----

| North Carolina                       |                                 | 56-2270620                                |
|--------------------------------------|--------------------------------------|-------------------------------------------|
| (State      or other jurisdiction of |                                 | (I.R.S.      Employer Identification No.) |
| incorporation      or organization)  |        |                                      |

| 4605      Country Club Road                   |   |            |
|-----------------------------------------------|--------|-----------------|
| Winston-Salem, North    Carolina              |   | 27104           |
| (Address      of principal executive offices) |   | (Zip      Code) |

| Title of each class                                                                                           |   | Exchange on which  registered     |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|
| Common      Stock, No Par Value                                                                               |   | The      NASDAQ Stock Market, LLC |
| 7.95%      Cumulative Trust Preferred Securities                                                              |   | The      NASDAQ Stock Market, LLC |
| 7.95%      Junior Subordinated Debentures                                                                     |   | The      NASDAQ Stock Market, LLC |
| Guarantee with respect to 7.95% Cumulative Trust Preferred Securities |   | The      NASDAQ Stock Market,LLC  |

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

| Document                                                                                                                                                            |   | Where Incorporated |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|
| Proxy      Statement for the Annual Meeting of Shareholders to be held May 26, 2009      to be      mailed to shareholders within 120 days of December 31,    2008. |   | Part      III      |

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| Index         |                                                                                                                                    |   | PAGE   |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|          |                                                                                                                                    |   |   |
| PART      I   |                                                                                                                                    |   |   |
|          |                                                                                                                                    |   |   |
| Item      1.  | Business                                                                                                                                |   | 3      |
| Item      1A. | Risk      Factors                                                                                                                       |   | 14     |
| Item      1B. | Unresolved      Staff Comments (None)                                                                                                   |   | 21     |
| Item      2.  | Properties                                                                                                                              |   | 22     |
| Item      3.  | Legal      Proceedings                                                                                                                  |   | 24     |
| Item      4.  | Submission      of Matters to a Vote of Security Holders                                                                                |   | 24     |
|          |                                                                                                                                    |   |   |
| PART      II  |                                                                                                                                    |   |   |
|          |                                                                                                                                    |   |   |
| Item      5.  | Market      for Registrant’s Common Equity, Related Stockholder Matters and      Issuer  Purchases of Equity Securities |   | 24     |
| Item      6.  | Selected      Financial Data                                                                                                            |   | 26     |
| Item      7.  | Management’s      Discussion and Analysis of Financial Condition and Results of      Operation                                    |   | 28     |
| Item      7A. | Quantitative      and Qualitative Disclosures About Market Risk                                                                         |   | 62     |
| Item      8.  | Financial      Statements and Supplementary Data                                                                                        |   | 62     |
| Item      9.  | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure                                          |   | 103    |
| Item9A.       | Controls      and Procedures                                                                                                            |   | 103    |
| Item9B.       | Other Information                                                                                                                       |   | 106    |
|          |                                                                                                                                    |   |   |
| PART      III |                                                                                                                                    |   |   |
|          |                                                                                                                                    |   |   |
| Item      10. | Directors,      Executive Officers and Corporate Governance                                                                             |   | 106    |
| Item      11. | Executive      Compensation                                                                                                             |   | 106    |
| Item      12. | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                                |   | 106    |
| Item      13. | Certain      Relationships and Related Transactions, and Director      Independence                                                     |   | 106    |
| Item      14. | Principal      Accountant Fees and Services                                                                                             |   | 106    |
|          |                                                                                                                                    |   |   |
| PART      IV  |                                                                                                                                    |   |   |
|          |                                                                                                                                    |   |   |
| Item      15. | Exhibits,      Financial Statement Schedules                                                                                            |   | 107    |

----

|   | · | Established      a reputation for superior service to our customers and the communities in      which we operate; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|

|   | · | Developed      a full service financial institution operating in four of the fastest      growing markets in North Carolina; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | · | Maintained      third position in deposit market share in our home base of Forsyth County      and fifth position in the PiedmontTriad; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Maintained      a strong credit culture.  As of December 31,      2008,  our nonperforming assets totaled $20.2 million or 1.12%      of total assets and our allowance for loan losses amounted to $18.9      million or 1.43% of total loans and 131% of nonperforming loans;      and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Acquired      The Community Bank, Pilot Mountain, North Carolina, in January 2004,      raising our assets at that time to over $1.0 billion and increasing the      number of banking offices. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | Small      and medium sized businesses, and the owners and managers of these      entities; |
|--------|--------|---------------------------------------------------------------------------------------------|

|   | · | Professional      and middle managers of locally basedcompanies; |
|--------|--------|------------------------------------------------------------------|

|   | · | Residential      real estate developers; and |
|--------|--------|----------------------------------------------|

|   | · | Individual      consumers. |
|--------|--------|----------------------------|

|   | · | To      provide community-oriented banking services by delivering a broad range of      financial services to our customers through responsive service and      communication; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | To      form a partnership with our customers whereby our decision making and      product offerings are geared toward their best long-term      interests; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | To      be recognized in our community as a long-term player with employees,      stockholders and directors committed to that effort;  and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | To      be progressive in our adoption of new technology so that we can provide      our customers access to products and services that meet their needs for      convenience and efficiency. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Reduce      the assessment rate paid by a bank by up to 0.05% based on the amount of      unsecured debt held by theinstitution; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | Increase      a bank’s assessment by up to 0.225% based on its risk profile if the bank      has high levels of secured liabilities (if greater than 25% of domestic      deposits), since those claims must be paid before depositors can make      claims in the event of a failure;and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Increase      a bank’s assessment by up to 0.10% if brokered deposits make up more than      10% of the institution’s domestic deposits.  For well-managed      and well-capitalized institutions, this would only apply when accompanied      by rapid asset growth. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | the      time and costs associated with identifying and evaluating potential      acquisitions and merger partners; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------|

|   | · | the      accuracy of estimates and judgments used to evaluate credit, operations,      management and market risks with respect to the target    entity; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the      time and costs of evaluating new markets, hiring experienced local      management and opening new offices and the time lags between these      activities and the generation of sufficient assets and deposits to support      the costs of the expansion; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | our      ability to finance an acquisition and possible ownership and economic      dilution to our currentshareholders; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | the      diversion of our management’s attention to the negotiation of a      transaction and the integration of the operations and personnel of the      combining businesses; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | entry      into new markets where we lackexperience; |
|--------|--------|------------------------------------------------------|

|   | · | the      introduction of new products and services into our    business; |
|--------|--------|--------------------------------------------------------------------------|

|   | · | the      incurrence and possible impairment of goodwill associated with an      acquisition and possible adverse short-term effects on our results of      operations; and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the      risk of loss of key employees andcustomers. |
|--------|--------|------------------------------------------------------|

----

|   | · | developers,      builders or owners may fail to complete or develop    projects; |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | developers,      builders, or owners may experience a decline in liquidity and secondary      sources of repayment; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------|

|   | · | municipalities      may place moratoriums on building, utility connections or required      certifications; |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | developers      may fail to sell the improved realestate; |
|--------|--------|-----------------------------------------------------------|

|   | · | there      may be construction delays and costoverruns; |
|--------|--------|---------------------------------------------------------|

|   | · | Loans      with rising variable rates may experience increases in the borrower’s      payments on the loan at a time when the borrower’s income is under      stress; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | collateral      may prove insufficient; or |
|--------|--------|--------------------------------------------|

|   | · | permanent      financing may not be obtained in a timely  manner. |
|--------|--------|-------------------------------------------------------------------|

|   | · | the      payment of dividends toshareholders; |
|--------|--------|-----------------------------------------------|

|   | · | possible      transactions with or acquisitions by other  institutions; |
|--------|--------|-------------------------------------------------------------------------|

