engages in off-balance sheet arrangements in the normal course of business to meet the financial needs of its customers. These arrangements consist of
outstanding mortgage loan commitments, letters of credit and lines of credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the statement of financial condition. The contractual amounts of these
instruments are an indication of the extent of involvement the Bank has in each class of off-balance sheet financial instruments. The Banks exposure to credit loss from non-performance by the other party to the above-mentioned



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financial instruments is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.

The Bank had outstanding commitments to make mortgage loans secured by real property,
exclusive of the undisbursed portion of loans in process, of approximately $2.4 million at March 31, 2008, all of which expire within one year. Loans in process represent the undisbursed portion of construction loans already on the Banks
books. Disbursements are made at each stage of the construction process after an inspection by a qualified real estate appraiser. At March 31, 2008, the Bank had loans in process commitments of approximately $3.5 million that expire within nine
months.

The Bank also issues stand-by letters of credit that are unsecured conditional commitments issued by the Bank guaranteeing performance by a
customer to a third party. These guarantees are issued primarily to support private borrowing arrangements. At March 31, 2008, the Bank had $242,900 of stand-by letters of credit outstanding with expiration dates through September 10,
2009.

Lines of credit are loan commitments to individuals and companies that have fixed expiration dates as long as there is no violation of any condition
established in the contract. The Bank evaluates each customers credit worthiness on a case-by-case basis. The Bank, at March 31, 2008, had secured lines of credit with available balances of $13.8 million and unsecured lines of credit with
available balances of $2.3 million. Many of these commitments are expected to expire without being fully drawn down. The total commitment amounts do not therefore necessarily represent future cash requirements.

The risks involved in these off-balance sheet arrangements are essentially the same as those involved in extending loan facilities to customers. No amount has been
recognized in the statement of financial condition as of March 31, 2008 as a liability for credit loss. Management does not anticipate any difficulties in funding these commitments.

Branch Operations

In February 2008, management filed a branch closing notice with the OTS regarding its
intention to cease operations at its branch location at 202 West Boscawen Street, Winchester, Virginia. Reasons for closing the branch include disappointing deposit growth and a slowdown in lending growth and a general decrease in the Banks
profitability. Existing loan and deposit accounts will be serviced from our Winchester branch at 234 Weems Lane which is approximately two miles from Boscawen Street Branch. Management estimates an annualized cost savings from consolidation of the
two offices of approximately $200,000.

The Company has a new branch office facility under construction in Stephens City, which, barring unforeseen events,
will open in early July. Demographic and other economic data indicate more favorable conditions for success of a new branch operation in Stephens City than



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in other communities within the Companys market area. The cost savings from the closing of the Boscawen Branch will offset to a significant extent the
overhead expense of the Stephens City Branch.

Item 4 - Controls and Procedures

Managements Disclosure Controls

Management of the Company is responsible for the preparation of the accompanying financial statements and for their integrity and objectivity. The financial statements
have been prepared in conformity with accounting principles generally accepted in the United States. Management also prepares the other information in this quarterly report and is responsible for its accuracy and consistency with the financial
statements.

Management has implemented what it believes are appropriate disclosure controls and procedures. These controls and procedures are designed to
insure that management receives all pertinent information that may be required to be disclosed in its annual and quarterly reports. Such information is not limited to financial data but also includes non-financial information that should be
considered for disclosure in the annual and quarterly reports.

Management believes that as of March 31, 2008 its structure of disclosure controls and
procedures are effective in meeting their intended purposes. The most recent review of these systems, conducted as of March 31, 2008, did not reveal any material deficiencies that would adversely affect the Companys ability to properly
and accurately record and report financial data. There were no significant changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of these evaluations.

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

In the ordinary course of its operations, the Company is a party to various
legal proceedings. Based upon information currently available, management believes that such legal proceedings, in the aggregate, will not have a material adverse effect on the business, financial condition or results of operations of the Company.

Item 6 - Exhibits



|              |  |                                           
|------------- |  | ------------------------------------------
|ExhibitNumber |  | Description                               
|31-1          |  | Rule 13a-14(a)/15d-14(a) CEO Certification
|              | 
|31-2          |  | Rule 13a-14(a)/15d-14(a) CFO Certification
|              | 
|32            |  | Section 1350 Certification                



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, hereunto duly authorized.



|             |  |  |  |  |  |  |  |                                     |  |                               
|------------ |  |  |  |  |  |  |  | ----------------------------------- |  | ------------------------------
|             |  |  |  |  |  |  |  |                                     |  | VIRGINIA SAVINGS BANCORP, INC.
|             |  |  |  |  |  |  |  |                                     |  | (Registrant)                  
|             |  |  |  |  | 
|             |  |  |  |  |  |  |  | By:                                 |  | /s/ W. Michael Funk           
|May 13, 2008 |  |  |  |  |  |  |  | W. Michael Funk                    
|Date         |  |  |  |  |  |  |  | President & Chief Executive
Officer
|             |  |  |  |  | 
|             |  |  |  |  |  |  |  | By:                                 |  | /s/ Noel F. Pilon             
|May 13, 2008 |  |  |  |  |  |  |  | Noel F. Pilon                      
|Date         |  |  |  |  |  |  |  | Senior Vice President &            
|             |  |  |  |  |  |  |  |                                     |  | Chief Financial Officer       



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