----

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

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

| QNB Corp.                                              |
|--------------------------------------------------------|
| (Exact Name of Registrant as Specified in Its Charter) |

| Pennsylvania                                                   | 23-2318082                           |
|----------------------------------------------------------------|--------------------------------------|
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
|                                                           |                                 |
| 15 North Third Street, P.O. Box 9005 Quakertown, PA            | 18951-9005                           |
| (Address of Principal Executive Offices)                       | (Zip Code)                           |

| Not Applicable                                                                    |
|-----------------------------------------------------------------------------------|
| Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report. |

| Large accelerated filer   ̈ | Accelerated filer  ̈         |
|-------------------------------------------|----------------------------------|
| Non-accelerated filer   ̈   | Smaller Reporting Company þ |

|         Class |   | Outstanding at May 10, 2011 |
|--------------------------------------------------|--------|-----------------------------|
| Common Stock, par value $0.625                   |   | 3,144,146                   |

----

|                           |                                                                                           | PAGE   |
|--------------------------------|------------------------------------------------------------------------------------------------|--------|
|                           |                                                                                           |   |   |
| PART I - FINANCIAL INFORMATION |
|                           |                                                                                           |   |   |
| ITEM 1.                        | CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)                                                  |   |   |
|                           |                                                                                           |   |   |
|                           | Consolidated Balance Sheets at March 31, 2011 and December 31, 2010                            | 3      |   |
|                           |                                                                                           |   |   |
|                           | Consolidated Statements of Income for the Three Months Ended March 31, 2011 and 2010           | 4      |   |
|                           |                                                                                           |   |   |
|                           | Consolidated Statement of Shareholders’ Equity for the Three Months Ended March 31, 2011 | 5      |   |
|                           |                                                                                           |   |   |
|                           | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010       | 6      |   |
|                           |                                                                                           |   |   |
|                           | Notes to Consolidated Financial Statements                                                     | 7      |   |
|                           |                                                                                           |   |   |
| ITEM 2.                        | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          | 37     |   |
|                           |                                                                                           |   |   |
| ITEM 3.                        | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                      | 63     |   |
|                           |                                                                                           |   |   |
| ITEM 4.                        | CONTROLS AND PROCEDURES                                                                        | 63     |   |
|                           |                                                                                           |   |   |
| PART II - OTHER INFORMATION    |
|                           |                                                                                           |   |   |
| ITEM 1.                        | LEGAL PROCEEDINGS                                                                              | 64     |   |
|                           |                                                                                           |   |   |
| ITEM 1A.                       | RISK FACTORS                                                                                   | 64     |   |
|                           |                                                                                           |   |   |
| ITEM 2.                        | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                    | 64     |   |
|                           |                                                                                           |   |   |
| ITEM 3.                        | DEFAULTS UPON SENIOR SECURITIES                                                                | 64     |   |
|                           |                                                                                           |   |   |
| ITEM 4.                        | (REMOVED AND RESERVED)                                                                         | 64     |   |
|                           |                                                                                           |   |   |
| ITEM 5.                        | OTHER INFORMATION                                                                              | 64     |   |
|                           |                                                                                           |   |   |
| ITEM 6.                        | EXHIBITS                                                                                       | 65     |   |
|                           |                                                                                           |   |   |
| SIGNATURES                     | 66                                                                                             |   |
|                           |                                                                                           |   |
| CERTIFICATIONS                 |                                                                                           |   |

----

| QNB Corp. and Subsidiary    |
|-----------------------------|
| CONSOLIDATED BALANCE SHEETS |

|                                                                                                                                                             |   | (in thousands, except share data) |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|---------|
|                                                                                                                                                             |   | (unaudited)                                           |    |
|                                                                                                                                                             |   | March 31,                                        |    |   | December 31, |   |
|                                                                                                                                                             |   | 2011                                                  |    |   | 2010 |   |
| Assets                                                                                                                                                           |   |                                                  |    |   |   |   |
| Cash and due from banks                                                                                                                                          |   | $                                                     | 8,035   |   |   | $ | 8,498 |   |
| Interest-bearing deposits in banks                                                                                                                               |   |                                                  | 18,195  |   |   |   | 6,414 |   |
| Total cash and cash equivalents                                                                                                                                  |   |                                                  | 26,230  |   |   |   | 14,912 |   |
|                                                                                                                                                             |   |                                                  |    |   |   |   |   |   |
| Investment securities                                                                                                                                            |   |                                                  |    |   |   |   |   |   |
| Available-for-sale (amortized cost $292,223 and $288,232)                                                                                                        |   |                                                  | 294,470 |   |   |   | 290,564 |   |
| Held-to-maturity (fair value $1,897 and $2,729)                                                                                                                  |   |                                                  | 1,842   |   |   |   | 2,667 |   |
| Restricted investment in bank stocks                                                                                                                             |   |                                                  | 2,068   |   |   |   | 2,176 |   |
| Loans held-for-sale                                                                                                                                              |   |                                                  | 115     |   |   |   | 228 |   |
| Total loans, net of unearned costs                                                                                                                               |   |                                                  | 478,394 |   |   |   | 482,182 |   |
| Allowance for loan losses                                                                                                                                        |   |                                                  | (9,192  | ) |   |   | (8,955 | ) |
| Net loans                                                                                                                                                        |   |                                                  | 469,202 |   |   |   | 473,227 |   |
| Bank-owned life insurance                                                                                                                                        |   |                                                  | 9,457   |   |   |   | 9,439 |   |
| Premises and equipment, net                                                                                                                                      |   |                                                  | 6,420   |   |   |   | 6,552 |   |
| Accrued interest receivable                                                                                                                                      |   |                                                  | 2,955   |   |   |   | 2,988 |   |
| Other assets                                                                                                                                                     |   |                                                  | 6,686   |   |   |   | 6,507 |   |
| Total assets                                                                                                                                                     |   | $                                                     | 819,445 |   |   | $ | 809,260 |   |
|                                                                                                                                                             |   |                                                  |    |   |   |   |   |   |
| Liabilities                                                                                                                                                      |   |                                                  |    |   |   |   |   |   |
| Deposits                                                                                                                                                         |   |                                                  |    |   |   |   |   |   |
| Demand, non-interest bearing                                                                                                                                     |   | $                                                     | 61,881  |   |   | $ | 55,377 |   |
| Interest-bearing demand                                                                                                                                          |   |                                                  | 133,820 |   |   |   | 132,500 |   |
| Money market                                                                                                                                                     |   |                                                  | 68,295  |   |   |   | 78,802 |   |
| Savings                                                                                                                                                          |   |                                                  | 151,729 |   |   |   | 118,066 |   |
| Time                                                                                                                                                             |   |                                                  | 193,859 |   |   |   | 206,629 |   |
| Time of $100,000 or more                                                                                                                                         |   |                                                  | 97,822  |   |   |   | 103,603 |   |
| Total deposits                                                                                                                                                   |   |                                                  | 707,406 |   |   |   | 694,977 |   |
| Short-term borrowings                                                                                                                                            |   |                                                  | 26,033  |   |   |   | 29,786 |   |
| Long-term debt                                                                                                                                                   |   |                                                  | 20,306  |   |   |   | 20,308 |   |
| Accrued interest payable                                                                                                                                         |   |                                                  | 882     |   |   |   | 1,089 |   |
| Other liabilities                                                                                                                                                |   |                                                  | 2,135   |   |   |   | 2,010 |   |
| Total liabilities                                                                                                                                                |   |                                                  | 756,762 |   |   |   | 748,170 |   |
|                                                                                                                                                             |   |                                                  |    |   |   |   |   |   |
| Shareholders' Equity                                                                                                                                             |   |                                                  |    |   |   |   |   |   |
| Common stock, par value $0.625 per share; authorized 10,000,000 shares; 3,308,715 shares and 3,293,687 shares issued; 3,144,146 and 3,129,118 shares outstanding |   |                                                  | 2,068   |   |   |   | 2,059 |   |
| Surplus                                                                                                                                                          |   |                                                  | 11,025  |   |   |   | 10,811 |   |
| Retained earnings                                                                                                                                                |   |                                                  | 50,583  |   |   |   | 49,157 |   |
| Accumulated other comprehensive income, net                                                                                                                      |   |                                                  | 1,483   |   |   |   | 1,539 |   |
| Treasury stock, at cost; 164,569 shares                                                                                                                          |   |                                                  | (2,476  | ) |   |   | (2,476 | ) |
| Total shareholders' equity                                                                                                                                       |   |                                                  | 62,683  |   |   |   | 61,090 |   |
| Total liabilities and shareholders' equity                                                                                                                       |   | $                                                     | 819,445 |   |   | $ | 809,260 |   |

----

|                                                                                     |   | (in thousands, except share data) |   |
|------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                                                                     |   | (unaudited)                                           |   |
| Three Months Ended March 31,                                                             |   | 2011                                                  |   |   | 2010 |   |
| Interest Income                                                                          |   |                                                  |   |   |   |   |
| Interest and fees on loans                                                               |   | $                                                     | 6,714  |   |   | $ | 6,359 |   |
| Interest and dividends on investment securities:                                         |   |                                                  |   |   |   |   |   |   |
| Taxable                                                                                  |   |                                                  | 1,715  |   |   |   | 1,874 |   |
| Tax-exempt                                                                               |   |                                                  | 659    |   |   |   | 585 |   |
| Interest on interest-bearing balances and other interest income                          |   |                                                  | 7      |   |   |   | 10 |   |
| Total interest income                                                                    |   |                                                  | 9,095  |   |   |   | 8,828 |   |
|                                                                                     |   |                                                  |   |   |   |   |   |   |
| Interest Expense                                                                         |   |                                                  |   |   |   |   |   |   |
| Interest on deposits                                                                     |   |                                                  |   |   |   |   |   |   |
| Interest-bearing demand                                                                  |   |                                                  | 190    |   |   |   | 222 |   |
| Money market                                                                             |   |                                                  | 94     |   |   |   | 166 |   |
| Savings                                                                                  |   |                                                  | 282    |   |   |   | 141 |   |
| Time                                                                                     |   |                                                  | 836    |   |   |   | 1,272 |   |
| Time of $100,000 or more                                                                 |   |                                                  | 440    |   |   |   | 636 |   |
| Interest on short-term borrowings                                                        |   |                                                  | 55     |   |   |   | 53 |   |
| Interest on long-term debt                                                               |   |                                                  | 241    |   |   |   | 314 |   |
| Total interest expense                                                                   |   |                                                  | 2,138  |   |   |   | 2,804 |   |
| Net interest income                                                                      |   |                                                  | 6,957  |   |   |   | 6,024 |   |
| Provision for loan losses                                                                |   |                                                  | 650    |   |   |   | 700 |   |
| Net interest income after provision for loan losses                                      |   |                                                  | 6,307  |   |   |   | 5,324 |   |
|                                                                                     |   |                                                  |   |   |   |   |   |   |
| Non-Interest Income                                                                      |   |                                                  |   |   |   |   |   |   |
| Total other-than-temporary impairment loss on investment securities                      |   |                                                  | -      |   |   |   | (185 | ) |
| Less:  Portion of loss recognized in other comprehensive income (before taxes) |   |                                                  | -      |   |   |   | 27 |   |
| Net other-than temporary impairment losses on investment securities                      |   |                                                  | -      |   |   |   | (158 | ) |
| Net (loss) gain on sale of investment securities                                         |   |                                                  | (43    | ) |   |   | 294 |   |
| Net (loss) gain on investment securities                                                 |   |                                                  | (43    | ) |   |   | 136 |   |
| Fees for services to customers                                                           |   |                                                  | 327    |   |   |   | 405 |   |
| ATM and debit card                                                                       |   |                                                  | 328    |   |   |   | 271 |   |
| Bank-owned life insurance                                                                |   |                                                  | 110    |   |   |   | 64 |   |
| Merchant Income                                                                          |   |                                                  | 62     |   |   |   | 57 |   |
| Net gain on sale of loans                                                                |   |                                                  | 39     |   |   |   | 75 |   |
| Other                                                                                    |   |                                                  | 117    |   |   |   | 124 |   |
| Total non-interest income                                                                |   |                                                  | 940    |   |   |   | 1,132 |   |
|                                                                                     |   |                                                  |   |   |   |   |   |   |
| Non-Interest Expense                                                                     |   |                                                  |   |   |   |   |   |   |
| Salaries and employee benefits                                                           |   |                                                  | 2,387  |   |   |   | 2,137 |   |
| Net occupancy                                                                            |   |                                                  | 397    |   |   |   | 369 |   |
| Furniture and equipment                                                                  |   |                                                  | 303    |   |   |   | 282 |   |
| Marketing                                                                                |   |                                                  | 175    |   |   |   | 161 |   |
| Third party services                                                                     |   |                                                  | 248    |   |   |   | 273 |   |
| Telephone, postage and supplies                                                          |   |                                                  | 148    |   |   |   | 157 |   |
| State taxes                                                                              |   |                                                  | 150    |   |   |   | 140 |   |
| FDIC insurance premiums                                                                  |   |                                                  | 262    |   |   |   | 254 |   |
| Other                                                                                    |   |                                                  | 350    |   |   |   | 345 |   |
| Total non-interest expense                                                               |   |                                                  | 4,420  |   |   |   | 4,118 |   |
| Income before income taxes                                                               |   |                                                  | 2,827  |   |   |   | 2,338 |   |
| Provision for income taxes                                                               |   |                                                  | 616    |   |   |   | 512 |   |
| Net Income                                                                               |   | $                                                     | 2,211  |   |   | $ | 1,826 |   |
| Earnings Per Share - Basic                                                               |   | $                                                     | 0.71   |   |   | $ | 0.59 |   |
| Earnings Per Share - Diltued                                                             |   | $                                                     | 0.70   |   |   | $ | 0.59 |   |
| Cash Dividends Per Share                                                                 |   | $                                                     | 0.25   |   |   | $ | 0.24 |   |