----

|   | · | desired      investments; |
|--------|--------|---------------------------|

|   | · | loans      and interest rates; |
|--------|--------|--------------------------------|

|   | · | interest      rates paid on deposits; and |
|--------|--------|-------------------------------------------|

|   | · | the      possible expansion of branchoffices. |
|--------|--------|-----------------------------------------------|

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|                                   |   | Approximate |   | Year             |   |      |     |
|----------------------------------------|--------|-------------|--------|------------------|--------|-----------|---------------|
|                              |   | Square      |   | Established      |   |      | Owned or |
|                              |   | Footage     |   | or Acquired |   |      | Leased        |
| Banking      Offices:                  |   |        |   |             |   |      |          |
|                              |   |        |   |             |   |      |          |
| Asheville,      North Carolina         |   |        |   |             |   |      |          |
| 80      Peachtree Road                 |   |        | 3,191  |             | 2006   |      |          | Leased |
|                                   |   |        |   |             |   |      |          |   |
| Clemmons,      North Carolina          |   |        |   |             |   |      |          |   |
|   6290      Towncenter Drive |   |        | 3,800  |             | 2004   |      |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| Dobson,      North Carolina            |   |        |   |             |   |      |          |   |
| 201      West Kapp Street              |   |        | 2,800  |             | 1995   | (1)       |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| Greensboro,      North Carolina        |   |        |   |             |   |      |          |   |
| 1505      Highwoods Blvd.              |   |        | 9,800  |             | 2005   |      |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| High      Point, North Carolina        |   |        |   |             |   |      |          |   |
| 2541      Eastchester Drive            |   |        | 3,000  |             | 2003   |      |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| Jonesville,      North Carolina        |   |        |   |             |   |      |          |   |
| 503      Winston Road                  |   |        | 2,500  |             | 1995   | (1)  |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| Kernersville,      North Carolina      |   |        |   |             |   |      |          |   |
| 1207      South Main Street            |   |        | 8,300  |             | 2002   |      |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| King,      North Carolina              |   |        |   |             |   |      |          |   |
| 105      Post Office Street            |   |        | 4,000  |             | 2004   | (1)  |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| Madison,      North Carolina           |   |        |   |             |   |      |          |   |
| 619      Ayersville Road               |   |        | 2,000  |             | 1990   | (1)       |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| Mooresville,      NC                   |   |        |   |             |   |      |          |   |
| 210      Knob Hill Road                |   |        | 8,800  |             | 2006   |      |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| Mount      Airy, North Carolina        |   |        |   |             |   |      |          |   |
| 255      East Independence Blvd.       |   |        | 10,345 |             | 1999   | (1)       |          | Owned |
| 2010      Community Drive              |   |        | 3,500  |             | 1988   | (1)       |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| Pilot      Mountain, North Carolina    |   |        |   |             |   |      |          |   |
| 616      South Key Street              |   |        | 8,300  |             | 1987   | (1)  |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| Raleigh,      North Carolina           |   |        |   |             |   |      |          |   |
| 2626      Glenwood Avenue              |   |        | 1,501  |             | 2006   |      |          | Leased |
|                                   |   |        |   |             |   |      |          |   |
| Sandy      Ridge, North Carolina       |   |        |   |             |   |      |          |   |
| 4928      Highway 704 West             |   |        | 1,250  |             | 1989   | (1)  |          | Owned |
|                                   |   |        |   |             |   |      |          |   |
| Union      Grove, North Carolina       |   |        |   |             |   |      |          |   |
| 1439      W. Memorial Highway          |   |        | 2,300  |             | 1990   | (1)  |          | Owned |

----

|                                              |   | Approximate |   | Year             |   |      |     |
|---------------------------------------------------|--------|-------------|--------|------------------|--------|-----------|---------------|
|                                         |   | Square      |   | Established      |   |      | Owned or |
|                                         |   | Footage     |   | or Acquired |   |      | Leased        |
| Banking      Offices:                             |   |        |   |             |   |      |          |
|                                              |   |        |   |             |   |      |          |
| Walnut      Cove, North Carolina                  |   |        |   |             |   |      |          |
| 1072      North Main Street                       |   |        | 1,700  |             | 1999   | (1)  |          | Leased |
|                                              |   |        |   |             |   |      |          |   |
| Winston      Salem, North Carolina                |   |        |   |             |   |      |          |   |
| 4701      Country Club Road                       |   |        | 4,300  |             | 1996   |      |          | Leased |
| 225      Hanes Mill Road                          |   |        | 2,800  |             | 2001   |      |          | Owned |
| 3151      Peters Creek Parkway                    |   |        | 2,500  |             | 1998   |      |          | Leased |
| 500      South Stratford Road (3)                 |   |        | 5,980  |             | 2008   |      |          | Owned |
| 536      South Stratford Road (3)                 |   |        | 2,400  |             | 1998   |      |          | Leased |
|                                              |   |        |   |             |   |      |          |   |
| Yadkinville,      North Carolina                  |   |        |   |             |   |      |          |   |
| 532      East Main Street                         |   |        | 7,800  |             | 1998   |      |          | Owned |
|                                              |   |        |   |             |   |      |          |   |
|  Operations and      Administrative Offices: |   |        |   |             |   |      |          |   |
|                                              |   |        |   |             |   |      |          |   |
| Winston      Salem, North Carolina                |   |        |   |             |   |      |          |   |
| 465      Shepherd Street                          |   |        | 47,114 |             | 2006   |      |          | Owned |
| 100      Cambridge Plaza (2)                      |   |        | 7,028  |             | 2006   |      |          | Owned |
| 104      Cambridge Plaza (2)                      |   |        | 7,028  |             | 2006   |      |          | Owned |
| 108      Cambridge Plaza (2)                      |   |        | 7,028  |             | 2006   |      |          | Owned |
| 112      Cambridge Plaza (2)                      |   |        | 7,988  |             | 2006   |      |          | Owned |
| 4605      Country Club Road - Corporate           |   |        | 27,000 |             | 2003   |      |          | Owned |
|                                              |   |        |   |             |   |      |          |   |
| Lending Offices:                                  |   |        |   |             |   |      |          |   |
|                                              |   |        |   |             |   |      |          |   |
| Winston      Salem, North Carolina                |   |        |   |             |   |      |          |   |
| 4625      Country Club Road                       |   |        | 3,200  |             | 1998   |      |          | Owned |
|                                              |   |        |   |             |   |      |          |   |
| Raleigh,      North Carolina                      |   |        |   |             |   |      |          |   |
| 3948      Browning Place                          |   |        | 1,058  |             | 2007   |      |          | Leased |

| (1) | Acquired      as part of The Community Bankacquisition. |
|-----|---------------------------------------------------------|

| (2) | Approximately      75% of these properties are leased totenants. |
|-----|------------------------------------------------------------------|

| (3) | Relocated      banking office from 536 South Stratford Road to 500 South Stratford Road      in April 2008.  The underlying lease on 536 South Stratford Road      will expire in December 2009. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|         |   |             |   | Price  |   |   | DeclaredCashDividend pershare |   |
|--------------|--------|-----------------------|--------|--------|--------|--------|------------------------------------|--------|
|    |   |             |   | SCMF   |   |   | SCMFO                              |   |   |   |   |
| Year         |   | Quarterly Period |   | High   |   |   | Low                                |   |   | High |   |   | Low |   |   |   |   |
|         |   |                  |   |   |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| 2007         |   | First      Quarter    |   | $      | 10.97  |   |                               | $      | 10.04 |   |   | $ | 10.53 |   |   | $ | 10.11 |   |   | $ | 0.035 |   |
|         |   | Second      Quarter   |   |   | 10.23  |   |                               |   | 8.65 |   |   |   | 10.50 |   |   |   | 10.04 |   |   |   | 0.040 |   |
|         |   | Third      Quarter    |   |   | 8.94   |   |                               |   | 6.25 |   |   |   | 10.29 |   |   |   | 9.66 |   |   |   | 0.040 |   |
|         |   | Fourth      Quarter   |   |   | 8.80   |   |                               |   | 6.40 |   |   |   | 10.30 |   |   |   | 8.64 |   |   |   | 0.040 |   |
|         |   |                  |   |   |   |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2008         |   | First      Quarter    |   | $      | 7.89   |   |                               | $      | 6.26 |   |   | $ | 9.94 |   |   | $ | 8.00 |   |   | $ | 0.040 |   |
|         |   | Second      Quarter   |   |   | 7.73   |   |                               |   | 5.52 |   |   |   | 9.73 |   |   |   | 7.50 |   |   |   | 0.040 |   |
|         |   | Third      Quarter    |   |   | 6.30   |   |                               |   | 3.86 |   |   |   | 9.15 |   |   |   | 6.01 |   |   |   | 0.040 |   |
|         |   | Fourth      Quarter   |   |   | 4.97   |   |                               |   | 2.11 |   |   |   | 8.74 |   |   |   | 5.75 |   |   |   | 0.040 |   |

----

| Period                                     |   | Total Numberof SharesPurchased |    |   | AveragePrice Paid per Share |   |   | Total Number of Shares Purchasedas Part of PubliclyAnnouncedPrograms |   |   | Maximum Number of Shares That MayYet Be Purchased Under the Programs |   |
|--------------------------------------------|--------|------------------------------------------|---------|--------|--------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------|--------|
|                                       |   |                                     |    |   |                                       |   |   |                                                                                                    |   |   |                                                                                                                   |   |
| October      1, 2008 to October 31, 2008   |   | None                                     |    |   |                                       | -      |   |                                                                                                    |   | -      |                                                                                                                   |   |   | 641,927 |   |
| November      1, 2008 to November 30, 2008 |   | None                                     |    |   |                                       | -      |   |                                                                                                    |   | -      |                                                                                                                   |   |   | 641,927 |   |
| December      1, 2008 to December 31, 2008 |   |                                     | 600,000 |   |                                       | $      | 2.93   |                                                                                                    |   |   | 600,000                                                                                                                |   |   |   | 41,927 |   |

----

|                                                          |   | For      the Years Ended December 31,              |       |
|---------------------------------------------------------------|--------|----------------------------------------------------|------------|
|                                                          |   | 2008                                               |       |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                          |   | (Dollars      in thousands, except per share data) |       |
| Operating      Data:                                          |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                          |   | $                                                  | 96,742     |   |   | $ | 98,908 |   |   | $ | 85,520 |   |   | $ | 68,097 |   |   | $ | 54,656 |   |
| Interest      expense                                         |   |                                               | 49,282     |   |   |   | 55,141 |   |   |   | 44,798 |   |   |   | 31,128 |   |   |   | 20,175 |   |
| Net      interest income                                      |   |                                               | 47,460     |   |   |   | 43,767 |   |   |   | 40,722 |   |   |   | 36,969 |   |   |   | 34,481 |   |
| Provision      for loan losses                                |   |                                               | 8,165      |   |   |   | 2,775 |   |   |   | 2,510 |   |   |   | 950 |   |   |   | 2,239 |   |
| Net      interest income after provision for loan losses      |   |                                               | 39,295     |   |   |   | 40,992 |   |   |   | 38,212 |   |   |   | 36,019 |   |   |   | 32,242 |   |
| Non-interest      income                                      |   |                                               | 11,282     |   |   |   | 11,331 |   |   |   | 3,678 |   |   |   | 7,134 |   |   |   | 7,949 |   |
| Non-interest      expense                                     |   |                                               | 42,089     |   |   |   | 40,900 |   |   |   | 35,802 |   |   |   | 31,319 |   |   |   | 27,520 |   |
| Income      before income taxes                               |   |                                               | 8,488      |   |   |   | 11,423 |   |   |   | 6,088 |   |   |   | 11,834 |   |   |   | 12,671 |   |
| Provision      for income taxes                               |   |                                               | 2,634      |   |   |   | 3,869 |   |   |   | 1,890 |   |   |   | 4,161 |   |   |   | 4,556 |   |
| Net      income                                               |   |                                               | 5,854      |   |   |   | 7,554 |   |   |   | 4,198 |   |   |   | 7,673 |   |   |   | 8,115 |   |
|                                                          |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Effective      dividend on preferred stock                    |   |                                               | 185        |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                          |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income available to common shareholders              |   | $                                                  | 5,669      |   |   | $ | 7,554 |   |   | $ | 4,198 |   |   | $ | 7,673 |   |   | $ | 8,115 |   |
|                                                          |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      gains(losses) included in non-interest income |   | $                                                  | 98         |   |   | $ | - |   |   | $ | (4,156 | ) |   | $ | (266 | ) |   | $ | - |   |
|                                                          |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per      Share Data:                                          |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      Income                                               |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                         |   | $                                                  | 0.33       |   |   | $ | 0.43 |   |   | $ | 0.24 |   |   | $ | 0.43 |   |   | $ | 0.47 |   |
| Diluted                                                       |   |                                               | 0.33       |   |   |   | 0.43 |   |   |   | 0.24 |   |   |   | 0.42 |   |   |   | 0.45 |   |
| Cash      dividends                                           |   |                                               | 0.160      |   |   |   | 0.155 |   |   |   | 0.135 |   |   |   | 0.120 |   |   |   | 0.110 |   |
| Book      value                                               |   |                                               | 8.77       |   |   |   | 8.18 |   |   |   | 7.83 |   |   |   | 7.66 |   |   |   | 7.68 |   |
| Weighted      average shares                                  |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                         |   |                                               | 17,363,395 |   |   |   | 17,559,352 |   |   |   | 17,566,315 |   |   |   | 17,825,152 |   |   |   | 17,298,285 |   |
| Diluted                                                       |   |                                               | 17,398,318 |   |   |   | 17,624,399 |   |   |   | 17,757,436 |   |   |   | 18,133,859 |   |   |   | 18,033,333 |   |
|                                                          |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      Sheet Data:                                      |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      assets                                             |   |                                               | 1,803,778  |   |   |   | 1,569,182 |   |   |   | 1,436,465 |   |   |   | 1,287,613 |   |   |   | 1,222,946 |   |
| Loans                                                         |   |                                               | 1,314,811  |   |   |   | 1,188,438 |   |   |   | 1,033,411 |   |   |   | 868,827 |   |   |   | 796,103 |   |
| Allowance      for loan losses                                |   |                                               | 18,851     |   |   |   | 14,258 |   |   |   | 13,040 |   |   |   | 11,785 |   |   |   | 12,537 |   |
| Deposits                                                      |   |                                               | 1,233,112  |   |   |   | 1,045,237 |   |   |   | 1,024,582 |   |   |   | 941,949 |   |   |   | 845,501 |   |
| Short-term      borrowings                                    |   |                                               | 145,197    |   |   |   | 117,772 |   |   |   | 92,748 |   |   |   | 9,186 |   |   |   | 69,647 |   |
| Long-term      debt                                           |   |                                               | 228,016    |   |   |   | 254,633 |   |   |   | 172,549 |   |   |   | 192,551 |   |   |   | 163,494 |   |
| Stockholders’      equity                               |   |                                               | 187,710    |   |   |   | 142,339 |   |   |   | 136,225 |   |   |   | 134,885 |   |   |   | 136,834 |   |
|                                                          |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital      Ratios:                                          |   |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      risk-based capital                                 |   |                                               | 13.80      | % |   |   | 11.44 | % |   |   | 11.40 | % |   |   | 13.21 | % |   |   | 13.81 | % |
| Tier      1 risk-based capital                                |   |                                               | 12.46      | % |   |   | 10.28 | % |   |   | 10.20 | % |   |   | 11.94 | % |   |   | 11.78 | % |
| Leverage      ratio                                           |   |                                               | 10.57      | % |   |   | 8.96 | % |   |   | 8.73 | % |   |   | 9.60 | % |   |   | 9.67 | % |
| Equity      to assets ratio                                   |   |                                               | 10.41      | % |   |   | 9.07 | % |   |   | 9.48 | % |   |   | 10.48 | % |   |   | 11.20 | % |