----

| QNB Corp. and Subsidiary                       |
|------------------------------------------------|
| CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY |

|                                                                     |   |           |      |   |   |   |   |    |   |   |     |   |   | Accumulated        |   |   |     |   |   |   |   |
|-------------------------------------------------------------------------------|--------|----------------|-----------|--------|--------|--------|--------|---------|--------|--------|----------|--------|--------|--------------------|--------|--------|----------|--------|--------|--------|--------|
|                                                                          |   | Number of |      |   |   |   |   |    |   |   |     |   |   | Other              |   |   |     |   |   |   |   |
| (in thousands, except share data)                                             |   | Shares         |      |   | Common |   |   |    |   |   | Retained |   |   | Comprehensive      |   |   | Treasury |   |   |   |   |
| (unaudited)                                                                   |   | Outstanding    |      |   | Stock  |   |   | Surplus |   |   | Earnings |   |   | Income (Loss) |   |   | Stock    |   |   | Total  |   |
| Balance, December 31, 2010                                                    |   |           | 3,129,118 |   |   | $      | 2,059  |    |   | $      | 10,811   |   |   | $                  | 49,157 |   |     | $      | 1,539  |   |   | $ | (2,476 | ) |   | $ | 61,090 |   |
| Comprehensive income:                                                         |   |           |      |   |   |   |   |    |   |   |     |   |   |               |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Net Income                                                                    |   |           | -         |   |   |   | -      |    |   |   | -        |   |   |               | 2,211  |   |     |   |   |   |   |   | - |   |   |   | 2,211 |   |
| Other comprehensive loss                                                      |   |           | -         |   |   |   | -      |    |   |   | -        |   |   |               | -      |   |     |   | (56    | )      |   |   | - |   |   |   | (56 | ) |
| Total comprehensive income                                                    |   |           |      |   |   |   |   |    |   |   |     |   |   |               |   |   |     |   |   |   |   |   |   |   |   |   | 2,155 |   |
| Cash dividends declared ($0.25 per share)                                     |   |           | -         |   |   |   | -      |    |   |   | -        |   |   |               | (785   | )      |     |   | -      |   |   |   | - |   |   |   | (785 | ) |
| Stock issued in connection with dividend reinvestment and stock purchase plan |   |           | 7,519     |   |   |   | 4      |    |   |   | 166      |   |   |               | -      |   |     |   | -      |   |   |   | - |   |   |   | 170 |   |
| Stock issued for options exercised                                            |   |           | 7,509     |   |   |   | 5      |    |   |   | 33       |   |   |               | -      |   |     |   | -      |   |   |   | - |   |   |   | 38 |   |
| Tax benefit of stock options exercised                                        |   |           | -         |   |   |   | -      |    |   |   | 3        |   |   |               | -      |   |     |   | -      |   |   |   | - |   |   |   | 3 |   |
| Stock-based compensation expense                                              |   |           | -         |   |   |   | -      |    |   |   | 12       |   |   |               | -      |   |     |   | -      |   |   |   | - |   |   |   | 12 |   |
| Balance, March 31, 2011                                                       |   |           | 3,144,146 |   |   | $      | 2,068  |    |   | $      | 11,025   |   |   | $                  | 50,583 |   |     | $      | 1,483  |   |   | $ | (2,476 | ) |   | $ | 62,683 |   |

----

|                                                                              |   | (in thousands, |    |
|-----------------------------------------------------------------------------------|--------|----------------|---------|
|                                                                              |   | (unaudited)    |    |
| Three Months Ended March 31,                                                      |   | 2011           |    |   | 2010 |   |
| Operating Activities                                                              |   |           |    |   |   |   |
| Net income                                                                        |   | $              | 2,211   |   |   | $ | 1,826 |   |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |           |    |   |   |   |   |   |
| Depreciation and amortization                                                     |   |           | 196     |   |   |   | 198 |   |
| Provision for loan losses                                                         |   |           | 650     |   |   |   | 700 |   |
| Net losses (gains) on investment securities available-for-sale                    |   |           | 43      |   |   |   | (136 | ) |
| Net loss on sale of repossessed assets                                            |   |           | 8       |   |   |   | 3 |   |
| Net gain on sale of loans                                                         |   |           | (39     | ) |   |   | (75 | ) |
| Proceeds from sales of residential mortgages held-for-sale                        |   |           | 2,711   |   |   |   | 2,313 |   |
| Originated of residential mortgages held-for-sale                                 |   |           | (2,559  | ) |   |   | (1,704 | ) |
| Income on bank-owned life insurance                                               |   |           | (110    | ) |   |   | (64 | ) |
| Life insurance premiums                                                           |   |           | (3      | ) |   |   | (5 | ) |
| Stock-based compensation expense                                                  |   |           | 12      |   |   |   | 10 |   |
| Deferred income tax benefit                                                       |   |           | (52     | ) |   |   | (11 | ) |
| Net increase in income taxes payable                                              |   |           | 645     |   |   |   | 422 |   |
| Net decrease (increase) in accrued interest receivable                            |   |           | 33      |   |   |   | (65 | ) |
| Amortization of mortgage servicing rights and change in valuation allowance       |   |           | 22      |   |   |   | 19 |   |
| Net amortization (accretion) of premiums and discounts on investment securities   |   |           | 313     |   |   |   | 174 |   |
| Net (decrease) increase in accrued interest payable                               |   |           | (207    | ) |   |   | (160 | ) |
| (Increase) decrease in other assets                                               |   |           | (333    | ) |   |   | 488 |   |
| Decrease in other liabilities                                                     |   |           | (396    | ) |   |   | (208 | ) |
| Net cash provided by operating activities                                         |   |           | 3,145   |   |   |   | 3,725 |   |
| Investing Activities                                                              |   |           |    |   |   |   |   |   |
| Proceeds from maturities and calls of investment securities                       |   |           |    |   |   |   |   |   |
| available-for-sale                                                                |   |           | 25,780  |   |   |   | 37,123 |   |
| held-to-maturity                                                                  |   |           | 825     |   |   |   | 500 |   |
| Proceeds from the sale of investment securities                                   |   |           |    |   |   |   |   |   |
| available-for-sale                                                                |   |           | 17,856  |   |   |   | 2,030 |   |
| Purchases of investment securities                                                |   |           |    |   |   |   |   |   |
| available-for-sale                                                                |   |           | (47,983 | ) |   |   | (49,628 | ) |
| Proceeds from redemption of investment in restricted bank stock                   |   |           | 108     |   |   |   | - |   |
| Net decrease (increase) in loans                                                  |   |           | 3,352   |   |   |   | (7,413 | ) |
| Redemption of Bank Owned Life Insurance investment                                |   |           | 95      |   |   |   | - |   |
| Net purchases of premises and equipment                                           |   |           | (64     | ) |   |   | (205 | ) |
| Proceeds from sales of repossessed assets                                         |   |           | 104     |   |   |   | 71 |   |
| Net cash provided (used) by investing activities                                  |   |           | 73      |   |   |   | (17,522 | ) |
| Financing Activities                                                              |   |           |    |   |   |   |   |   |
| Net increase in non-interest bearing deposits                                     |   |           | 6,504   |   |   |   | 1,607 |   |
| Net increase in interest-bearing non-maturity deposits                            |   |           | 24,476  |   |   |   | 23,128 |   |
| Net (decrease) increase in time deposits                                          |   |           | (18,551 | ) |   |   | 3,533 |   |
| Net decrease in short-term borrowings                                             |   |           | (3,753  | ) |   |   | (6,602 | ) |
| Repayments of long-term debt                                                      |   |           | (2      | ) |   |   | (10,000 | ) |
| Tax benefit from exercise of stock options                                        |   |           | 3       |   |   |   | - |   |
| Cash dividends paid, net of reinvestment                                          |   |           | (726    | ) |   |   | (710 | ) |
| Proceeds from issuance of common stock                                            |   |           | 149     |   |   |   | 41 |   |
| Net cash provided by financing activities                                         |   |           | 8,100   |   |   |   | 10,997 |   |
| (Decrease) increase in cash and cash equivalents                                  |   |           | 11,318  |   |   |   | (2,800 | ) |
| Cash and cash equivalents at beginning of year                                    |   |           | 14,912  |   |   |   | 30,999 |   |
| Cash and cash equivalents at end of period                                        |   | $              | 26,230  |   |   | $ | 28,199 |   |
| Supplemental Cash Flow Disclosures                                                |   |           |    |   |   |   |   |   |
| Interest paid                                                                     |   | $              | 2,345   |   |   | $ | 2,964 |   |
| Income taxes paid                                                                 |   |           | -       |   |   |   | 100 |   |
| Non-cash transactions                                                             |   |           |    |   |   |   |   |   |
| Transfer of loans to repossessed assets or other real estate owned                |   |           | 23      |   |   |   | 57 |   |

----

|   | · | A reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | For purposes of reporting fair value measurements for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Options granted         |   | 2011   |   |   | 2010   |   |
|-------------------------|--------|--------|--------|--------|--------|--------|
| Risk-free interest rate |   |   | 1.96   | %      |   |   | 2.32 | % |
| Dividend yield          |   |   | 5.02   |   |   |   | 5.28 |   |
| Volatility              |   |   | 29.83  |   |   |   | 27.50 |   |
| Expected life (years)   |   |   | 5.00   |   |   |   | 5.00 |   |

|                           |   | Numberof options |    |   | Weightedaverageexercise price |   |   | Weightedaverageremainingcontractualterm (in yrs.) |   |   | Aggregateintrinsicvalue |   |
|--------------------------------|--------|-----------------------|---------|--------|------------------------------------|--------|--------|-------------------------------------------------------------|--------|--------|-------------------------|--------|
| Outstanding at January 1, 2011 |   |                  | 170,515 |   |                               | $      | 21.60  |                                                        |   |   |                    |   |   |   |
| Exercised                      |   |                  | (18,940 | )      |                               |   | 14.12  |                                                        |   |   |                    |   |   |   |
| Forfeited                      |   |                  | (14,800 | )      |                               |   | 26.00  |                                                        |   |   |                    |   |   |   |
| Granted                        |   |                  | 17,000  |   |                               |   | 20.00  |                                                        |   |   |                    |   |   |   |
| Outstanding at March 31, 2011  |   |                  | 153,775 |   |                               | $      | 21.92  |                                                        |   |   | 2.6                     |   |   | $ | 489 |   |
| Exercisable at March 31, 2011  |   |                  | 105,725 |   |                               | $      | 23.55  |                                                        |   |   | 2.3                     |   |   | $ | 264 |   |

----

| For the three months ended March 31,                                                           |   | 2011   |      |   | 2010   |   |
|------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Numerator for basic and diluted earnings per share - net income                                |   | $      | 2,211     |   |   | $      | 1,826 |   |
| Denominator for basic earnings per share - weighted average shares outstanding                 |   |   | 3,134,449 |   |   |   | 3,094,534 |   |
| Effect of dilutive securities - employee stock options                                         |   |   | 10,790    |   |   |   | 7,969 |   |
| Denominator for diluted earnings per share - adjusted weighted average shares outstanding |   |   | 3,145,239 |   |   |   | 3,102,503 |   |
| Earnings per share-basic                                                                       |   | $      | 0.71      |   |   | $      | 0.59 |   |
| Earnings per share-diluted                                                                     |   | $      | 0.70      |   |   | $      | 0.59 |   |

| Three months ended                                                     |   | March 31,2011 |   |   | March 31,2010 |   |
|----------------------------------------------------------------------------------|--------|--------------------|--------|--------|--------------------|--------|
| Unrealized holding (losses) gains arising during the period                      |   | $                  | (128   | )      |               | $      | 1,118 |   |
| Unrealized losses related to factors other than credit arising during the period |   |               | -      |   |               |   | (27 | ) |
| Reclassification adjustment for losses (gains) included in net income            |   |               | 43     |   |               |   | (294 | ) |
| Reclassification adjustment for OTTI losses included in net income               |   |               | -      |   |               |   | 158 |   |
| Net unrealized (losses) gains                                                    |   |               | (85    | )      |               |   | 955 |   |
| Tax effect                                                                       |   |               | 29     |   |               |   | (324 | ) |
| Other comprehensive (loss) income, net of tax effect                             |   |               | (56    | )      |               |   | 631 |   |
| Net income                                                                       |   |               | 2,211  |   |               |   | 1,826 |   |
| Total comprehensive income                                                       |   | $                  | 2,155  |   |               | $      | 2,457 |   |

----

|                                                                     |   |      |    |   | Gross      |   |   | Gross                               |   |   |   |   |
|--------------------------------------------------------------------------|--------|-----------|---------|--------|------------|--------|--------|-------------------------------------|--------|--------|--------|--------|
|                                                                     |   | Aggregate |    |   | unrealized |   |   | unrealized holding losses |   |   |   |   |
|                                                                     |   | fair      |    |   | holding    |   |   | Non-credit                          |   |   |   |   |   | Amortized |   |
|                                                                     |   | value     |    |   | gains      |   |   | OTTI                                |   |   | Other  |   |   | cost |   |
| U.S. Government agency securities                                        |   | $         | 56,422  |   |       | $      | 117    |                                |   |   | -      |   |   | $ | 874 |   |   |   | 57,179 |   |
| State and municipal securities                                           |   |      | 67,698  |   |       |   | 1,040  |                                |   |   | -      |   |   |   | 245 |   |   |   | 66,903 |   |
| U.S. Government agencies and sponsored enterprises (GSEs) - residential: |   |      |    |   |       |   |   |                                |   |   | -      |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities                                               |   |      | 89,511  |   |       |   | 2,236  |                                |   |   | -      |   |   |   | 366 |   |   |   | 87,641 |   |
| Collateralized mortgage obligations (CMOs)                               |   |      | 74,516  |   |       |   | 1,593  |                                |   |   | -      |   |   |   | 223 |   |   |   | 73,146 |   |
| Other debt securities                                                    |   |      | 2,428   |   |       |   | 63     |                                |   | $      | 1,197  |   |   |   | 528 |   |   |   | 4,090 |   |
| Equity securities                                                        |   |      | 3,895   |   |       |   | 691    |                                |   |   | -      |   |   |   | 60 |   |   |   | 3,264 |   |
| Total investment securities available-for-sale                           |   | $         | 294,470 |   |       | $      | 5,740  |                                |   | $      | 1,197  |   |   | $ | 2,296 |   |   | $ | 292,223 |   |

|                                                                     |   |      |    |   |       | Gross  |   |                                | Gross  |   |   |   |   |   |
|--------------------------------------------------------------------------|--------|-----------|---------|--------|------------|--------|--------|-------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                                     |   | Aggregate |    |   | unrealized |   |   | unrealized holding losses |   |   |   |   |   |
|                                                                     |   | fair      |    |   | holding    |   |   | Non-credit                          |   |   |   |   |   |   | Amortized |   |
|                                                                     |   | value     |    |   | gains      |   |   | OTTI                                |   |   | Other  |   |   | cost   |   |
| U.S. Government agency securities                                        |   | $         | 66,448  |   |       | $      | 241    |                                |   |   | -      |   |   | $      | 869 |   |   |   | 67,076 |   |
| State and municipal securities                                           |   |      | 63,588  |   |       |   | 675    |                                |   |   | -      |   |   |   | 514 |   |   |   | 63,427 |   |
| U.S. Government agencies and sponsored enterprises (GSEs) - residential: |   |      |    |   |       |   |   |                                |   |   | -      |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities                                               |   |      | 78,801  |   |       |   | 2,438  |                                |   |   | -      |   |   |   | 311 |   |   |   | 76,674 |   |
| Collateralized mortgage obligations (CMOs)                               |   |      | 75,573  |   |       |   | 1,890  |                                |   |   | -      |   |   |   | 137 |   |   |   | 73,820 |   |
| Other debt securities                                                    |   |      | 2,384   |   |       |   | 69     |                                |   | $      | 1,224  |   |   |   | 550 |   |   |   | 4,089 |   |
| Equity securities                                                        |   |      | 3,770   |   |       |   | 667    |                                |   |   | -      |   |   |   | 43 |   |   |   | 3,146 |   |
| Total investment securities available-for-sale                           |   | $         | 290,564 |   |       | $      | 5,980  |                                |   | $      | 1,224  |   |   | $      | 2,424 |   |   | $ | 288,232 |   |

|                                           |   | Aggregate       |    |   | Amortized |   |
|------------------------------------------------|--------|-----------------|---------|--------|-----------|--------|
|                                           |   | fair value |    |   | cost      |   |
| Due in one year or less                        |   | $               | 7,096   |   |      | $      | 6,997 |   |
| Due after one year through five years          |   |            | 182,712 |   |      |   | 179,481 |   |
| Due after five years through ten years         |   |            | 53,589  |   |      |   | 53,921 |   |
| Due after ten years                            |   |            | 47,178  |   |      |   | 48,560 |   |
| Equity securities                              |   |            | 3,895   |   |      |   | 3,264 |   |
| Total investment securities available-for-sale |   | $               | 294,470 |   |      | $      | 292,223 |   |