----

|                                                          |   | For      the Years Ended December 31,              |   |
|---------------------------------------------------------------|--------|----------------------------------------------------|--------|
|                                                          |   | 2008                                               |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                          |   | (Dollars      in thousands, except per share data) |   |
| Selected      Performance Ratios:                             |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return      on average assets                                 |   |                                               | 0.34   | % |   |   | 0.50 | % |   |   | 0.31 | % |   |   | 0.60 | % |   |   | 0.69 | % |
| Return      on average equity                                 |   |                                               | 4.02   | % |   |   | 5.45 | % |   |   | 3.11 | % |   |   | 5.67 | % |   |   | 6.21 | % |
| Net      interest spread (1)                                  |   |                                               | 2.75   | % |   |   | 2.81 | % |   |   | 2.92 | % |   |   | 2.86 | % |   |   | 3.03 | % |
| Net      interest margin (2)                                  |   |                                               | 2.99   | % |   |   | 3.19 | % |   |   | 3.30 | % |   |   | 3.20 | % |   |   | 3.26 | % |
| Non-interest      income as a percentage of total revenue (3) |   |                                               | 19.21  | % |   |   | 20.57 | % |   |   | 8.28 | % |   |   | 16.18 | % |   |   | 18.73 | % |
| Non-interest      income as a percentage of average assets    |   |                                               | 0.65   | % |   |   | 0.75 | % |   |   | 0.27 | % |   |   | 0.56 | % |   |   | 0.68 | % |
| Non-interest      expense to average assets                   |   |                                               | 2.42   | % |   |   | 2.70 | % |   |   | 2.62 | % |   |   | 2.44 | % |   |   | 2.36 | % |
| Efficiency      ratio (4)                                     |   |                                               | 71.65  | % |   |   | 74.23 | % |   |   | 80.64 | % |   |   | 71.01 | % |   |   | 64.86 | % |
| Dividend      payout ratio                                    |   |                                               | 48.48  | % |   |   | 36.05 | % |   |   | 56.26 | % |   |   | 27.91 | % |   |   | 23.40 | % |
|                                                          |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Asset      Quality Ratios:                                    |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming      loans to period-end loans                  |   |                                               | 1.10   | % |   |   | 0.17 | % |   |   | 0.26 | % |   |   | 0.16 | % |   |   | 0.27 | % |
| Allowance      for loan losses to period-end loans            |   |                                               | 1.43   | % |   |   | 1.20 | % |   |   | 1.26 | % |   |   | 1.36 | % |   |   | 1.57 | % |
| Allowance      for loan losses to nonperforming loans         |   |                                               | 1.31   | X |   |   | 6.95 | X |   |   | 4.95 | X |   |   | 8.37 | X |   |   | 5.77 | X |
| Nonperforming      assets to total assets (5)                 |   |                                               | 1.12   | % |   |   | 0.18 | % |   |   | 0.25 | % |   |   | 0.13 | % |   |   | 0.27 | % |
| Net      loan charge-offs to average loans outstanding        |   |                                               | 0.28   | % |   |   | 0.14 | % |   |   | 0.13 | % |   |   | 0.14 | % |   |   | 0.19 | % |
|                                                          |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      Data:                                              |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number      of banking offices                                |   |                                               | 22     |   |   |   | 22 |   |   |   | 21 |   |   |   | 19 |   |   |   | 18 |   |
| Number      of full-time equivalent employees                 |   |                                               | 337    |   |   |   | 337 |   |   |   | 326 |   |   |   | 299 |   |   |   | 271 |   |

| (1) | Net      interest spread is the difference between the average yield on      interest-earning assets and the average cost of interest-bearing      liabilities. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Net      interest margin is net interest income divided by average interest-earning      assets. |
|-----|--------------------------------------------------------------------------------------------------|

| (3) | Total      revenue consists of net interest income and non-interest      income. |
|-----|----------------------------------------------------------------------------------|

| (4) | Efficiency      ratio is non-interest expense divided by the sum of net interest income      and non-interest income. |
|-----|-----------------------------------------------------------------------------------------------------------------------|

| (5) | Nonperforming      assets consist of nonaccrual loans, restructured loans and real estate      owned, where applicable. |
|-----|-------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

|                                                                                  |   | For the Years Ended December 31, |      |
|--------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|-----------|
|                                                                                       |   | 2008                                                      |      |   | 2007 |   |   | 2006 |   |
|                                                                                       |   | Averagebalance                                            |      |   | Interestearned/paid |   |   | Averageyield/cost |   |   | Averagebalance |   |   | Interestearned/paid |   |   | Averageyield/cost |   |   | Averagebalance |   |   | Interestearned/paid |   |   | Averageyield/cost |   |
|                                                                                       |   | (Dollars      in thousands)                               |      |
|                                                                                       |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning      assets:                                                              |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans      (1)                                                                             |   | $                                                         | 1,279,041 |   |   | $ | 82,125 |   |   |   | 6.42 | % |   | $ | 1,114,677 |   |   | $ | 86,673 |   |   |   | 7.78 | % |   | $ | 958,001 |   |   | $ | 73,492 |   |   |   | 7.67 | % |
| Investment      securities available for sale                                              |   |                                                      | 257,153   |   |   |   | 12,378 |   |   |   | 4.81 | % |   |   | 179,995 |   |   |   | 8,819 |   |   |   | 4.90 | % |   |   | 185,713 |   |   |   | 8,529 |   |   |   | 4.59 | % |
| Investment      securities held to maturity                                                |   |                                                      | 48,252    |   |   |   | 2,184 |   |   |   | 4.53 | % |   |   | 71,510 |   |   |   | 3,208 |   |   |   | 4.49 | % |   |   | 86,328 |   |   |   | 3,390 |   |   |   | 3.93 | % |
| Federal      funds sold                                                                    |   |                                                      | 4,096     |   |   |   | 55 |   |   |   | 1.34 | % |   |   | 4,231 |   |   |   | 208 |   |   |   | 4.92 | % |   |   | 2,263 |   |   |   | 109 |   |   |   | 4.82 | % |
|                                                                                       |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-earning assets                                                         |   |                                                      | 1,588,542 |   |   |   | 96,742 |   |   |   | 6.09 | % |   |   | 1,370,413 |   |   |   | 98,908 |   |   |   | 7.22 | % |   |   | 1,232,305 |   |   |   | 85,520 |   |   |   | 6.94 | % |
| Other      assets                                                                          |   |                                                      | 150,326   |   |   |   |   |   |   |   |   |   |   |   | 143,206 |   |   |   |   |   |   |   |   |   |   |   | 135,918 |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                          |   | $                                                         | 1,738,868 |   |   |   |   |   |   |   |   |   |   | $ | 1,513,619 |   |   |   |   |   |   |   |   |   |   | $ | 1,368,223 |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                                                         |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                  |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW      and money market                                                                  |   | $                                                         | 512,717   |   |   | $ | 11,412 |   |   |   | 2.23 | % |   | $ | 441,716 |   |   | $ | 15,499 |   |   |   | 3.51 | % |   | $ | 348,486 |   |   | $ | 10,552 |   |   |   | 3.03 | % |
| Time      deposits greater than $100,000                                                   |   |                                                      | 137,841   |   |   |   | 6,695 |   |   |   | 4.86 | % |   |   | 311,125 |   |   |   | 14,135 |   |   |   | 4.54 | % |   |   | 326,864 |   |   |   | 14,303 |   |   |   | 4.38 | % |
| Other      time deposits                                                                   |   |                                                      | 428,950   |   |   |   | 16,541 |   |   |   | 3.86 | % |   |   | 169,236 |   |   |   | 8,889 |   |   |   | 5.25 | % |   |   | 208,733 |   |   |   | 8,564 |   |   |   | 4.10 | % |
| Borrowings                                                                                 |   |                                                      | 395,031   |   |   |   | 14,634 |   |   |   | 3.70 | % |   |   | 328,909 |   |   |   | 16,618 |   |   |   | 5.05 | % |   |   | 231,664 |   |   |   | 11,379 |   |   |   | 4.91 | % |
| Total      interest-bearing liabilities                                                    |   |                                                      | 1,474,539 |   |   |   | 49,282 |   |   |   | 3.34 | % |   |   | 1,250,986 |   |   |   | 55,141 |   |   |   | 4.41 | % |   |   | 1,115,747 |   |   |   | 44,798 |   |   |   | 4.02 | % |
|                                                                                       |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand      deposits                                                                       |   |                                                      | 104,978   |   |   |   |   |   |   |   |   |   |   |   | 108,874 |   |   |   |   |   |   |   |   |   |   |   | 105,755 |   |   |   |   |   |   |   |   |   |
| Other      liabilities                                                                     |   |                                                      | 13,597    |   |   |   |   |   |   |   |   |   |   |   | 15,066 |   |   |   |   |   |   |   |   |   |   |   | 11,835 |   |   |   |   |   |   |   |   |   |
| Stockholders'      equity                                                                  |   |                                                      | 145,754   |   |   |   |   |   |   |   |   |   |   |   | 138,693 |   |   |   |   |   |   |   |   |   |   |   | 134,886 |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      liabilities and stockholders' equity                                            |   | $                                                         | 1,738,868 |   |   |   |   |   |   |   |   |   |   | $ | 1,513,619 |   |   |   |   |   |   |   |   |   |   | $ | 1,368,223 |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income and net interest spread                                           |   |                                                      |      |   |   | $ | 47,460 |   |   |   | 2.75 | % |   |   |   |   |   | $ | 43,767 |   |   |   | 2.81 | % |   |   |   |   |   | $ | 40,722 |   |   |   | 2.92 | % |
|                                                                                       |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest margin                                                                   |   |                                                      |      |   |   |   |   |   |   |   | 2.99 | % |   |   |   |   |   |   |   |   |   |   | 3.19 | % |   |   |   |   |   |   |   |   |   |   | 3.30 | % |
|                                                                                       |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio      of average interest-earning assets to average interest-bearing      liabilities |   |                                                      |      |   |   |   | 107.73 | % |   |   |   |   |   |   |   |   |   |   | 109.55 | % |   |   |   |   |   |   |   |   |   |   | 110.45 | % |   |   |   |   |

----

|                                          |   | December      31, 2008 vs. 2007 |   |   | December      31, 2007 vs. 2006 |   |
|-----------------------------------------------|--------|---------------------------------|--------|--------|---------------------------------|--------|
|                                          |   | Increase      (Decrease) Due to |   |   | Increase      (Decrease) Due to |   |
|                                          |   | Volume                          |   |   | Rate                            |   |   | Total |   |   | Volume |   |   | Rate |   |   | Total |   |
|                                          |   | (Amounts      in thousands)     |   |
| Interest      income:                         |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                         |   | $                               | 11,667 |   |                            | $      | (16,215 | ) |   | $ | (4,548 | ) |   | $ | 12,101 |   |   | $ | 1,080 |   |   | $ | 13,181 |   |
| Investment      securities available for sale |   |                            | 3,747  |   |                            |   | (188 | ) |   |   | 3,559 |   |   |   | (271 | ) |   |   | 561 |   |   |   | 290 |   |
| Investment      securities held to maturity   |   |                            | (1,048 | )      |                            |   | 24 |   |   |   | (1,024 | ) |   |   | (623 | ) |   |   | 441 |   |   |   | (182 | ) |
| Federal      funds sold                       |   |                            | (4     | )      |                            |   | (149 | ) |   |   | (153 | ) |   |   | 96 |   |   |   | 3 |   |   |   | 99 |   |
|                                          |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest income                    |   |                            | 14,362 |   |                            |   | (16,528 | ) |   |   | (2,166 | ) |   |   | 11,302 |   |   |   | 2,086 |   |   |   | 13,388 |   |
|                                          |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense:                        |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                     |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW      and money market                     |   |                            | 2,036  |   |                            |   | (6,123 | ) |   |   | (4,087 | ) |   |   | 3,047 |   |   |   | 1,900 |   |   |   | 4,947 |   |
| Time      deposits greater than $100,000      |   |                            | (8,145 | )      |                            |   | 705 |   |   |   | (7,440 | ) |   |   | (702 | ) |   |   | 534 |   |   |   | (168 | ) |
| Other      time deposits                      |   |                            | 11,829 |   |                            |   | (4,177 | ) |   |   | 7,652 |   |   |   | (1,848 | ) |   |   | 2,173 |   |   |   | 325 |   |
| Borrowings                                    |   |                            | 2,895  |   |                            |   | (4,879 | ) |   |   | (1,984 | ) |   |   | 4,845 |   |   |   | 394 |   |   |   | 5,239 |   |
|                                          |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest expense                   |   |                            | 8,615  |   |                            |   | (14,474 | ) |   |   | (5,859 | ) |   |   | 5,343 |   |   |   | 5,000 |   |   |   | 10,343 |   |
|                                          |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income increase (decrease)  |   | $                               | 5,747  |   |                            | $      | (2,054 | ) |   | $ | 3,693 |   |   | $ | 5,959 |   |   | $ | (2,914 | ) |   | $ | 3,045 |   |

----

----

----

----

----

----

----

|                                                            |   | Payments Due by Period |      |
|-----------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                            |   |                                  |      |   | On Demand |   |   |   |   |   |   |   |   |   |   |
|                                                            |   |                                  |      |   | or Within |   |   |   |   |   |   |   |   | After |   |
|  Contractual Obligations                              |   | Total                                 |      |   | 1 Year |   |   | 2 - 3 Years |   |   | 4 - 5 Years |   |   | 5 Years |   |
|                                                            |   | (In thousands)                   |      |
|                                                            |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term      borrowings                                      |   | $                                     | 145,197   |   |   | $ | 145,197 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Long-term      debt                                             |   |                                  | 228,016   |   |   |   | - |   |   |   | 45,000 |   |   |   | 35,000 |   |   |   | 148,016 |   |
| Operating      leases                                           |   |                                  | 5,132     |   |   |   | 1,053 |   |   |   | 1,499 |   |   |   | 682 |   |   |   | 1,898 |   |
| Total      contractual cash obligations excluding deposits |   |                                  | 378,345   |   |   |   | 146,250 |   |   |   | 46,499 |   |   |   | 35,682 |   |   |   | 149,914 |   |
|                                                            |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                        |   |                                  | 1,233,112 |   |   |   | 1,152,393 |   |   |   | 67,187 |   |   |   | 13,532 |   |   |   | - |   |
|                                                            |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      contractual cash obligations                         |   | $                                     | 1,611,457 |   |   | $ | 1,298,643 |   |   | $ | 113,686 |   |   | $ | 49,214 |   |   | $ | 149,914 |   |