----

| Three months ended March 31, 2011: |   |     |   |   |     |   |   |        |   |   |           |   |
|------------------------------------|--------|----------|--------|--------|----------|--------|--------|-------------|--------|--------|----------------|--------|
|                               |   |     |   |   |     |   |   | Other-than- |   |   |           |   |
|                               |   | Gross    |   |   | Gross    |   |   | temporary   |   |   |           |   |
|                               |   | realized |   |   | realized |   |   | impairment  |   |   | Net gains |   |
|                               |   | gains    |   |   | losses   |   |   | losses      |   |   | (losses)       |   |
| Equity securities                  |   | $        | 126    |   |     | $      | -      |        |   | $      | -              |   |   | $ | 126 |   |
| Debt securities                    |   |     | 184    |   |     |   | (353   | )           |   |   | -              |   |   |   | (169 | ) |
| Total                              |   | $        | 310    |   |     | $      | (353   | )           |   | $      | -              |   |   | $ | (43 | ) |

| Three months ended March 31, 2010: |   |     |   |   |     |   |   |        |   |   |      |   |
|------------------------------------|--------|----------|--------|--------|----------|--------|--------|-------------|--------|--------|-----------|--------|
|                               |   |     |   |   |     |   |   | Other-than- |   |   |      |   |
|                               |   | Gross    |   |   | Gross    |   |   | temporary   |   |   |      |   |
|                               |   | realized |   |   | realized |   |   | impairment  |   |   | Net gains |   |
|                               |   | gains    |   |   | losses   |   |   | losses      |   |   | (losses)  |   |
| Equity securities                  |   | $        | 287    |   |     | $      | -      |        |   | $      | -         |   |   | $ | 287 |   |
| Debt securities                    |   |     | 7      |   |     |   | -      |        |   |   | (158      | )      |   |   | (151 | ) |
| Total                              |   | $        | 294    |   |     | $      | -      |        |   | $      | (158      | )      |   | $ | 136 |   |

----

| Three months ended March 31,  |   | 2011   |   |
|-------------------------------|--------|--------|--------|
| Balance, beginning of period  |   | $      | 1,279  |   |
| Additions:                    |   |   |   |   |
| Initial credit impairments    |   |   | -      |   |
| Subsequent credit impairments |   |   | -      |   |
| Balance, end of period        |   | $      | 1,279  |   |

| Held-To-Maturity               |   |                     |   |   |                        |   |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |   |      |   |
|--------------------------------|--------|--------------------------|--------|--------|-----------------------------|--------|--------|------------|--------|--------|-----------|--------|--------|-----------|--------|--------|------------|--------|--------|------------|--------|--------|-----------|--------|
|                           |   | March 31, 2011 |   |   | December 31, 2010 |   |
|                           |   |                     |   |   | Gross                       |   |   | Gross      |   |   |      |   |   |      |   |   | Gross      |   |   | Gross      |   |   |      |   |
|                           |   |                     |   |   | unrealized                  |   |   | unrealized |   |   | Aggregate |   |   |      |   |   | unrealized |   |   | unrealized |   |   | Aggregate |   |
|                           |   | Amortized                |   |   | holding                     |   |   | holding    |   |   | fair      |   |   | Amortized |   |   | holding    |   |   | holding    |   |   | fair      |   |
|                           |   | cost                     |   |   | gains                       |   |   | losses     |   |   | value     |   |   | cost      |   |   | gains      |   |   | losses     |   |   | value     |   |
| State and municipal securities |   | $                        | 1,842  |   |                        | $      | 55     |       |   |   | -         |   |   | $         | 1,897  |   |       | $      | 2,667  |       |   | $      | 62        |   |   |   | - |   |   | $ | 2,729 |   |

----

|                                         |   | Aggregate       |   |   | Amortized |   |
|----------------------------------------------|--------|-----------------|--------|--------|-----------|--------|
|                                         |   | fair value |   |   | cost      |   |
| Due in one year or less                      |   |            | -      |   |      |   | - |   |
| Due after one year through five years        |   |            | -      |   |      |   | - |   |
| Due after five years through ten years       |   | $               | 1,897  |   |      | $      | 1,842 |   |
| Due after ten years                          |   |            | -      |   |      |   | - |   |
| Total investment securities held-to-maturity |   | $               | 1,897  |   |      | $      | 1,842 |   |

| March 31, 2011                                  |   |        |   |   |                               |   |   |                               |   |   |   |   |   |       |   |   |   |   |   |
|-------------------------------------------------|--------|-------------|--------|--------|------------------------------------|--------|--------|------------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|
|                                            |   |        |   |   | Less than 12 months |   |   | 12 months or longer |   |   | Total  |   |
|                                            |   | No. of |   |   | Fair                               |   |   | Unrealized                         |   |   | Fair   |   |   | Unrealized |   |   | Fair   |   |   | Unrealized |   |
|                                            |   | securities  |   |   | value                              |   |   | losses                             |   |   | value  |   |   | losses     |   |   | value  |   |   | losses |   |
| U.S. Government agencies                        |   |        | 32     |   |                               | $      | 39,283 |                               |   | $      | 874    |   |   |       | -      |   |   |   | -      |   |   | $ | 39,283 |   |   | $ | 874 |   |
| State and municipal securities                  |   |        | 28     |   |                               |   | 13,020 |                               |   |   | 212    |   |   | $          | 963    |   |   | $      | 33     |   |   |   | 13,983 |   |   |   | 245 |   |
| Mortgage-backed securities                      |   |        | 23     |   |                               |   | 24,862 |                               |   |   | 366    |   |   |       | -      |   |   |   | -      |   |   |   | 24,862 |   |   |   | 366 |   |
| Collateralized mortgage obligations (CMOs) |   |        | 16     |   |                               |   | 18,263 |                               |   |   | 223    |   |   |       | -      |   |   |   | -      |   |   |   | 18,263 |   |   |   | 223 |   |
| Other debt securities                           |   |        | 7      |   |                               |   | -      |                               |   |   | -      |   |   |       | 1,915  |   |   |   | 1,725  |   |   |   | 1,915 |   |   |   | 1,725 |   |
| Equity                                          |   |        | 7      |   |                               |   | 788    |                               |   |   | 50     |   |   |       | 184    |   |   |   | 10     |   |   |   | 972 |   |   |   | 60 |   |
| Total                                           |   |        | 113    |   |                               | $      | 96,216 |                               |   | $      | 1,725  |   |   | $          | 3,062  |   |   | $      | 1,768  |   |   | $ | 99,278 |   |   | $ | 3,493 |   |

| December 31, 2010                               |   |        |   |   |                               |   |   |                               |   |   |   |   |   |       |   |   |   |   |   |
|-------------------------------------------------|--------|-------------|--------|--------|------------------------------------|--------|--------|------------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|
|                                            |   |        |   |   | Less than 12 months |   |   | 12 months or longer |   |   | Total  |   |
|                                            |   | No. of |   |   | Fair                               |   |   | Unrealized                         |   |   | Fair   |   |   | Unrealized |   |   | Fair   |   |   | Unrealized |   |
|                                            |   | securities  |   |   | value                              |   |   | losses                             |   |   | value  |   |   | losses     |   |   | value  |   |   | losses |   |
| U.S. Government agencies                        |   |        | 30     |   |                               | $      | 40,179 |                               |   | $      | 869    |   |   |       | -      |   |   |   | -      |   |   | $ | 40,179 |   |   | $ | 869 |   |
| State and municipal securities                  |   |        | 40     |   |                               |   | 19,207 |                               |   |   | 482    |   |   | $          | 468    |   |   | $      | 32     |   |   |   | 19,675 |   |   |   | 514 |   |
| Mortgage-backed securities                      |   |        | 19     |   |                               |   | 21,999 |                               |   |   | 311    |   |   |       | -      |   |   |   | -      |   |   |   | 21,999 |   |   |   | 311 |   |
| Collateralized mortgage obligations (CMOs) |   |        | 7      |   |                               |   | 6,918  |                               |   |   | 137    |   |   |       | -      |   |   |   | -      |   |   |   | 6,918 |   |   |   | 137 |   |
| Other debt securities                           |   |        | 7      |   |                               |   | -      |                               |   |   | -      |   |   |       | 1,866  |   |   |   | 1,774  |   |   |   | 1,866 |   |   |   | 1,774 |   |
| Equity securities                               |   |        | 5      |   |                               |   | 740    |                               |   |   | 43     |   |   |       | -      |   |   |   | -      |   |   |   | 740 |   |   |   | 43 |   |
| Total                                           |   |        | 108    |   |                               | $      | 89,043 |                               |   | $      | 1,842  |   |   | $          | 2,334  |   |   | $      | 1,806  |   |   | $ | 91,377 |   |   | $ | 3,648 |   |

----

| Deal        |   | Class      |   | Bookvalue |   |   | Fairvalue |   |   | Unreal-ized loss |   |   | RealizedOTTIcreditloss(YTD2011) |   |   | TotalRealizedOTTICreditLoss |   |   | Moody's/Fitchratings |   |   | Currentnumberof banks |   |   | Currentnumber ofinsurancecompanies |   |   | Actualdeferralsand defaultsas a % oftotalcollateral |   |   | Totalperformingcollateral asa % ofoutstandingbonds |   |
|-------------|--------|------------|--------|-----------|--------|--------|-----------|--------|--------|-----------------------|--------|--------|---------------------------------|--------|--------|-----------------------------|--------|--------|----------------------|--------|--------|----------------------------|--------|--------|-----------------------------------------|--------|--------|-------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------|--------|
| PreTSL IV   |   | Mezzanine* |   | $         | 243    |   |      | $      | 206    |                  |   | $      | (37                             | )      |   | $                           | -      |   |                 | $      | (1     | )                          |   | Ca/CCC |                                    |   |   | 5                                                                       |   |   |                                                              | -      |   |   |   | 27.1 | % |   |   | 124.0 | % |
| PreTSL V    |   | Mezzanine* |   |      | -      |   |      |   | -      |                  |   |   | -                               |   |   |                        | -      |   |                 |   | (118   | )                          |   | Ba3/D  |                                    |   |   | 1                                                                       |   |   |                                                              | -      |   |   |   | 100.0 | % |   |   | 11.5 | % |
| PreTSL VI   |   | Mezzanine* |   |      | 121    |   |      |   | 117    |                  |   |   | (4                              | )      |   |                        | -      |   |                 |   | (8     | )                          |   | Ca/D   |                                    |   |   | 5                                                                       |   |   |                                                              | -      |   |   |   | 73.6 | % |   |   | 50.3 | % |
| PreTSL XVII |   | Mezzanine  |   |      | 752    |   |      |   | 316    |                  |   |   | (436                            | )      |   |                        | -      |   |                 |   | (222   | )                          |   | Ca/C   |                                    |   |   | 46                                                                      |   |   |                                                              | 6      |   |   |   | 40.2 | % |   |   | 71.6 | % |
| PreTSL XIX  |   | Mezzanine  |   |      | 988    |   |      |   | 460    |                  |   |   | (528                            | )      |   |                        | -      |   |                 |   | -      |                       |   |   | C/C                                     |   |   |                                                                    | 50     |   |                                                              |   | 14 |   |   |   | 24.3 | % |   |   | 84.7 | % |
| PreTSL XXV  |   | Mezzanine  |   |      | 766    |   |      |   | 324    |                  |   |   | (442                            | )      |   |                        | -      |   |                 |   | (222   | )                          |   |   | C/C                                     |   |   |                                                                    | 59     |   |                                                              |   | 8 |   |   |   | 37.2 | % |   |   | 71.4 | % |
| PreTSL XXVI |   | Mezzanine  |   |      | 469    |   |      |   | 217    |                  |   |   | (252                            | )      |   |                        | -      |   |                 |   | (270   | )                          |   |   | C/C                                     |   |   |                                                                    | 51     |   |                                                              |   | 10 |   |   |   | 29.6 | % |   |   | 80.5 | % |
| PreTSL XXVI |   | Mezzanine  |   |      | 301    |   |      |   | 275    |                  |   |   | (26                             | )      |   |                        | -      |   |                 |   | (438   | )                          |   |   | C/C                                     |   |   |                                                                    | 51     |   |                                                              |   | 10 |   |   |   | 29.6 | % |   |   | 80.5 | % |
|        |   |       |   | $         | 3,640  |   |      | $      | 1,915  |                  |   | $      | (1,725                          | )      |   | $                           | -      |   |                 | $      | (1,279 | )                          |   |   |                                    |   |   |                                                                    |   |   |                                                              |   |   |   |   |   |   |   |   |   |   |   |