|                                                                                                                        |   |  Amount of Commitment Expiration Per Period |
|-----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|
| Other Commitments                                                                                                      |   | Total                                                                     |   |   | Within1 Year |   |   | 2 - 3 Years |   |   | 4 - 5 Years |   |   | After5 Years |   |
|                                                                                                                        |   | (In thousands)                                                       |   |
|                                                                                                                        |   |                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Undisbursed      portion of home equity credit lines collateralized primarily by junior      liens on 1-4 family properties |   | $                                                                         | 102,239 |   |   | $ | 82 |   |   | $ | 886 |   |   | $ | 5,229 |   |   | $ | 96,042 |   |
| Other      commitments and credit lines                                                                                     |   |                                                                      | 133,898 |   |   |   | 114,971 |   |   |   | 12,360 |   |   |   | 2,774 |   |   |   | 3,793 |   |
| Undisbursed      portion of construction loans                                                                              |   |                                                                      | 55,850 |   |   |   | 30,744 |   |   |   | 14,349 |   |   |   | 482 |   |   |   | 10,275 |   |
| Mortgage      loan commitments                                                                                              |   |                                                                      | 23,075 |   |   |   | 23,075 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other      purchase commitments                                                                                             |   |                                                                      | 800 |   |   |   | 400 |   |   |   | 400 |   |   |   | - |   |   |   | - |   |
|                                                                                                                        |   |                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Total      other commitments                                                                                          |   | $                                                                         | 315,862 |   |   | $ | 169,272 |   |   | $ | 27,995 |   |   | $ | 8,485 |   |   | $ | 110,110 |   |

----

|                                 |   | At December 31, 2008 |   |
|--------------------------------------|--------|-------------------------------------|--------|
|                                 |   | Actual Ratio                   |   |   | Minimum Requirement |   |   | Well CapitalizedRequirements |   |
|                                 |   |                                |   |   |   |   |   |   |   |
|                                 |   |                                |   |   |   |   |   |   |   |
| Total      risk-based capital ratio  |   |                                | 13.80  | % |   |   | 8.00 | % |   |   | 10.00 | % |
| Tier      1 risk-based capital ratio |   |                                | 12.46  | % |   |   | 4.00 | % |   |   | 6.00 | % |
| Leverage      ratio                  |   |                                | 10.57  | % |   |   | 4.00 | % |   |   | 5.00 | % |

----

----

----

|                                                                                      |   | At December 31, 2008 |     |
|-------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|
|                                                                                      |   | 3 Months or Less          |     |   | Over 3 Months to12 Months |   |   | Total Within12 Months |   |   | Over 12 Months |   |   | Total |   |
|                                                                                      |   | (Dollars in thousands)    |     |
|                                                                                      |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning      assets                                                              |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                                                     |   | $                                   | 391,133  |   |   | $ | 214,532 |   |   | $ | 605,665 |   |   | $ | 709,146 |   |   | $ | 1,314,811 |   |
| Investment      securities available for sale                                             |   |                                | -        |   |   |   | 3,974 |   |   |   | 3,974 |   |   |   | 281,875 |   |   |   | 285,849 |   |
| Investment      securities held to maturity                                               |   |                                | -        |   |   |   | 3,400 |   |   |   | 3,400 |   |   |   | 31,831 |   |   |   | 35,231 |   |
| Federal      funds sold and other interest-bearing deposits                               |   |                                | 2,180    |   |   |   | - |   |   |   | 2,180 |   |   |   | - |   |   |   | 2,180 |   |
|                                                                                      |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-earning assets                                                        |   | $                                   | 393,313  |   |   | $ | 221,906 |   |   | $ | 615,219 |   |   | $ | 1,022,852 |   |   | $ | 1,638,071 |   |
|                                                                                      |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities                                                         |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Money      market, NOW and savings deposits                                               |   | $                                   | 475,772  |   |   | $ | - |   |   | $ | 475,772 |   |   | $ | - |   |   | $ | 475,772 |   |
| Time      deposits greater than $100,000                                                  |   |                                | 24,753   |   |   |   | 112,164 |   |   |   | 136,917 |   |   |   | 26,684 |   |   |   | 163,601 |   |
| Other      time deposits                                                                  |   |                                | 177,081  |   |   |   | 260,575 |   |   |   | 437,656 |   |   |   | 54,035 |   |   |   | 491,691 |   |
| Borrowings                                                                                |   |                                | 130,197  |   |   |   | 15,000 |   |   |   | 145,197 |   |   |   | 228,016 |   |   |   | 373,213 |   |
|                                                                                      |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-bearing liabilities                                                   |   | $                                   | 807,803  |   |   | $ | 387,739 |   |   | $ | 1,195,542 |   |   | $ | 308,735 |   |   | $ | 1,504,277 |   |
|                                                                                      |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      sensitivity gap per period                                                  |   | $                                   | (414,490 | ) |   | $ | (165,833 | ) |   | $ | (580,323 | ) |   | $ | 714,117 |   |   | $ | 133,794 |   |
|                                                                                      |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative      gap                                                                       |   | $                                   | (414,490 | ) |   | $ | (580,323 | ) |   | $ | (580,323 | ) |   | $ | 133,794 |   |   | $ | 133,794 |   |
|                                                                                      |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative      ratio of interest-sensitive assets to interest-sensitive      liabilities |   |                                | 48.69    | % |   |   | 51.46 | % |   |   | 51.46 | % |   |   | 108.89 | % |   |   | 108.89 | % |

----

|                                        |   |  Expected Maturities of Market Sensitive Instruments Held       |      |          |   |    |      |   |
|---------------------------------------------|--------|----------------------------------------------------------------------------------------------------|-----------|---------------|--------|---------|-----------|--------|
|                                        |   |  at December 31, 2008 Occurring in the Indicated Year |      |          |   |    |      |   |
|                                        |   |  (Dollars in thousands)                                                             |      |  Average |   |    | Estimated |   |
|                                        |   |                                                                                               |      |          |   |    |      |   |   |   |   | Beyond |   |   |   | Interest |   |   | Fair |   |
|                                        |   | 2009                                                                                               |      | 2010          |   | 2011    |      | 2012   |   | 2013 |   | Five Years |   | Total |   | Rate |   |   | Value |   |
|                                        |   |                                                                                               |      |          |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FINANCIAL      ASSETS                       |   |                                                                                               |      |          |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal      funds sold                     |   | $                                                                                                  | 2,180     |          | $      | -       |      | $      | - |   | $ | - |   | $ | - |   | $ | - |   | $ | 2,180 |   |   | 1.34 | % |   | $ | 2,180 |   |
| Investment      securities (1)      (2)     |   |                                                                                               | 7,374     |          |   | 5,034   |      |   | 7,994 |   |   | 18,908 |   |   | 20,725 |   |   | 264,662 |   |   | 324,697 |   |   | 4.82 | % |   |   | 324,996 |   |
| Loans (3)                                   |   |                                                                                               |      |          |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed      rate                             |   |                                                                                               | 91,067    |          |   | 62,199  |      |   | 87,784 |   |   | 77,881 |   |   | 116,000 |   |   | 141,674 |   |   | 576,605 |   |   | 6.43 | % |   |   | 581,476 |   |
| Variable      rate                          |   |                                                                                               | 379,083   |          |   | 92,096  |      |   | 48,313 |   |   | 54,888 |   |   | 34,390 |   |   | 129,436 |   |   | 738,206 |   |   | 4.98 | % |   |   | 741,482 |   |
|                                        |   |                                                                                               |      |          |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                       |   | $                                                                                                  | 479,704   |          | $      | 159,329 |      | $      | 144,091 |   | $ | 151,677 |   | $ | 171,115 |   | $ | 535,772 |   | $ | 1,641,688 |   |   | 5.45 | % |   | $ | 1,650,134 |   |
|                                        |   |                                                                                               |      |          |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FINANCIAL      LIABILITIES                  |   |                                                                                               |      |          |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Money      market, NOW and savings deposits |   | $                                                                                                  | 475,772   |          | $      | -       |      | $      | - |   | $ | - |   | $ | - |   | $ | - |   | $ | 475,772 |   |   | 1.03 | % |   | $ | 475,772 |   |
| Time      deposits                          |   |                                                                                               | 574,573   |          |   | 29,300  |      |   | 37,887 |   |   | 1,401 |   |   | 12,131 |   |   | - |   |   | 655,292 |   |   | 3.43 | % |   |   | 649,186 |   |
| Short-term      borrowings                  |   |                                                                                               | 145,197   |          |   | -       |      |   | - |   |   | - |   |   | - |   |   | - |   |   | 145,197 |   |   | 3.18 | % |   |   | 145,197 |   |
| Long-term      borrowings                   |   |                                                                                               | -         |          |   | 45,000  |      |   | - |   |   | 25,000 |   |   | 10,000 |   |   | 148,016 |   |   | 228,016 |   |   | 3.97 | % |   |   | 247,223 |   |
|                                        |   |                                                                                               |      |          |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                       |   | $                                                                                                  | 1,195,542 |          | $      | 74,300  |      | $      | 37,887 |   | $ | 26,401 |   | $ | 22,131 |   | $ | 148,016 |   | $ | 1,504,277 |   |   | 2.73 | % |   | $ | 1,517,378 |   |