----

|   | · | Estimate of Future Cash Flows – Cash flows are constructed in an INTEX desktop valuation model. INTEX is a proprietary cash flow model recognized as the industry standard for analyzing all types of structured debt products. It includes each deal’s structural features updated with trustee information, including asset-by-asset detail, as it becomes available. The modeled cash flows are then used to determine if all the scheduled principal and interest payments of the investments will be returned. For purposes of the cash flow analysis, relatively modest rates of prepayment were forecasted (ranging from 0-2%). In addition to the base prepayment assumption, due to the recent enactment of the Dodd-Frank financial legislation additional prepayment analysis was performed. First, all fixed-rate trust preferred securities issued by banks with more than $15 billion in total assets at December 31, 2009 were identified. Next the holding companies’ approximate cost of long-term funding given their rating and marketplace interest rates were estimated. The following assumption was made; any holding company that could refinance for a cost savings of more than 2% will refinance and will do so on January 1, 2013, or July 1, 2015 for bank holding company subsidiaries of foreign banking organizations that have relied on Supervision and Regulation Letter SR-01-1. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Credit Analysis – A quarterly credit evaluation is performed for the companies comprising the collateral across the various pooled trust preferred securities. This credit evaluation considers all available evidence and focuses on capitalization, asset quality, profitability, liquidity, stock price performance and whether the institution has received TARP funding and whether the institution has shown the ability to raise capital. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Probability of Default – A near-term probability of default is determined for each issuer based on its financial condition and is used to calculate the expected impact of future deferrals and defaults on the expected cash flows. Each issuer in the collateral pool is assigned a near-term probability of default based on individual performance and financial characteristics. Various studies suggest that the rate of bank failures between 1934 and 2008 were approximately 0.36%. Thus, in addition to the specific bank default assumptions used for the near term, future defaults on the individual banks in the analysis are assumed at 0.75% for 2012 (two times historical levels) and for 2013 and beyond the rate used is calculated based upon individual issuers estimated CAMEL rating as projected by VERIBANC®. Banks in the pool are assigned a probability of default based on their unique credit characteristics and market indicators. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Severity of Loss – In addition to the probability of default discussed above, a severity of loss (projected recovery) is determined in all cases. In the current analysis, the severity of loss ranges from 0% to 100% depending on the estimated credit worthiness of the individual issuer, with a 95% severity of loss utilized for deferrals projected in 2011 and thereafter. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 1. | Lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices. Effect of external factors, such as legal and regulatory requirements. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Nature and volume of the portfolio including growth. |
|--------|----|------------------------------------------------------|

|   | 4. | Experience, ability, and depth of lending management and staff. |
|--------|----|-----------------------------------------------------------------|

|   | 5. | Volume and severity of past due, classified and nonaccrual loans. |
|--------|----|-------------------------------------------------------------------|

|   | 6. | Quality of the Company’s loan review system, and the degree of oversight by the Company’s Board of Directors. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------|

|   | 7. | Existence and effect of any concentrations of credit and changes in the level of such concentrations. |
|--------|----|-------------------------------------------------------------------------------------------------------|

----

|                               |   | March 31, |    |   | December 31, |   |
|------------------------------------|--------|----------------|---------|--------|-------------------|--------|
|                               |   | 2011           |    |   | 2010              |   |
| Commercial:                        |   |           |    |   |              |   |
| Commercial and industrial          |   | $              | 87,838  |   |              | $      | 86,628 |   |
| Construction                       |   |           | 18,390  |   |              |   | 18,611 |   |
| Secured by commercial real estate  |   |           | 198,165 |   |              |   | 199,874 |   |
| Secured by residential real estate |   |           | 45,747  |   |              |   | 44,444 |   |
| State and political subdivisions   |   |           | 30,566  |   |              |   | 31,053 |   |
| Indirect lease financing           |   |           | 12,537  |   |              |   | 12,995 |   |
| Retail:                            |   |           |    |   |              |   |   |   |
| 1-4 family residential mortgages   |   |           | 23,169  |   |              |   | 23,127 |   |
| Home equity loans and lines        |   |           | 59,426  |   |              |   | 62,726 |   |
| Consumer                           |   |           | 2,580   |   |              |   | 2,751 |   |
| Total loans                        |   |           | 478,418 |   |              |   | 482,209 |   |
| Net unearned fees                  |   |           | (24     | )      |              |   | (27 | ) |
| Loans receivable                   |   | $              | 478,394 |   |              | $      | 482,182 |   |

----

----

| March 31, 2011           |   | Pass   |    |   | Specialmention |   |   | Substandard |   |   | Doubtful |   |   | Total  |   |
|------------------------------------|--------|--------|---------|--------|----------------|--------|--------|-------------|--------|--------|----------|--------|--------|--------|--------|
| Commercial:                        |   |   |    |   |           |   |   |        |   |   |     |   |   |   |   |
| Commercial and industrial          |   | $      | 74,020  |   |           | $      | 1,262  |        |   | $      | 12,503   |   |   | $      | 53     |   |   | $ | 87,838 |   |
| Construction                       |   |   | 9,964   |   |           |   | 5,788  |        |   |   | 2,638    |   |   |   | -      |   |   |   | 18,390 |   |
| Secured by commercial real estate  |   |   | 151,879 |   |           |   | 6,998  |        |   |   | 38,608   |   |   |   | 680    |   |   |   | 198,165 |   |
| Secured by residential real estate |   |   | 40,920  |   |           |   | 1,022  |        |   |   | 3,805    |   |   |   | -      |   |   |   | 45,747 |   |
| State and political subdivisions   |   |   | 28,247  |   |           |   | 2,319  |        |   |   | -        |   |   |   | -      |   |   |   | 30,566 |   |
| Indirect lease financing           |   |   | 11,932  |   |           |   | -      |        |   |   | 605      |   |   |   | -      |   |   |   | 12,537 |   |
|                               |   | $      | 316,962 |   |           | $      | 17,389 |        |   | $      | 58,159   |   |   | $      | 733    |   |   | $ | 393,243 |   |

| December 31, 2010        |   | Pass   |    |   | Specialmention |   |   | Substandard |   |   | Doubtful |   |   | Total  |   |
|------------------------------------|--------|--------|---------|--------|----------------|--------|--------|-------------|--------|--------|----------|--------|--------|--------|--------|
| Commercial:                        |   |   |    |   |           |   |   |        |   |   |     |   |   |   |   |
| Commercial and industrial          |   | $      | 74,315  |   |           | $      | 1,378  |        |   | $      | 10,878   |   |   | $      | 57     |   |   | $ | 86,628 |   |
| Construction                       |   |   | 9,888   |   |           |   | 5,993  |        |   |   | 2,730    |   |   |   | -      |   |   |   | 18,611 |   |
| Secured by commercial real estate  |   |   | 154,697 |   |           |   | 6,537  |        |   |   | 37,942   |   |   |   | 698    |   |   |   | 199,874 |   |
| Secured by residential real estate |   |   | 39,823  |   |           |   | 1,038  |        |   |   | 3,583    |   |   |   | -      |   |   |   | 44,444 |   |
| State and political subdivisions   |   |   | 28,649  |   |           |   | 2,338  |        |   |   | 66       |   |   |   | -      |   |   |   | 31,053 |   |
| Indirect lease financing           |   |   | 12,460  |   |           |   | -      |        |   |   | 535      |   |   |   | -      |   |   |   | 12,995 |   |
|                               |   | $      | 319,832 |   |           | $      | 17,284 |        |   | $      | 55,734   |   |   | $      | 755    |   |   | $ | 393,605 |   |

----

| March 31, 2011         |   | Performing |   |   | Non-performing |   |   | Total  |   |
|----------------------------------|--------|------------|--------|--------|----------------|--------|--------|--------|--------|
| Retail:                          |   |       |   |   |           |   |   |   |   |
| 1-4 family residential mortgages |   | $          | 22,603 |   |           | $      | 566    |   |   | $ | 23,169 |   |
| Home equity loans and lines      |   |       | 58,911 |   |           |   | 515    |   |   |   | 59,426 |   |
| Consumer                         |   |       | 2,580  |   |           |   | -      |   |   |   | 2,580 |   |
|                             |   | $          | 84,094 |   |           | $      | 1,081  |   |   | $ | 85,175 |   |

| December 31, 2010      |   | Performing |   |   | Non-performing |   |   | Total  |   |
|----------------------------------|--------|------------|--------|--------|----------------|--------|--------|--------|--------|
| Retail:                          |   |       |   |   |           |   |   |   |   |
| 1-4 family residential mortgages |   | $          | 22,694 |   |           | $      | 433    |   |   | $ | 23,127 |   |
| Home equity loans and lines      |   |       | 62,581 |   |           |   | 145    |   |   |   | 62,726 |   |
| Consumer                         |   |       | 2,751  |   |           |   | -      |   |   |   | 2,751 |   |
|                             |   | $          | 88,026 |   |           | $      | 578    |   |   | $ | 88,604 |   |

| March 31, 2011           |   | 30-59 dayspast due |   |   | 60-89 dayspast due |   |   | >90 dayspast due |   |   | Total pastdue loans |   |   | Current |   |   | Total loansreceivable |   |
|------------------------------------|--------|------------------------------|--------|--------|------------------------------|--------|--------|-------------------------------|--------|--------|-------------------------------|--------|--------|---------|--------|--------|----------------------------|--------|
| Commercial:                        |   |                         |   |   |                         |   |   |                          |   |   |                          |   |   |    |   |   |                       |   |
| Commercial and industrial          |   | $                            | 93     |   |                         | $      | -      |                          |   | $      | 162                           |   |   | $       | 255    |   |                       | $      | 87,583 |   |   | $ | 87,838 |   |
| Construction                       |   |                         | -      |   |                         |   | -      |                          |   |   | 1,334                         |   |   |    | 1,334  |   |                       |   | 17,056 |   |   |   | 18,390 |   |
| Secured by commercial real estate  |   |                         | 1,220  |   |                         |   | -      |                          |   |   | 2,871                         |   |   |    | 4,091  |   |                       |   | 194,074 |   |   |   | 198,165 |   |
| Secured by residential real estate |   |                         | 180    |   |                         |   | 22     |                          |   |   | 238                           |   |   |    | 440    |   |                       |   | 45,307 |   |   |   | 45,747 |   |
| State and political subdivisions   |   |                         | 220    |   |                         |   | -      |                          |   |   | -                             |   |   |    | 220    |   |                       |   | 30,346 |   |   |   | 30,566 |   |
| Indirect lease financing           |   |                         | 1,786  |   |                         |   | 198    |                          |   |   | 12                            |   |   |    | 1,996  |   |                       |   | 10,541 |   |   |   | 12,537 |   |
| Retail:                            |   |                         |   |   |                         |   |   |                          |   |   |                          |   |   |    |   |   |                       |   |   |   |   |   |   |   |
| 1-4 family residential mortgages   |   |                         | 218    |   |                         |   | -      |                          |   |   | -                             |   |   |    | 218    |   |                       |   | 22,951 |   |   |   | 23,169 |   |
| Home equity loans and lines        |   |                         | 300    |   |                         |   | 36     |                          |   |   | 165                           |   |   |    | 501    |   |                       |   | 58,925 |   |   |   | 59,426 |   |
| Consumer                           |   |                         | 38     |   |                         |   | 1      |                          |   |   | -                             |   |   |    | 39     |   |                       |   | 2,541 |   |   |   | 2,580 |   |
|                               |   | $                            | 4,055  |   |                         | $      | 257    |                          |   | $      | 4,782                         |   |   | $       | 9,094  |   |                       | $      | 469,324 |   |   | $ | 478,418 |   |

----

| December 31, 2010        |   | 30-59 dayspast due |   |   | 60-89 dayspast due |   |   | >90 dayspast due |   |   | Total pastdue loans |   |   | Current |   |   | Total loansreceivable |   |
|------------------------------------|--------|------------------------------|--------|--------|------------------------------|--------|--------|-------------------------------|--------|--------|-------------------------------|--------|--------|---------|--------|--------|----------------------------|--------|
| Commercial:                        |   |                         |   |   |                         |   |   |                          |   |   |                          |   |   |    |   |   |                       |   |
| Commercial and industrial          |   | $                            | 228    |   |                         | $      | 66     |                          |   | $      | 197                           |   |   | $       | 491    |   |                       | $      | 86,137 |   |   | $ | 86,628 |   |
| Construction                       |   |                         | 39     |   |                         |   | -      |                          |   |   | 1,334                         |   |   |    | 1,373  |   |                       |   | 17,238 |   |   |   | 18,611 |   |
| Secured by commercial real estate  |   |                         | 527    |   |                         |   | 4,517  |                          |   |   | 3,257                         |   |   |    | 8,301  |   |                       |   | 191,573 |   |   |   | 199,874 |   |
| Secured by residential real estate |   |                         | 857    |   |                         |   | 125    |                          |   |   | 54                            |   |   |    | 1,036  |   |                       |   | 43,408 |   |   |   | 44,444 |   |
| State and political subdivisions   |   |                         | -      |   |                         |   | 8      |                          |   |   | 9                             |   |   |    | 17     |   |                       |   | 31,036 |   |   |   | 31,053 |   |
| Indirect lease financing           |   |                         | 495    |   |                         |   | 244    |                          |   |   | 72                            |   |   |    | 811    |   |                       |   | 12,184 |   |   |   | 12,995 |   |
| Retail:                            |   |                         |   |   |                         |   |   |                          |   |   |                          |   |   |    |   |   |                       |   |   |   |   |   |   |   |
| 1-4 family residential mortgages   |   |                         | 668    |   |                         |   | -      |                          |   |   | 433                           |   |   |    | 1,101  |   |                       |   | 22,026 |   |   |   | 23,127 |   |
| Home equity loans and lines        |   |                         | 220    |   |                         |   | 203    |                          |   |   | 29                            |   |   |    | 452    |   |                       |   | 62,274 |   |   |   | 62,726 |   |
| Consumer                           |   |                         | 32     |   |                         |   | -      |                          |   |   | -                             |   |   |    | 32     |   |                       |   | 2,719 |   |   |   | 2,751 |   |
|                               |   | $                            | 3,066  |   |                         | $      | 5,163  |                          |   | $      | 5,385                         |   |   | $       | 13,614 |   |                       | $      | 468,595 |   |   | $ | 482,209 |   |

| March 31, 2011           |   | >90 days pastdue (stillaccruing) |   |   | Non-accrual |   |
|------------------------------------|--------|----------------------------------------------------|--------|--------|-------------|--------|
| Commercial:                        |   |                                               |   |   |        |   |
| Commercial and industrial          |   |                                               | -      |   |        | $      | 3,267 |   |
| Construction                       |   |                                               | -      |   |        |   | 1,334 |   |
| Secured by commercial real estate  |   |                                               | -      |   |        |   | 4,011 |   |
| Secured by residential real estate |   |                                               | -      |   |        |   | 660 |   |
| State and political subdivisions   |   |                                               | -      |   |        |   | 6 |   |
| Indirect lease financing           |   | $                                                  | 12     |   |        |   | 230 |   |
| Retail:                            |   |                                               |   |   |        |   |   |   |
| 1-4 family residential mortgages   |   |                                               | -      |   |        |   | 566 |   |
| Home equity loans and lines        |   |                                               | -      |   |        |   | 515 |   |
| Consumer                           |   |                                               | -      |   |        |   | - |   |
|                               |   | $                                                  | 12     |   |        | $      | 10,589 |   |

----

| December 31, 2010        |   | >90 Days PastDue (stillaccruing) |   |   | Non-accrual |   |
|------------------------------------|--------|----------------------------------------------------|--------|--------|-------------|--------|
| Commercial:                        |   |                                               |   |   |        |   |
| Commercial and industrial          |   |                                               | -      |   |        | $      | 1,082 |   |
| Construction                       |   |                                               | -      |   |        |   | 1,334 |   |
| Secured by commercial real estate  |   | $                                                  | 259    |   |        |   | 3,837 |   |
| Secured by residential real estate |   |                                               | -      |   |        |   | 97 |   |
| State and political subdivisions   |   |                                               | 9      |   |        |   | - |   |
| Indirect lease financing           |   |                                               | -      |   |        |   | 255 |   |
| Retail:                            |   |                                               |   |   |        |   |   |   |
| 1-4 family residential mortgages   |   |                                               | -      |   |        |   | 433 |   |
| Home equity loans and lines        |   |                                               | -      |   |        |   | 145 |   |
| Consumer                           |   |                                               | -      |   |        |   | - |   |
|                               |   | $                                                  | 268    |   |        | $      | 7,183 |   |

| Quarter ended March 31,      |   | 2011   |   |   | 2010   |   |
|------------------------------|--------|--------|--------|--------|--------|--------|
| Balance at beginning of year |   | $      | 8,955  |   |   | $      | 6,217 |   |
| Charge-offs                  |   |   | (425   | )      |   |   | (599 | ) |
| Recoveries                   |   |   | 12     |   |   |   | 39 |   |
| Net charge-offs              |   |   | (413   | )      |   |   | (560 | ) |
| Provision for loan losses    |   |   | 650    |   |   |   | 700 |   |
| Balance at end of year       |   | $      | 9,192  |   |   | $      | 6,357 |   |

| March 31, 2011           |   | Balance,beginning ofyear |   |   | Provision for(credit to) loanlosses |   |   | Charge-offs |   |   | Recoveries |   |   | Balance, endof period |   |
|------------------------------------|--------|-------------------------------|--------|--------|----------------------------------------------------|--------|--------|-------------|--------|--------|------------|--------|--------|---------------------------------|--------|
| Commercial:                        |   |                          |   |   |                                               |   |   |        |   |   |       |   |   |                            |   |
| Commercial and industrial          |   | $                             | 2,136  |   |                                               | $      | 1,045  |        |   | $      | (65        | )      |   | $                               | 3      |   |   | $ | 3,119 |   |
| Construction                       |   |                          | 633    |   |                                               |   | 27     |        |   |   | -          |   |   |                            | -      |   |   |   | 660 |   |
| Secured by commercial real estate  |   |                          | 3,875  |   |                                               |   | (403   | )           |   |   | (292       | )      |   |                            | -      |   |   |   | 3,180 |   |
| Secured by residential real estate |   |                          | 676    |   |                                               |   | 3      |        |   |   | (54        | )      |   |                            | -      |   |   |   | 625 |   |
| State and political subdivisions   |   |                          | 108    |   |                                               |   | (1     | )           |   |   | -          |   |   |                            | -      |   |   |   | 107 |   |
| Indirect lease financing           |   |                          | 496    |   |                                               |   | (30    | )           |   |   | -          |   |   |                            | 4      |   |   |   | 470 |   |
| Retail:                            |   |                          |   |   |                                               |   |   |        |   |   |       |   |   |                            |   |   |   |   |   |   |
| 1-4 family residential mortgages   |   |                          | 212    |   |                                               |   | (7     | )           |   |   | -          |   |   |                            | -      |   |   |   | 205 |   |
| Home equity loans and lines        |   |                          | 646    |   |                                               |   | (32    | )           |   |   | (10        | )      |   |                            | 1      |   |   |   | 605 |   |
| Consumer                           |   |                          | 32     |   |                                               |   | (5     | )           |   |   | (4         | )      |   |                            | 4      |   |   |   | 27 |   |
| Unallocated                        |   |                          | 141    |   |                                               |   | 53     |        |   |   | N/A        |   |   |                            | N/A    |   |   |   | 194 |   |
|                               |   | $                             | 8,955  |   |                                               | $      | 650    |        |   | $      | (425       | )      |   | $                               | 12     |   |   | $ | 9,192 |   |

----

----

|                          |   | Allowance for Loan Losses |   |   | Loans Receivable                                               |   |
|------------------------------------|--------|------------------------------------------|--------|--------|---------------------------------------------------------------------|--------|
| March 31, 2011           |   | Balance                                  |   |   | Balancerelated toloansindividuallyevaluated forimpairment |   |   | Balancerelated toloanscollectivelyevaluated forimpairment |   |   | Balance |   |   | Balance individuallyevaluated forimpairment |   |   | Balancecollectivelyevaluated forimpairment |   |
| Commercial:                        |   |                                     |   |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial          |   | $                                        | 3,119  |   |                                                                | $      | 1,907 |   |   | $ | 1,212 |   |   | $ | 87,838 |   |   | $ | 9,670 |   |   | $ | 78,168 |   |
| Construction                       |   |                                     | 660    |   |                                                                |   | 400 |   |   |   | 260 |   |   |   | 18,390 |   |   |   | 2,638 |   |   |   | 15,752 |   |
| Secured by commercial real estate  |   |                                     | 3,180  |   |                                                                |   | 316 |   |   |   | 2,864 |   |   |   | 198,165 |   |   |   | 12,457 |   |   |   | 185,708 |   |
| Secured by residential real estate |   |                                     | 625    |   |                                                                |   | 153 |   |   |   | 472 |   |   |   | 45,747 |   |   |   | 2,690 |   |   |   | 43,057 |   |
| State and political subdivisions   |   |                                     | 107    |   |                                                                |   | - |   |   |   | 107 |   |   |   | 30,566 |   |   |   | - |   |   |   | 30,566 |   |
| Indirect lease financing           |   |                                     | 470    |   |                                                                |   | 52 |   |   |   | 418 |   |   |   | 12,537 |   |   |   | 252 |   |   |   | 12,285 |   |
| Retail:                            |   |                                     |   |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 1-4 family residential mortgages   |   |                                     | 205    |   |                                                                |   | 101 |   |   |   | 104 |   |   |   | 23,169 |   |   |   | 172 |   |   |   | 22,997 |   |
| Home equity loans and lines        |   |                                     | 605    |   |                                                                |   | 92 |   |   |   | 513 |   |   |   | 59,426 |   |   |   | 692 |   |   |   | 58,734 |   |
| Consumer                           |   |                                     | 27     |   |                                                                |   | - |   |   |   | 27 |   |   |   | 2,580 |   |   |   | - |   |   |   | 2,580 |   |
| Unallocated                        |   |                                     | 194    |   |                                                                |   | N/A |   |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |
|                               |   | $                                        | 9,192  |   |                                                                | $      | 3,021 |   |   | $ | 5,977 |   |   | $ | 478,418 |   |   | $ | 28,571 |   |   | $ | 449,847 |   |

|                          |   | Allowance for Loan Losses |   |   | Loans Receivable                                               |   |
|------------------------------------|--------|------------------------------------------|--------|--------|---------------------------------------------------------------------|--------|
| December 31, 2010        |   | Balance                                  |   |   | Balancerelated toloansindividuallyevaluated forimpairment |   |   | Balancerelated toloanscollectivelyevaluated forimpairment |   |   | Balance |   |   | Balance individuallyevaluated forimpairment |   |   | Balancecollectivelyevaluated forimpairment |   |
| Commercial:                        |   |                                     |   |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial          |   | $                                        | 2,136  |   |                                                                | $      | 878 |   |   | $ | 1,258 |   |   | $ | 86,628 |   |   | $ | 4,710 |   |   | $ | 81,918 |   |
| Construction                       |   |                                     | 633    |   |                                                                |   | 370 |   |   |   | 263 |   |   |   | 18,611 |   |   |   | 2,650 |   |   |   | 15,961 |   |
| Secured by commercial real estate  |   |                                     | 3,875  |   |                                                                |   | 687 |   |   |   | 3,188 |   |   |   | 199,874 |   |   |   | 9,213 |   |   |   | 190,661 |   |
| Secured by residential real estate |   |                                     | 676    |   |                                                                |   | 179 |   |   |   | 497 |   |   |   | 44,444 |   |   |   | 2,624 |   |   |   | 41,820 |   |
| State and political subdivisions   |   |                                     | 108    |   |                                                                |   | - |   |   |   | 108 |   |   |   | 31,053 |   |   |   | - |   |   |   | 31,053 |   |
| Indirect lease financing           |   |                                     | 496    |   |                                                                |   | 64 |   |   |   | 432 |   |   |   | 12,995 |   |   |   | 275 |   |   |   | 12,720 |   |
| Retail:                            |   |                                     |   |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 1-4 family residential mortgages   |   |                                     | 212    |   |                                                                |   | 41 |   |   |   | 171 |   |   |   | 23,127 |   |   |   | 606 |   |   |   | 22,521 |   |
| Home equity loans and lines        |   |                                     | 646    |   |                                                                |   | 62 |   |   |   | 584 |   |   |   | 62,726 |   |   |   | 785 |   |   |   | 61,941 |   |
| Consumer                           |   |                                     | 32     |   |                                                                |   | - |   |   |   | 32 |   |   |   | 2,751 |   |   |   | - |   |   |   | 2,751 |   |
| Unallocated                        |   |                                     | 141    |   |                                                                |   | N/A |   |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |
|                               |   | $                                        | 8,955  |   |                                                                | $      | 2,281 |   |   | $ | 6,533 |   |   | $ | 482,209 |   |   | $ | 20,863 |   |   | $ | 461,346 |   |

----

| March 31, 2011             |   | Recordedinvestment(after charge-offs) |   |   | Unpaidprincipalbalance |   |   | Relatedallowance |   |   | Averagerecordedinvestment |   |   | Interestincomerecognized |   |
|--------------------------------------|--------|--------------------------------------------|--------|--------|------------------------|--------|--------|------------------|--------|--------|---------------------------|--------|--------|--------------------------|--------|
| With no specific allowance recorded: |   |                                       |   |   |                   |   |   |             |   |   |                      |   |   |                     |   |
| Commercial:                          |   |                                       |   |   |                   |   |   |             |   |   |                      |   |   |                     |   |
| Commercial and industrial            |   | $                                          | 6,532  |   |                   | $      | 6,543  |             |   | $      | -                         |   |   |                     |   |   |   |   |
| Construction                         |   |                                       | 1,304  |   |                   |   | 1,304  |             |   |   | -                         |   |   |                     |   |   |   |   |
| Secured by commercial real estate    |   |                                       | 8,605  |   |                   |   | 8,611  |             |   |   | -                         |   |   |                     |   |   |   |   |
| Secured by residential real estate   |   |                                       | 1,688  |   |                   |   | 1,688  |             |   |   | -                         |   |   |                     |   |   |   |   |
| State and political subdivisions     |   |                                       | -      |   |                   |   | -      |             |   |   | -                         |   |   |                     |   |   |   |   |
| Indirect lease financing             |   |                                       | 60     |   |                   |   | 65     |             |   |   | -                         |   |   |                     |   |   |   |   |
| Retail:                              |   |                                       |   |   |                   |   |   |             |   |   |                      |   |   |                     |   |   |   |   |
| 1-4 family residential mortgages     |   |                                       | -      |   |                   |   | -      |             |   |   | -                         |   |   |                     |   |   |   |   |
| Home equity loans and lines          |   |                                       | 410    |   |                   |   | 410    |             |   |   | -                         |   |   |                     |   |   |   |   |
| Consumer                             |   |                                       | -      |   |                   |   | -      |             |   |   | -                         |   |   |                     |   |   |   |   |
|                                 |   | $                                          | 18,599 |   |                   | $      | 18,621 |             |   | $      | -                         |   |   |                     |   |   |   |   |
|                                 |   |                                       |   |   |                   |   |   |             |   |   |                      |   |   |                     |   |   |   |   |
| With an allowance recorded:          |   |                                       |   |   |                   |   |   |             |   |   |                      |   |   |                     |   |   |   |   |
| Commercial:                          |   |                                       |   |   |                   |   |   |             |   |   |                      |   |   |                     |   |   |   |   |
| Commercial and industrial            |   | $                                          | 3,138  |   |                   | $      | 3,138  |             |   | $      | 1,907                     |   |   |                     |   |   |   |   |
| Construction                         |   |                                       | 1,334  |   |                   |   | 1,340  |             |   |   | 400                       |   |   |                     |   |   |   |   |
| Secured by commercial real estate    |   |                                       | 3,852  |   |                   |   | 3,992  |             |   |   | 316                       |   |   |                     |   |   |   |   |
| Secured by residential real estate   |   |                                       | 1,002  |   |                   |   | 1,003  |             |   |   | 153                       |   |   |                     |   |   |   |   |
| State and political subdivisions     |   |                                       | -      |   |                   |   | -      |             |   |   | -                         |   |   |                     |   |   |   |   |
| Indirect lease financing             |   |                                       | 192    |   |                   |   | 217    |             |   |   | 52                        |   |   |                     |   |   |   |   |
| Retail:                              |   |                                       |   |   |                   |   |   |             |   |   |                      |   |   |                     |   |   |   |   |
| 1-4 family residential mortgages     |   |                                       | 172    |   |                   |   | 172    |             |   |   | 101                       |   |   |                     |   |   |   |   |
| Home equity loans and lines          |   |                                       | 282    |   |                   |   | 282    |             |   |   | 92                        |   |   |                     |   |   |   |   |
| Consumer                             |   |                                       | -      |   |                   |   | -      |             |   |   | -                         |   |   |                     |   |   |   |   |
|                                 |   | $                                          | 9,972  |   |                   | $      | 10,144 |             |   | $      | 3,021                     |   |   |                     |   |   |   |   |
|                                 |   |                                       |   |   |                   |   |   |             |   |   |                      |   |   |                     |   |   |   |   |
| Total:                               |   |                                       |   |   |                   |   |   |             |   |   |                      |   |   |                     |   |   |   |   |
| Commercial:                          |   |                                       |   |   |                   |   |   |             |   |   |                      |   |   |                     |   |   |   |   |
| Commercial and industrial            |   | $                                          | 9,670  |   |                   | $      | 9,681  |             |   | $      | 1,907                     |   |   | $                        | 5,837  |   |   | $ | 51 |   |
| Construction                         |   |                                       | 2,638  |   |                   |   | 2,644  |             |   |   | 400                       |   |   |                     | 2,773  |   |   |   | 20 |   |
| Secured by commercial real estate    |   |                                       | 12,457 |   |                   |   | 12,603 |             |   |   | 316                       |   |   |                     | 9,667  |   |   |   | 94 |   |
| Secured by residential real estate   |   |                                       | 2,690  |   |                   |   | 2,691  |             |   |   | 153                       |   |   |                     | 1,978  |   |   |   | 20 |   |
| State and political subdivisions     |   |                                       | -      |   |                   |   | -      |             |   |   | -                         |   |   |                     | -      |   |   |   | - |   |
| Indirect lease financing             |   |                                       | 252    |   |                   |   | 282    |             |   |   | 52                        |   |   |                     | 256    |   |   |   | 1 |   |
| Retail:                              |   |                                       |   |   |                   |   |   |             |   |   |                      |   |   |                     |   |   |   |   |   |   |
| 1-4 family residential mortgages     |   |                                       | 172    |   |                   |   | 172    |             |   |   | 101                       |   |   |                     | 172    |   |   |   | - |   |
| Home equity loans and lines          |   |                                       | 692    |   |                   |   | 692    |             |   |   | 92                        |   |   |                     | 1,366  |   |   |   | 18 |   |
| Consumer                             |   |                                       | -      |   |                   |   | -      |             |   |   | -                         |   |   |                     | -      |   |   |   | - |   |
|                                 |   | $                                          | 28,571 |   |                   | $      | 28,765 |             |   | $      | 3,021                     |   |   | $                        | 22,049 |   |   | $ | 204 |   |