| (1) | Yields      on tax-exempt investments have been adjusted to a taxable equivalent basis      using federal and state tax rates of 34% and 6.9%, respectively, less      estimated disallowed interestexpense. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Callable      securities and borrowings with favorable market rates at December 31, 2008      are assumed to mature at their call dates for purposes of this      table. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Includes      nonaccrual loans but not the allowance for loan  losses. |
|-----|------------------------------------------------------------------------|

----

|                                                     |   | Year      Ended December 31, 2008                                 |   |   | Year      Ended December 31, 2007 |   |
|----------------------------------------------------------|--------|-------------------------------------------------------------------|--------|--------|-----------------------------------|--------|
|                                                     |   | Fourth                                                            |   |   | Third                             |   |   | Second |   |   | First |   |   | Fourth |   |   | Third |   |   | Second |   |   | First |   |
|                                                     |   | Quarter                                                           |   |   | Quarter                           |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |
|                                                     |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                     |   | (In thousands, except per share data and common stock      price) |   |
|                                                     |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                     |   | $                                                                 | 24,278 |   |                              | $      | 24,412 |   |   | $ | 23,727 |   |   | $ | 24,325 |   |   | $ | 25,370 |   |   | $ | 25,339 |   |   | $ | 24,626 |   |   | $ | 23,573 |   |
| Interest      expense                                    |   |                                                              | 11,459 |   |                              |   | 12,553 |   |   |   | 11,947 |   |   |   | 13,323 |   |   |   | 14,132 |   |   |   | 14,350 |   |   |   | 13,607 |   |   |   | 13,052 |   |
|                                                     |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                                 |   |                                                              | 12,819 |   |                              |   | 11,859 |   |   |   | 11,780 |   |   |   | 11,002 |   |   |   | 11,238 |   |   |   | 10,989 |   |   |   | 11,019 |   |   |   | 10,521 |   |
| Provision      for loan losses                           |   |                                                              | 2,360  |   |                              |   | 1,350 |   |   |   | 3,530 |   |   |   | 925 |   |   |   | 750 |   |   |   | 575 |   |   |   | 600 |   |   |   | 850 |   |
|                                                     |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income after provision for loan losses |   |                                                              | 10,459 |   |                              |   | 10,509 |   |   |   | 8,250 |   |   |   | 10,077 |   |   |   | 10,488 |   |   |   | 10,414 |   |   |   | 10,419 |   |   |   | 9,671 |   |
| Non-interest      income                                 |   |                                                              | 2,518  |   |                              |   | 2,077 |   |   |   | 3,098 |   |   |   | 3,589 |   |   |   | 2,840 |   |   |   | 2,546 |   |   |   | 2,813 |   |   |   | 3,132 |   |
| Non-interest      expense                                |   |                                                              | 10,653 |   |                              |   | 10,204 |   |   |   | 10,672 |   |   |   | 10,560 |   |   |   | 10,487 |   |   |   | 10,349 |   |   |   | 10,305 |   |   |   | 9,759 |   |
|                                                     |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      before income taxes                     |   |                                                              | 2,324  |   |                              |   | 2,382 |   |   |   | 676 |   |   |   | 3,106 |   |   |   | 2,841 |   |   |   | 2,611 |   |   |   | 2,927 |   |   |   | 3,044 |   |
| Income      taxes                                        |   |                                                              | 766    |   |                              |   | 754 |   |   |   | 73 |   |   |   | 1,041 |   |   |   | 948 |   |   |   | 890 |   |   |   | 996 |   |   |   | 1,035 |   |
|                                                     |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                          |   |                                                              | 1,558  |   |                              |   | 1,628 |   |   |   | 603 |   |   |   | 2,065 |   |   |   | 1,893 |   |   |   | 1,721 |   |   |   | 1,931 |   |   |   | 2,009 |   |
|                                                     |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Effective      dividend on preferred stock               |   |                                                              | 185    |   |                              |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                     |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income available to common shareholders         |   | $                                                                 | 1,373  |   |                              | $      | 1,628 |   |   | $ | 603 |   |   | $ | 2,065 |   |   | $ | 1,893 |   |   | $ | 1,721 |   |   | $ | 1,931 |   |   | $ | 2,009 |   |
|                                                     |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per      common share data:                              |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income:                                         |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                    |   | $                                                                 | 0.08   |   |                              | $      | 0.09 |   |   | $ | 0.03 |   |   | $ | 0.12 |   |   | $ | 0.11 |   |   | $ | 0.10 |   |   | $ | 0.11 |   |   | $ | 0.12 |   |
| Diluted                                                  |   |                                                              | 0.08   |   |                              |   | 0.09 |   |   |   | 0.03 |   |   |   | 0.12 |   |   |   | 0.11 |   |   |   | 0.10 |   |   |   | 0.11 |   |   |   | 0.11 |   |
|                                                     |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common      stock price:                                 |   |                                                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| High                                                     |   | $                                                                 | 4.97   |   |                              | $      | 6.30 |   |   | $ | 7.73 |   |   | $ | 7.89 |   |   | $ | 8.80 |   |   | $ | 8.94 |   |   | $ | 10.23 |   |   | $ | 10.97 |   |
| Low                                                      |   |                                                              | 2.11   |   |                              |   | 3.86 |   |   |   | 5.52 |   |   |   | 6.26 |   |   |   | 6.40 |   |   |   | 6.25 |   |   |   | 8.65 |   |   |   | 10.04 |   |