----

| December 31, 2010          |   | Recordedinvestment(after charge-offs) |   |   | Unpaidprincipalbalance |   |   | Relatedallowance |   |
|--------------------------------------|--------|--------------------------------------------|--------|--------|------------------------|--------|--------|------------------|--------|
| With no specific allowance recorded: |   |                                       |   |   |                   |   |   |             |   |
| Commercial:                          |   |                                       |   |   |                   |   |   |             |   |
| Commercial and industrial            |   | $                                          | 3,218  |   |                   | $      | 3,225  |             |   | $ | - |   |
| Construction                         |   |                                       | 1,316  |   |                   |   | 1,316  |             |   |   | - |   |
| Secured by commercial real estate    |   |                                       | 5,495  |   |                   |   | 5,497  |             |   |   | - |   |
| Secured by residential real estate   |   |                                       | 1,558  |   |                   |   | 1,558  |             |   |   | - |   |
| State and political subdivisions     |   |                                       | -      |   |                   |   | -      |             |   |   | - |   |
| Indirect lease financing             |   |                                       | 55     |   |                   |   | 60     |             |   |   | - |   |
| Retail:                              |   |                                       |   |   |                   |   |   |             |   |   |   |   |
| 1-4 family residential mortgages     |   |                                       | 434    |   |                   |   | 436    |             |   |   | - |   |
| Home equity loans and lines          |   |                                       | 492    |   |                   |   | 492    |             |   |   | - |   |
| Consumer                             |   |                                       | -      |   |                   |   | -      |             |   |   | - |   |
|                                 |   | $                                          | 12,568 |   |                   | $      | 12,584 |             |   | $ | - |   |
|                                 |   |                                       |   |   |                   |   |   |             |   |   |   |   |
| With an allowance recorded:          |   |                                       |   |   |                   |   |   |             |   |   |   |   |
| Commercial:                          |   |                                       |   |   |                   |   |   |             |   |   |   |   |
| Commercial and industrial            |   | $                                          | 1,492  |   |                   | $      | 1,492  |             |   | $ | 878 |   |
| Construction                         |   |                                       | 1,334  |   |                   |   | 1,340  |             |   |   | 370 |   |
| Secured by commercial real estate    |   |                                       | 3,718  |   |                   |   | 3,821  |             |   |   | 687 |   |
| Secured by residential real estate   |   |                                       | 1,066  |   |                   |   | 1,066  |             |   |   | 179 |   |
| State and political subdivisions     |   |                                       | -      |   |                   |   | -      |             |   |   | - |   |
| Indirect lease financing             |   |                                       | 220    |   |                   |   | 239    |             |   |   | 64 |   |
| Retail:                              |   |                                       |   |   |                   |   |   |             |   |   |   |   |
| 1-4 family residential mortgages     |   |                                       | 172    |   |                   |   | 172    |             |   |   | 41 |   |
| Home equity loans and lines          |   |                                       | 293    |   |                   |   | 293    |             |   |   | 62 |   |
| Consumer                             |   |                                       | -      |   |                   |   | -      |             |   |   | - |   |
|                                 |   | $                                          | 8,295  |   |                   | $      | 8,423  |             |   | $ | 2,281 |   |
|                                 |   |                                       |   |   |                   |   |   |             |   |   |   |   |
| Total:                               |   |                                       |   |   |                   |   |   |             |   |   |   |   |
| Commercial:                          |   |                                       |   |   |                   |   |   |             |   |   |   |   |
| Commercial and industrial            |   | $                                          | 4,710  |   |                   | $      | 4,717  |             |   | $ | 878 |   |
| Construction                         |   |                                       | 2,650  |   |                   |   | 2,656  |             |   |   | 370 |   |
| Secured by commercial real estate    |   |                                       | 9,213  |   |                   |   | 9,318  |             |   |   | 687 |   |
| Secured by residential real estate   |   |                                       | 2,624  |   |                   |   | 2,624  |             |   |   | 179 |   |
| State and political subdivisions     |   |                                       | -      |   |                   |   | -      |             |   |   | - |   |
| Indirect lease financing             |   |                                       | 275    |   |                   |   | 299    |             |   |   | 64 |   |
| Retail:                              |   |                                       |   |   |                   |   |   |             |   |   |   |   |
| 1-4 family residential mortgages     |   |                                       | 606    |   |                   |   | 608    |             |   |   | 41 |   |
| Home equity loans and lines          |   |                                       | 785    |   |                   |   | 785    |             |   |   | 62 |   |
| Consumer                             |   |                                       | -      |   |                   |   | -      |             |   |   | - |   |
|                                 |   | $                                          | 20,863 |   |                   | $      | 21,007 |             |   | $ | 2,281 |   |

----

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

|   | 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). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| March 31, 2011                                                |   | Quoted prices inactive markets foridentical assets(Level 1) |   |   | Significant otherobservable input(Level 2) |   |    | Significantunobservableinputs (Level 3) |   |   | Balance at end ofperiod |   |
|-------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------|--------|---------|---------------------------------------------------|--------|--------|----------------------------------------|--------|
| Securities available-for-sale                                           |   |                                                                                 |   |   |                                                 |   |    |                                              |   |   |                                   |   |
| U.S. Government agencies                                                |   |                                                                                 | -      |   |                                                 | $      | 56,422  |                                              |   |   | -                                      |   |   | $ | 56,422 |   |
| State and municipal securities                                          |   |                                                                                 | -      |   |                                                 |   | 67,698  |                                              |   |   | -                                      |   |   |   | 67,698 |   |
| U.S. Government agencies and sponsored enterprises (GSEs) - residential |   |                                                                                 |   |   |                                                 |   |    |                                              |   |   |                                   |   |   |   |   |   |
| Mortgage-backed securities                                              |   |                                                                                 | -      |   |                                                 |   | 89,511  |                                              |   |   | -                                      |   |   |   | 89,511 |   |
| Collateralized mortgage obligations (CMOs)                              |   |                                                                                 | -      |   |                                                 |   | 74,516  |                                              |   |   | -                                      |   |   |   | 74,516 |   |
| Other debt securities                                                   |   |                                                                                 | -      |   |                                                 |   | 513     |                                              |   | $      | 1,915                                  |   |   |   | 2,428 |   |
| Equity securities                                                       |   | $                                                                                    | 3,895  |   |                                                 |   | -       |                                              |   |   | -                                      |   |   |   | 3,895 |   |
| Total                                                                   |   | $                                                                                    | 3,895  |   |                                                 | $      | 288,660 |                                              |   | $      | 1,915                                  |   |   | $ | 294,470 |   |

----

| December 31, 2010                                             |   | Quoted prices inactive markets foridentical assets(Level 1) |   |   | Significant otherobservable input(Level 2) |   |    | Significantunobservableinputs (Level 3) |   |   | Balance at end ofperiod |   |
|-------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------|--------|---------|---------------------------------------------------|--------|--------|----------------------------------------|--------|
| Securities available-for-sale                                           |   |                                                                                 |   |   |                                                 |   |    |                                              |   |   |                                   |   |
| U.S. Government agencies                                                |   |                                                                                 | -      |   |                                                 | $      | 66,448  |                                              |   |   | -                                      |   |   | $ | 66,448 |   |
| State and municipal securities                                          |   |                                                                                 | -      |   |                                                 |   | 63,588  |                                              |   |   | -                                      |   |   |   | 63,588 |   |
| U.S. Government agencies and sponsored enterprises (GSEs) - residential |   |                                                                                 |   |   |                                                 |   |    |                                              |   |   |                                   |   |   |   |   |   |
| Mortgage-backed securities                                              |   |                                                                                 | -      |   |                                                 |   | 78,801  |                                              |   |   | -                                      |   |   |   | 78,801 |   |
| Collateralized mortgage obligations (CMOs)                              |   |                                                                                 | -      |   |                                                 |   | 75,573  |                                              |   |   | -                                      |   |   |   | 75,573 |   |
| Other debt securities                                                   |   |                                                                                 | -      |   |                                                 |   | 518     |                                              |   | $      | 1,866                                  |   |   |   | 2,384 |   |
| Equity securities                                                       |   | $                                                                                    | 3,770  |   |                                                 |   | -       |                                              |   |   | -                                      |   |   |   | 3,770 |   |
| Total                                                                   |   | $                                                                                    | 3,770  |   |                                                 | $      | 284,928 |                                              |   | $      | 1,866                                  |   |   | $ | 290,564 |   |

|                                        |   | Fair value measurements using |   |
|---------------------------------------------|--------|-----------------------------------------|--------|
|                                        |   | significant unobservable inputs    |   |
|                                        |   | (Level 3)                          |   |
| Balance, beginning of year                  |   | $                                       | 1,866  |   |
| Settlements                                 |   |                                    | -      |   |
| Total gains or losses (realized/unrealized) |   |                                    | -      |   |
| Included in earnings                        |   |                                    | -      |   |
| Included in other comprehensive income      |   |                                    | 49     |   |
| Transfers in and/or out of Level 3          |   |                                    | -      |   |
| Balance, March 31, 2011                     |   | $                                       | 1,915  |   |

----

|   | · | The few observable transactions and market quotations that are available are not reliable for purposes of determining fair value at March 31, 2011; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An income valuation approach technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than the market approach valuation technique used at prior measurement dates; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | PreTSLs will be classified within Level 3 of the fair value hierarchy because significant adjustments are required to determine fair value at the measurement date. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the time value of money |
|--------|--------|-------------------------|

|   | · | the price for bearing uncertainty in cash flows |
|--------|--------|-------------------------------------------------|

|   | · | other factors that would be considered by market participants |
|--------|--------|---------------------------------------------------------------|

----

|                      |   | Quoted prices inactive markets foridentical assets(Level 1) |   |   | Significant otherobservable input(Level 2) |   |   | Significantunobservableinputs (Level 3) |   |   | Balance at end ofperiod |   |
|---------------------------|--------|---------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------|--------|--------|---------------------------------------------------|--------|--------|----------------------------------------|--------|
| March 31, 2011            |   |                                                                            |   |   |                                                      |   |   |                                              |   |   |                                   |   |
| Mortgage servicing rights |   | $                                                                               | -      |   |                                                      | $      | -      |                                              |   | $      | 502                                    |   |   | $ | 502 |   |
| Impaired loans            |   |                                                                            | -      |   |                                                      |   | -      |                                              |   |   | 6,951                                  |   |   |   | 6,951 |   |
|                      |   |                                                                            |   |   |                                                      |   |   |                                              |   |   |                                   |   |   |   |   |   |
| December 31, 2010         |   |                                                                            |   |   |                                                      |   |   |                                              |   |   |                                   |   |   |   |   |   |
| Mortgage servicing rights |   | $                                                                               | -      |   |                                                      | $      | -      |                                              |   | $      | 504                                    |   |   | $ | 504 |   |
| Impaired loans            |   |                                                                            | -      |   |                                                      |   | -      |                                              |   |   | 6,014                                  |   |   |   | 6,014 |   |

----

----

|                                     |   | March 31, 2011 |    |   | December 31, 2010 |   |
|------------------------------------------|--------|----------------|---------|--------|-------------------|--------|
|                                     |   | Carrying       |    |   | Estimated         |   |   | Carrying |   |   | Estimated |   |
|                                     |   | amount         |    |   | fair value        |   |   | amount |   |   | fair value |   |
| Financial Assets                         |   |           |    |   |              |   |   |   |   |   |   |   |
| Cash and due from banks                  |   | $              | 8,035   |   |              | $      | 8,035 |   |   | $ | 8,498 |   |   | $ | 8,498 |   |
| Interest-bearing deposits in banks       |   |           | 18,195  |   |              |   | 18,195 |   |   |   | 6,414 |   |   |   | 6,414 |   |
| Investment securities available-for-sale |   |           | 294,470 |   |              |   | 294,470 |   |   |   | 290,564 |   |   |   | 290,564 |   |
| Investment securities held-to-maturity   |   |           | 1,842   |   |              |   | 1,897 |   |   |   | 2,667 |   |   |   | 2,729 |   |
| Restricted investment in bank stocks     |   |           | 2,068   |   |              |   | 2,068 |   |   |   | 2,176 |   |   |   | 2,176 |   |
| Loans held-for-sale                      |   |           | 115     |   |              |   | 118 |   |   |   | 228 |   |   |   | 228 |   |
| Net loans                                |   |           | 469,202 |   |              |   | 452,236 |   |   |   | 473,227 |   |   |   | 458,040 |   |
| Mortgage servicing rights                |   |           | 502     |   |              |   | 607 |   |   |   | 504 |   |   |   | 620 |   |
| Accrued interest receivable              |   |           | 2,955   |   |              |   | 2,955 |   |   |   | 2,988 |   |   |   | 2,988 |   |
|                                     |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial Liabilities                    |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits with no stated maturities       |   |           | 415,725 |   |              |   | 415,725 |   |   |   | 384,745 |   |   |   | 384,745 |   |
| Deposits with stated maturities          |   |           | 291,681 |   |              |   | 293,252 |   |   |   | 310,232 |   |   |   | 312,016 |   |
| Short-term borrowings                    |   |           | 26,033  |   |              |   | 26,033 |   |   |   | 29,786 |   |   |   | 29,786 |   |
| Long-term debt                           |   |           | 20,306  |   |              |   | 21,459 |   |   |   | 20,308 |   |   |   | 21,666 |   |
| Accrued interest payable                 |   |           | 882     |   |              |   | 882 |   |   |   | 1,089 |   |   |   | 1,089 |   |

|                         |   | March 31, 2011 |    |   | December 31, 2010 |   |
|------------------------------|--------|----------------|---------|--------|-------------------|--------|
|                         |   | Notional       |    |   | Estimated         |   |   | Notional |   |   | Estimated |   |
|                         |   | amount         |    |   | fair value        |   |   | amount |   |   | fair value |   |
| Commitments to extend credit |   | $              | 107,228 |   |              | $      | - |   |   | $ | 103,012 |   |   | $ | - |   |
| Standby letters of credit    |   |           | 13,542  |   |              |   | - |   |   |   | 13,519 |   |   |   | - |   |

----

|                                                    |   | March 31, 2011 |    |   | December 31, 2010 |   |
|---------------------------------------------------------|--------|----------------|---------|--------|-------------------|--------|
| Commitments to extend credit and unused lines of credit |   | $              | 107,228 |   |              | $      | 103,012 |   |
| Standby letters of credit                               |   |           | 13,542  |   |              |   | 13,519 |   |
|                                                    |   | $              | 120,770 |   |              | $      | 116,531 |   |

----

|                                          |   | Capital Levels |   |
|----------------------------------------------------|--------|---------------------|--------|
|                                               |   | Actual              |   |   | Adequately Capitalized |   |   | Well Capitalized |   |
| As of March 31, 2011                               |   | Amount              |   |   | Ratio |   |   | Amount |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| Total Risk-Based Capital (to Risk Weighted Assets) |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                       |   | $                   | 68,595 |   |   |   | 12.10 | % |   | $ | 45,342 |   |   |   | 8.00 | % |   |   | N/A |   |   |   | N/A |   |
| Bank                                               |   |                | 64,412 |   |   |   | 11.44 | % |   |   | 45,052 |   |   |   | 8.00 | % |   | $ | 56,315 |   |   |   | 10.00 | % |
|                                               |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier I Capital (to Risk Weighted Assets)           |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                       |   |                | 61,200 |   |   |   | 10.80 | % |   |   | 22,671 |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
| Bank                                               |   |                | 57,346 |   |   |   | 10.18 | % |   |   | 22,526 |   |   |   | 4.00 | % |   |   | 33,789 |   |   |   | 6.00 | % |
|                                               |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier I Capital (to Average Assets)                 |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                       |   |                | 61,200 |   |   |   | 7.59 | % |   |   | 32,252 |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
| Bank                                               |   |                | 57,346 |   |   |   | 7.14 | % |   |   | 32,109 |   |   |   | 4.00 | % |   |   | 40,136 |   |   |   | 5.00 | % |

|                                          |   | Capital Levels |   |
|----------------------------------------------------|--------|---------------------|--------|
|                                               |   | Actual              |   |   | Adequately Capitalized |   |   | Well Capitalized |   |
| As of December 31, 2010        |   | Amount              |   |   | Ratio |   |   | Amount |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| Total Risk-Based Capital (to Risk Weighted Assets) |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                       |   | $                   | 66,932 |   |   |   | 11.82 | % |   | $ | 45,289 |   |   |   | 8.00 | % |   |   | N/A |   |   |   | N/A |   |
| Bank                                               |   |                | 62,901 |   |   |   | 11.18 | % |   |   | 44,995 |   |   |   | 8.00 | % |   | $ | 56,243 |   |   |   | 10.00 | % |
|                                               |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier I Capital (to Risk Weighted Assets)           |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                       |   |                | 59,551 |   |   |   | 10.52 | % |   |   | 22,644 |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
| Bank                                               |   |                | 55,847 |   |   |   | 9.93 | % |   |   | 22,497 |   |   |   | 4.00 | % |   |   | 33,746 |   |   |   | 6.00 | % |
|                                               |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier I Capital (to Average Assets)                 |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                       |   |                | 59,551 |   |   |   | 7.42 | % |   |   | 32,086 |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
| Bank                                               |   |                | 55,847 |   |   |   | 6.99 | % |   |   | 31,947 |   |   |   | 4.00 | % |   |   | 39,934 |   |   |   | 5.00 | % |

----

| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|---------|---------------------------------------------------------------------------------------|

|   | · | Volatility in interest rates and shape of the yield curve; |
|--------|--------|------------------------------------------------------------|

|   | · | Credit risk; |
|--------|--------|--------------|

|   | · | Liquidity risk; |
|--------|--------|-----------------|

|   | · | Operating, legal and regulatory risks; |
|--------|--------|----------------------------------------|

|   | · | Economic, political and competitive forces affecting the Company’s line of business; |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | The risk that the Federal Deposit Insurance Corporation (FDIC) could levy additional insurance assessments on all insured institutions in order to replenish the Deposit Insurance Fund based on the level of bank failures in the future; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The risk that the analysis of these risks and forces could be incorrect, and/or that the strategies developed to address them could be unsuccessful. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

| Three Months Ended                         |   | March 31, 2011 |    |   | March 31, 2010 |   |
|--------------------------------------------|--------|----------------|---------|--------|----------------|--------|
|                                       |   | Average        |    |   | Average        |   |   |   |   |   | Average |   |   | Average |   |   |   |   |
|                                       |   | Balance        |    |   | Rate           |   |   | Interest |   |   | Balance |   |   | Rate |   |   | Interest |   |
| Assets                                     |   |           |    |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold                         |   | $              | -       |   |           |   | 0.00 | % |   | $ | - |   |   | $ | - |   |   |   | 0.00 | % |   | $ | - |   |
| Investment securities:                     |   |           |    |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury                              |   |           | -       |   |           |   | 0.00 | % |   |   | - |   |   |   | 5,025 |   |   |   | 0.58 | % |   |   | 7 |   |
| U.S. Government agencies                   |   |           | 60,748  |   |           |   | 2.13 | % |   |   | 323 |   |   |   | 63,566 |   |   |   | 3.40 | % |   |   | 541 |   |
| State and municipal                        |   |           | 67,224  |   |           |   | 5.94 | % |   |   | 999 |   |   |   | 55,900 |   |   |   | 6.35 | % |   |   | 887 |   |
| Mortgage-backed and CMOs                   |   |           | 155,217 |   |           |   | 3.51 | % |   |   | 1,360 |   |   |   | 120,601 |   |   |   | 4.29 | % |   |   | 1,292 |   |
| Other debt securities                      |   |           | 4,089   |   |           |   | 1.16 | % |   |   | 12 |   |   |   | 4,517 |   |   |   | 1.24 | % |   |   | 14 |   |
| Equities                                   |   |           | 3,245   |   |           |   | 3.34 | % |   |   | 27 |   |   |   | 2,830 |   |   |   | 3.66 | % |   |   | 26 |   |
| Total investment securities                |   |           | 290,523 |   |           |   | 3.75 | % |   |   | 2,721 |   |   |   | 252,439 |   |   |   | 4.38 | % |   |   | 2,767 |   |
| Loans:                                     |   |           |    |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial real estate                     |   |           | 262,295 |   |           |   | 5.99 | % |   |   | 3,877 |   |   |   | 239,586 |   |   |   | 6.02 | % |   |   | 3,555 |   |
| Residential real estate                    |   |           | 23,398  |   |           |   | 5.57 | % |   |   | 326 |   |   |   | 24,294 |   |   |   | 5.72 | % |   |   | 347 |   |
| Home equity loans                          |   |           | 56,903  |   |           |   | 4.83 | % |   |   | 678 |   |   |   | 61,728 |   |   |   | 5.08 | % |   |   | 774 |   |
| Commercial and industrial                  |   |           | 85,766  |   |           |   | 5.31 | % |   |   | 1,123 |   |   |   | 80,202 |   |   |   | 5.18 | % |   |   | 1,024 |   |
| Indirect lease financing                   |   |           | 13,660  |   |           |   | 8.84 | % |   |   | 302 |   |   |   | 13,956 |   |   |   | 8.45 | % |   |   | 295 |   |
| Consumer loans                             |   |           | 2,643   |   |           |   | 13.56 | % |   |   | 88 |   |   |   | 3,574 |   |   |   | 11.73 | % |   |   | 103 |   |
| Tax-exempt loans                           |   |           | 32,034  |   |           |   | 6.15 | % |   |   | 485 |   |   |   | 27,724 |   |   |   | 5.78 | % |   |   | 396 |   |
| Total loans, net of unearned income*       |   |           | 476,699 |   |           |   | 5.85 | % |   |   | 6,879 |   |   |   | 451,064 |   |   |   | 5.84 | % |   |   | 6,494 |   |
| Other earning assets                       |   |           | 11,928  |   |           |   | 0.24 | % |   |   | 7 |   |   |   | 16,983 |   |   |   | 0.23 | % |   |   | 10 |   |
| Total earning assets                       |   |           | 779,150 |   |           |   | 5.00 | % |   |   | 9,607 |   |   |   | 720,486 |   |   |   | 5.22 | % |   |   | 9,271 |   |
| Cash and due from banks                    |   |           | 9,616   |   |           |   |   |   |   |   |   |   |   |   | 9,351 |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses                  |   |           | (8,892  | )      |           |   |   |   |   |   |   |   |   |   | (6,246 | ) |   |   |   |   |   |   |   |   |
| Other assets                               |   |           | 26,415  |   |           |   |   |   |   |   |   |   |   |   | 25,956 |   |   |   |   |   |   |   |   |   |
| Total assets                               |   | $              | 806,289 |   |           |   |   |   |   |   |   |   |   | $ | 749,547 |   |   |   |   |   |   |   |   |   |
|                                       |   |           |    |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and Shareholders' Equity       |   |           |    |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits:                 |   |           |    |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand                    |   | $              | 87,361  |   |           |   | 0.52 | % |   |   | 113 |   |   | $ | 81,793 |   |   |   | 0.69 | % |   |   | 138 |   |
| Municipals                                 |   |           | 39,858  |   |           |   | 0.78 | % |   |   | 77 |   |   |   | 34,314 |   |   |   | 0.99 | % |   |   | 84 |   |
| Money market                               |   |           | 73,584  |   |           |   | 0.52 | % |   |   | 94 |   |   |   | 72,172 |   |   |   | 0.93 | % |   |   | 166 |   |
| Savings                                    |   |           | 136,697 |   |           |   | 0.84 | % |   |   | 282 |   |   |   | 74,542 |   |   |   | 0.77 | % |   |   | 141 |   |
| Time                                       |   |           | 199,842 |   |           |   | 1.70 | % |   |   | 836 |   |   |   | 217,241 |   |   |   | 2.37 | % |   |   | 1,272 |   |
| Time of $100,000 or more                   |   |           | 99,469  |   |           |   | 1.79 | % |   |   | 440 |   |   |   | 106,620 |   |   |   | 2.42 | % |   |   | 636 |   |
| Total interest-bearing deposits            |   |           | 636,811 |   |           |   | 1.17 | % |   |   | 1,842 |   |   |   | 586,682 |   |   |   | 1.68 | % |   |   | 2,437 |   |
| Short-term borrowings                      |   |           | 25,085  |   |           |   | 0.89 | % |   |   | 55 |   |   |   | 22,588 |   |   |   | 0.95 | % |   |   | 53 |   |
| Long-term debt                             |   |           | 20,307  |   |           |   | 4.75 | % |   |   | 241 |   |   |   | 27,000 |   |   |   | 4.65 | % |   |   | 314 |   |
| Total interest-bearing liabilities         |   |           | 682,203 |   |           |   | 1.27 | % |   |   | 2,138 |   |   |   | 636,270 |   |   |   | 1.79 | % |   |   | 2,804 |   |
| Non-interest-bearing deposits              |   |           | 60,066  |   |           |   |   |   |   |   |   |   |   |   | 54,109 |   |   |   |   |   |   |   |   |   |
| Other liabilities                          |   |           | 3,124   |   |           |   |   |   |   |   |   |   |   |   | 3,533 |   |   |   |   |   |   |   |   |   |
| Shareholders' equity                       |   |           | 60,896  |   |           |   |   |   |   |   |   |   |   |   | 55,635 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders' equity |   | $              | 806,289 |   |           |   |   |   |   |   |   |   |   | $ | 749,547 |   |   |   |   |   |   |   |   |   |
| Net interest rate spread                   |   |           |    |   |           |   | 3.73 | % |   |   |   |   |   |   |   |   |   |   | 3.43 | % |   |   |   |   |
| Margin/net interest income                 |   |           |    |   |           |   | 3.89 | % |   | $ | 7,469 |   |   |   |   |   |   |   | 3.64 | % |   | $ | 6,467 |   |

----

|                      |   | Three Months Ended      |   |
|---------------------------|--------|-------------------------|--------|
|                      |   | March 31, 2011 compared |   |
|                      |   | to March 31, 2010       |   |
|                      |   | Total                   |   |   | Due to change in: |   |
|                      |   | Change                  |   |   | Volume |   |   | Rate |   |
| Interest income:          |   |                    |   |   |   |   |   |   |   |
| Federal funds sold        |   | $                       | -      |   |   | $ | - |   |   | $ | - |   |
| Investment securities:    |   |                    |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury             |   |                    | (7     | ) |   |   | (7 | ) |   |   | - |   |
| U.S. Government agencies  |   |                    | (218   | ) |   |   | (25 | ) |   |   | (193 | ) |
| State and municipal       |   |                    | 112    |   |   |   | 180 |   |   |   | (68 | ) |
| Mortgage-backed and CMOs  |   |                    | 68     |   |   |   | 371 |   |   |   | (303 | ) |
| Other debt securities     |   |                    | (2     | ) |   |   | (1 | ) |   |   | (1 | ) |
| Equities                  |   |                    | 1      |   |   |   | 4 |   |   |   | (3 | ) |
| Loans:                    |   |                    |   |   |   |   |   |   |   |   |   |   |
| Commercial real estate    |   |                    | 322    |   |   |   | 338 |   |   |   | (16 | ) |
| Residential real estate   |   |                    | (21    | ) |   |   | (12 | ) |   |   | (9 | ) |
| Home equity loans         |   |                    | (96    | ) |   |   | (61 | ) |   |   | (35 | ) |
| Commercial and industrial |   |                    | 99     |   |   |   | 71 |   |   |   | 28 |   |
| Indirect lease financing  |   |                    | 7      |   |   |   | (6 | ) |   |   | 13 |   |
| Consumer loans            |   |                    | (15    | ) |   |   | (27 | ) |   |   | 12 |   |
| Tax-exempt loans          |   |                    | 89     |   |   |   | 61 |   |   |   | 28 |   |
| Other earning assets      |   |                    | (3     | ) |   |   | (3 | ) |   |   | - |   |
| Total interest income     |   | $                       | 336    |   |   | $ | 883 |   |   | $ | (547 | ) |
| Interest expense:         |   |                    |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand   |   |                    | (25    | ) |   |   | 10 |   |   |   | (35 | ) |
| Municipals                |   |                    | (7     | ) |   |   | 14 |   |   |   | (21 | ) |
| Money market              |   |                    | (72    | ) |   |   | 4 |   |   |   | (76 | ) |
| Savings                   |   |                    | 141    |   |   |   | 118 |   |   |   | 23 |   |
| Time                      |   |                    | (436   | ) |   |   | (103 | ) |   |   | (333 | ) |
| Time of $100,000 or more  |   |                    | (196   | ) |   |   | (43 | ) |   |   | (153 | ) |
| Short-term borrowings     |   |                    | 2      |   |   |   | 6 |   |   |   | (4 | ) |
| Long-term debt            |   |                    | (73    | ) |   |   | (78 | ) |   |   | 5 |   |
| Total interest expense    |   | $                       | (666   | ) |   | $ | (72 | ) |   | $ | (594 | ) |
| Net interest income       |   | $                       | 1,002  |   |   | $ | 955 |   |   | $ | 47 |   |

----

| For the Three Months Ended March 31,           |   | 2011   |   |   | 2010   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Total interest income                          |   | $      | 9,095  |   |   | $      | 8,828 |   |
| Total interest expense                         |   |   | 2,138  |   |   |   | 2,804 |   |
| Net interest income                            |   |   | 6,957  |   |   |   | 6,024 |   |
| Tax-equivalent adjustment                      |   |   | 512    |   |   |   | 443 |   |
| Net interest income (fully taxable-equivalent) |   | $      | 7,469  |   |   | $      | 6,467 |   |

----

----

----

----

----

----

|                                                       |   | 3/31/11 |   |   | 12/31/10 |   |   | 9/30/10 |   |   | 6/30/10 |   |   | 3/31/10 |   |
|------------------------------------------------------------|--------|---------|--------|--------|----------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
| Non-performing loans                                       |   | $       | 12,988 |   |     | $      | 9,872  |    |   | $      | 9,908   |   |   | $       | 7,748  |   |   | $ | 5,895 |   |
| Non-performing loans to total loans                        |   |    | 2.71   | %      |     |   | 2.05   | %       |   |   | 2.07    | %      |   |    | 1.63   | % |   |   | 1.29 | % |
|                                                       |   |    |   |   |     |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |
| Delinquent loans (30-89 days past due), not included above |   | $       | 3,133  |   |     | $      | 7,105  |    |   | $      | 5,729   |   |   | $       | 4,448  |   |   | $ | 5,677 |   |
| Delinquent loans to total loans                            |   |    | 0.65   | %      |     |   | 1.47   | %       |   |   | 1.20    | %      |   |    | 0.94   | % |   |   | 1.24 | % |
|                                                       |   |    |   |   |     |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |
| Total delinquent and non-performing loans                  |   | $       | 16,121 |   |     | $      | 16,977 |    |   | $      | 15,637  |   |   | $       | 12,196 |   |   | $ | 11,571 |   |
| Total delinquent and non-performing loans to total loans   |   |    | 3.37   | %      |     |   | 3.52   | %       |   |   | 3.27    | %      |   |    | 2.57   | % |   |   | 2.54 | % |
|                                                       |   |    |   |   |     |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |
| Non-performing assets                                      |   | $       | 14,697 |   |     | $      | 11,634 |    |   | $      | 11,417  |   |   | $       | 9,327  |   |   | $ | 6,932 |   |
| Non-performing assets to total assets                      |   |    | 1.79   | %      |     |   | 1.44   | %       |   |   | 1.44    | %      |   |    | 1.20   | % |   |   | 0.90 | % |

----

|                                                       |   | March 31, |    |   | December 31, |   |
|------------------------------------------------------------|--------|----------------|---------|--------|-------------------|--------|
|                                                       |   | 2011           |    |   | 2010              |   |
| Non-accrual loans                                          |   | $              | 10,589  |   |              | $      | 7,183 |   |
| Loans past due 90 days or more and still accruing interest |   |           | 12      |   |              |   | 268 |   |
| Restructured loans (not included above)                    |   |           | 2,387   |   |              |   | 2,421 |   |
| Total non-performing loans                                 |   | $              | 12,988  |   |              | $      | 9,872 |   |
| Other real estate owned and repossessed assets             |   |           | -       |   |              |   | 90 |   |
| Non-accrual investment securities                          |   |           | 1,709   |   |              |   | 1,672 |   |
| Total non-performing assets                                |   | $              | 14,697  |   |              | $      | 11,634 |   |
|                                                       |   |           |    |   |              |   |   |   |
| Average total loans (YTD)                                  |   | $              | 476,699 |   |              | $      | 467,063 |   |
| Total loans, including loans held-for-sale                 |   |           | 478,509 |   |              |   | 482,410 |   |
| Allowance for loan losses                                  |   |           | 9,192   |   |              |   | 8,955 |   |
|                                                       |   |           |    |   |              |   |   |   |
| Allowance for loan losses to:                              |   |           |    |   |              |   |   |   |
| Non-performing assets                                      |   |           | 70.77   | %      |              |   | 90.72 | % |
| Total loans                                                |   |           | 1.92    | %      |              |   | 1.86 | % |
| Average total loans                                        |   |           | 1.93    | %      |              |   | 1.92 | % |
|                                                       |   |           |    |   |              |   |   |   |
| Non-performing loans to total loans                        |   |           | 2.71    | %      |              |   | 2.05 | % |
| Non-performing assets to total assets                      |   |           | 1.79    | %      |              |   | 1.44 | % |

| For the three months ended March 31, |   | 2011   |   |   | 2010   |   |
|--------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Net charge-offs                                                    |   | $      | 413    |   |   | $      | 560 |   |
|                                                               |   |   |   |   |   |   |   |   |
| Net charge-offs (annualized) to:                                   |   |   |   |   |   |   |   |   |
| Total loans                                                        |   |   | 0.34   | %      |   |   | 0.49 | % |
| Average total loans                                                |   |   | 0.34   | %      |   |   | 0.49 | % |
| Allowance for loan losses                                          |   |   | 17.86  | %      |   |   | 34.97 | % |

----

| Non-Interest Income Comparison         |   |
|--------------------------------------------------|--------|
|                                             |   |   |   |   |   |   |   | Change from Prior Year |   |
| Three Months Ended March 31, |   | 2011 |   |   | 2010 |   |   | Amount |   |   | Percent |   |
| Fees for services to customers                   |   | $ | 327 |   |   | $ | 405 |   |   | $ | (78 | ) |   |   | -19.3 | % |
| ATM and debit card                               |   |   | 328 |   |   |   | 271 |   |   |   | 57 |   |   |   | 21.0 | % |
| Bank-owned life insurance                        |   |   | 110 |   |   |   | 64 |   |   |   | 46 |   |   |   | 71.9 | % |
| Merchant Income                                  |   |   | 62 |   |   |   | 57 |   |   |   | 5 |   |   |   | 8.8 | % |
| Net gain (loss) on investment securities         |   |   | (43 | ) |   |   | 136 |   |   |   | (179 | ) |   |   | -131.6 | % |
| Net gain on sale of loans                        |   |   | 39 |   |   |   | 75 |   |   |   | (36 | ) |   |   | -48.0 | % |
| Other                                            |   |   | 117 |   |   |   | 124 |   |   |   | (7 | ) |   |   | -5.6 | % |
| Total                                            |   | $ | 940 |   |   | $ | 1,132 |   |   | $ | (192 | ) |   |   | -17.0 | % |

----

----

| Non-Interest Expense Comparison        |   |   |   |   |   |   |   |                                  |   |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------------------------------------|--------|--------|
|                                             |   |   |   |   |   |   |   | Change from Prior Year |   |
| Three Months Ended March 31, |   | 2011   |   |   | 2010   |   |   | Amount                                |   |   | Percent |   |
| Salaries and employee benefits                   |   | $      | 2,387  |   |   | $      | 2,137  |                                  |   | $      | 250 |   |   |   | 11.7 | % |
| Net occumpancy                                   |   |   | 397    |   |   |   | 369    |                                  |   |   | 28 |   |   |   | 7.6 | % |
| Furniture and equipment                          |   |   | 303    |   |   |   | 282    |                                  |   |   | 21 |   |   |   | 7.4 | % |
| Marketing                                        |   |   | 175    |   |   |   | 161    |                                  |   |   | 14 |   |   |   | 8.7 | % |
| Third-party services                             |   |   | 248    |   |   |   | 273    |                                  |   |   | (25 | ) |   |   | -9.2 | % |
| Telephone, postage and supplies                  |   |   | 148    |   |   |   | 157    |                                  |   |   | (9 | ) |   |   | -5.7 | % |
| State taxes                                      |   |   | 150    |   |   |   | 140    |                                  |   |   | 10 |   |   |   | 7.1 | % |
| FDIC insurance premiums                          |   |   | 262    |   |   |   | 254    |                                  |   |   | 8 |   |   |   | 3.1 | % |
| Other                                            |   |   | 350    |   |   |   | 345    |                                  |   |   | 5 |   |   |   | 1.4 | % |
| Total                                            |   | $      | 4,420  |   |   | $      | 4,118  |                                  |   | $      | 302 |   |   |   | 7.3 | % |

----

|   | · | Consultant expense decreased $10,000. During the first quarter of 2010 a consultant was hired for leadership training. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------|

|   | · | Legal expense decreased by $5,000 primarily as a result of lower loan collection costs. |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | Costs associated with the registration, printing and mailing of the Dividend Reinvestment and Stock Purchase Plan contributed approximately $8,000 to third party services in 2010. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

| Capital Analysis                          |   |                     |    |   |                        |   |
|------------------------------------------------|--------|--------------------------|---------|--------|-----------------------------|--------|
|                                           |   | March 31, 2011 |    |   | December 31, 2010 |   |
| Tier I                                         |   |                     |    |   |                        |   |
| Shareholder's equity                           |   | $                        | 62,683  |   |                        | $      | 61,090 |   |
| Net unrealized securities gains                |   |                     | (1,483  | )      |                        |   | (1,539 | ) |
| Total Tier I risk-based capital                |   | $                        | 61,200  |   |                        | $      | 59,551 |   |
|                                           |   |                     |    |   |                        |   |   |   |
| Tier II                                        |   |                     |    |   |                        |   |   |   |
| Allowable portion: Allowance for loan losses   |   | $                        | 7,111   |   |                        | $      | 7,100 |   |
| Unrealized gains on equity securities          |   |                     | 284     |   |                        |   | 281 |   |
| Total risk-based capital                       |   | $                        | 68,595  |   |                        | $      | 66,932 |   |
| Risk-weighted assets                           |   | $                        | 566,770 |   |                        | $      | 566,109 |   |
| Average assets                                 |   | $                        | 806,289 |   |                        | $      | 802,144 |   |
|                                           |   |                     |    |   |                        |   |   |   |
| Capital Ratios                                 |   |                     |    |   |                        |   |   |   |
|                                           |   | March 31, 2011 |    |   | December 31, 2010 |   |
| Tier I capital/risk-weighted assets            |   |                     | 10.80   | %      |                        |   | 10.52 | % |
| Total risk-based capital/risk-weighted assets  |   |                     | 12.10   | %      |                        |   | 11.82 | % |
| Tier I capital/average assets (leverage ratio) |   |                     | 7.59    | %      |                        |   | 7.42 | % |

----

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| Change in Interest Rates |   | Net Interest Income |   |   | Dollar Change |   |   | % Change |   |
|-----------------------------------------|--------|-------------------------------|--------|--------|--------------------|--------|--------|---------------|--------|
| +300 Basis Points                       |   | $                             | 29,145 |   |               | $      | 66     |          |   |   | 0.2 | % |
| +200 Basis Points                       |   |                          | 29,189 |   |               |   | 110    |          |   |   | 0.4 |   |
| +100 Basis Points                       |   |                          | 29,149 |   |               |   | 70     |          |   |   | 0.2 |   |
| Flat Rate                               |   |                          | 29,079 |   |               |   | -      |          |   |   | - |   |
| -100 Basis Points                       |   |                          | 27,810 |   |               |   | (1,269 | )             |   |   | (4.4 | ) |

----

| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. |
|---------|------------------------------------------------------------|

| ITEM 4. | CONTROLS AND PROCEDURES |
|---------|-------------------------|

----

| Item 1. | Legal Proceedings |
|---------|-------------------|

| Item 1A. | Risk Factors |
|----------|--------------|

| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
|---------|-------------------------------------------------------------|

| Period                                     |   | Total Numberof SharesPurchased |   |   | Average PricePaid per Share |   |   | Total Numberof SharesPurchased asPart of PubliclyAnnounced Plan |   |   | MaximumNumber ofShares that mayyet be PurchasedUnder the Plan |   |
|--------------------------------------------|--------|------------------------------------------|--------|--------|--------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------------------|--------|
|                                       |   |                                     |   |   |                                       |   |   |                                                                                          |   |   |                                                                                             |   |
| January 1, 2011 through January 31, 2011   |   |                                     | -      |   |                                       |   | -      |                                                                                          |   |   | -                                                                                                |   |   |   | 42,117 |   |
| February 1, 2011 through February 28, 2011 |   |                                     | -      |   |                                       |   | -      |                                                                                          |   |   | -                                                                                                |   |   |   | 42,117 |   |
| March 1, 2011 through March 31, 2011       |   |                                     | -      |   |                                       |   | -      |                                                                                          |   |   | -                                                                                                |   |   |   | 42,117 |   |
| Total                                      |   |                                     | -      |   |                                       |   | -      |                                                                                          |   |   | -                                                                                                |   |   |   | 42,117 |   |

| (1) | Transactions are reported as of settlement dates. |
|-----|---------------------------------------------------|

| (2) | QNB’s current stock repurchase plan was approved by its Board of Directors and announced on January 24, 2008 and subsequently increased on February 9, 2009. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | The total number of shares approved for repurchase under QNB’s current stock repurchase plan is 100,000. |
|-----|----------------------------------------------------------------------------------------------------------------|

| (4) | QNB’s current stock repurchase plan has no expiration date. |
|-----|-------------------------------------------------------------------|

| (5) | QNB has no stock repurchase plan that it has determined to terminate or under which it does not  intend to make further purchases. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

| Item 3. | Default Upon Senior Securities |
|---------|--------------------------------|

| Item 4. | (Removed and Reserved) |
|---------|------------------------|

| Item 5. | Other Information |
|---------|-------------------|

----

| Item 6. | Exhibits |
|---------|----------|

| Exhibit 3(i)  |   | Articles of Incorporation of Registrant, as amended. (Incorporated by reference to Exhibit 3(i) of Registrants Form DEF 14-A filed with the Commission on April 15, 2005). |
|---------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                                                       |
| Exhibit 3(ii) |   | Bylaws of Registrant, as amended. (Incorporated by reference to Exhibit 3(ii) of Registrants Form 8-K filed with the Commission on January 23, 2006).                      |
|          |   |                                                                                                                                                                       |
| Exhibit 11    |   | Statement Re: Computation of Earnings Per Share. (Included in Part I, Item I, hereof.)                                                                                     |
|          |   |                                                                                                                                                                       |
| Exhibit 31.1  |   | Section 302 Certification of Chief Executive Officer                                                                                                                       |
|          |   |                                                                                                                                                                       |
| Exhibit 31.2  |   | Section 302 Certification of Chief Financial Officer                                                                                                                       |
|          |   |                                                                                                                                                                       |
| Exhibit 32.1  |   | Section 906 Certification of Chief Executive Officer                                                                                                                       |
|          |   |                                                                                                                                                                       |
| Exhibit 32.2  |   | Section 906 Certification of Chief Financial Officer                                                                                                                       |

----

|   | QNB Corp.               |
|--------|-------------------------|
|   |                    |
| Date:  | May 16, 2011            |   | By: |
|   |                    |
|   | /s/ Thomas J. Bisko     |
|   | Thomas J. Bisko         |
|   | Chief Executive Officer |
|   |                    |
| Date:  | May 16, 2011            |   | By: |
|   |                    |
|   | /s/ Bret H. Krevolin    |
|   | Bret H. Krevolin        |
|   | Chief Financial Officer |

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