----

|                                 |   | At December 31,        |      |
|--------------------------------------|--------|----------------------------------|-----------|
|                                 |   | 2008                             |      |   | 2007 |   |   | 2006 |   |
|                                 |   |                             |      |   | Percent |   |   |   |   |   | Percent |   |   |   |   |   | Percent |   |
|                                 |   | Amount                           |      |   | of Total |   |   | Amount |   |   | of Total |   |   | Amount |   |   | of Total |   |
|                                 |   | (Amounts in thousands) |      |
| Residential      mortgage loans      |   | $                                | 393,360   |   |   |   | 29.9 | % |   | $ | 318,038 |   |   |   | 26.8 | % |   | $ | 258,885 |   |   |   | 25.1 | % |
| Commercial      mortgage loans       |   |                             | 419,212   |   |   |   | 31.9 | % |   |   | 390,948 |   |   |   | 32.9 | % |   |   | 359,987 |   |   |   | 35.0 | % |
| Construction      loans              |   |                             | 260,549   |   |   |   | 19.8 | % |   |   | 259,740 |   |   |   | 21.9 | % |   |   | 211,858 |   |   |   | 20.6 | % |
| Commercial      and industrial loans |   |                             | 221,231   |   |   |   | 16.8 | % |   |   | 197,851 |   |   |   | 16.6 | % |   |   | 177,706 |   |   |   | 17.3 | % |
| Loans      to individuals            |   |                             | 20,459    |   |   |   | 1.6 | % |   |   | 21,861 |   |   |   | 1.8 | % |   |   | 21,380 |   |   |   | 2.0 | % |
|                                 |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Subtotal                             |   |                             | 1,314,811 |   |   |   | 100.0 | % |   |   | 1,188,438 |   |   |   | 100.0 | % |   |   | 1,029,816 |   |   |   | 100.0 | % |
|                                 |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Less:      Allowance for loan losses |   |                             | (18,851   | ) |   |   |   |   |   |   | (14,258 | ) |   |   |   |   |   |   | (13,040 | ) |   |   |   |   |
|                                 |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loans                       |   | $                                | 1,295,960 |   |   |   |   |   |   | $ | 1,174,180 |   |   |   |   |   |   | $ | 1,016,776 |   |   |   |   |   |

|                                 |   | At December 31,        |    |
|--------------------------------------|--------|----------------------------------|---------|
|                                 |   | 2005                             |    |   | 2004 |   |
|                                 |   |                             |    |   | Percent |   |   |   |   |   | Percent |   |
|                                 |   | Amount                           |    |   | of Total |   |   | Amount |   |   | of Total |   |
|                                 |   | (Amounts in thousands) |    |
| Residential      mortgage loans      |   | $                                | 244,177 |   |   |   | 28.0 | % |   | $ | 238,454 |   |   |   | 30.0 | % |
| Commercial      mortgage loans       |   |                             | 286,658 |   |   |   | 33.0 | % |   |   | 295,130 |   |   |   | 37.1 | % |
| Construction      loans              |   |                             | 156,900 |   |   |   | 18.1 | % |   |   | 102,282 |   |   |   | 12.8 | % |
| Commercial      and industrial loans |   |                             | 151,950 |   |   |   | 17.5 | % |   |   | 127,432 |   |   |   | 16.0 | % |
| Loans      to individuals            |   |                             | 29,142  |   |   |   | 3.4 | % |   |   | 32,805 |   |   |   | 4.1 | % |
|                                 |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Subtotal                             |   |                             | 868,827 |   |   |   | 100.0 | % |   |   | 796,103 |   |   |   | 100.0 | % |
|                                 |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Less:      Allowance for loan losses |   |                             | (11,785 | ) |   |   |   |   |   |   | (12,537 | ) |   |   |   |   |
|                                 |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loans                       |   | $                                | 857,042 |   |   |   |   |   |   | $ | 783,566 |   |   |   |   |   |

----

|                                 |   | At December 31, 2008 |    |
|--------------------------------------|--------|-------------------------------------|---------|
|                                 |   | Due within                     |    |   | Due after one year |   |   | Due after |   |   |   |   |   |   |   |
|                                 |   | one year                       |    |   | but within five years |   |   | five years |   |   | Total |   |
|                                 |   | Amount                              |    |   | Yield |   |   | Amount |   |   | Yield |   |   | Amount |   |   | Yield |   |   | Amount |   |   | Yield |   |
|                                 |   | (Amounts      in thousands)         |    |
| Residential      mortgage loans      |   | $                                   | 149,372 |   |   |   | 4.79 | % |   | $ | 99,043 |   |   |   | 6.77 | % |   | $ | 143,462 |   |   |   | 6.02 | % |   | $ | 391,877 |   |   |   | 5.74 | % |
| Commercial      mortgage loans       |   |                                | 95,489  |   |   |   | 5.58 | % |   |   | 266,442 |   |   |   | 6.67 | % |   |   | 54,903 |   |   |   | 6.56 | % |   |   | 416,834 |   |   |   | 6.40 | % |
| Construction      loans              |   |                                | 195,681 |   |   |   | 4.95 | % |   |   | 43,675 |   |   |   | 6.63 | % |   |   | 11,381 |   |   |   | 7.09 | % |   |   | 250,737 |   |   |   | 5.34 | % |
| Commercial      and industrial loans |   |                                | 142,476 |   |   |   | 5.00 | % |   |   | 68,543 |   |   |   | 6.63 | % |   |   | 9,476 |   |   |   | 5.69 | % |   |   | 220,495 |   |   |   | 5.54 | % |
| Loans      to individuals            |   |                                | 10,484  |   |   |   | 8.09 | % |   |   | 8,162 |   |   |   | 8.46 | % |   |   | 1,789 |   |   |   | 4.20 | % |   |   | 20,435 |   |   |   | 7.89 | % |
|                                 |   |                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                |   |                                | 593,502 |   |   |   | 5.08 | % |   |   | 485,865 |   |   |   | 6.71 | % |   |   | 221,011 |   |   |   | 6.18 | % |   |   | 1,300,378 |   |   |   | 5.87 | % |
|                                 |   |                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonaccrual      loans                |   |                                | 12,163  |   |   |   |   |   |   |   | 1,385 |   |   |   |   |   |   |   | 885 |   |   |   |   |   |   |   | 14,433 |   |   |   |   |   |
|                                 |   |                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,      gross                    |   | $                                   | 605,665 |   |   |   |   |   |   | $ | 487,250 |   |   |   |   |   |   | $ | 221,896 |   |   |   |   |   |   | $ | 1,314,811 |   |   |   |   |   |

----

----

----

|                                                  |   | At December 31,             |   |
|-------------------------------------------------------|--------|-----------------------------|--------|
|                                                  |   | 2008                        |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                  |   | (Dollars      in thousands) |   |
|                                                  |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonaccrual      loans                                 |   | $                           | 14,433 |   |   | $ | 2,052 |   |   | $ | 2,636 |   |   | $ | 1,408 |   |   | $ | 2,174 |   |
| Restructured      loans                               |   |                        | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                  |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      nonperforming loans                        |   |                        | 14,433 |   |   |   | 2,052 |   |   |   | 2,636 |   |   |   | 1,408 |   |   |   | 2,174 |   |
|                                                  |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreclosed      assets                                |   |                        | 5,745  |   |   |   | 775 |   |   |   | 895 |   |   |   | 280 |   |   |   | 1,085 |   |
|                                                  |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      nonperforming assets                       |   | $                           | 20,178 |   |   | $ | 2,827 |   |   | $ | 3,531 |   |   | $ | 1,688 |   |   | $ | 3,259 |   |
|                                                  |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accruing      loans past due 90 days or more          |   | $                           | -      |   |   | $ | 8 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Allowance      for loan losses                        |   |                        | 18,851 |   |   |   | 14,258 |   |   |   | 13,040 |   |   |   | 11,785 |   |   |   | 12,537 |   |
| Nonperforming      loans to period end loans          |   |                        | 1.10   | % |   |   | 0.17 | % |   |   | 0.26 | % |   |   | 0.16 | % |   |   | 0.27 | % |
| Allowance      for loan losses to period end loans    |   |                        | 1.43   | % |   |   | 1.20 | % |   |   | 1.26 | % |   |   | 1.36 | % |   |   | 1.57 | % |
| Allowance      for loan losses to nonperforming loans |   |                        | 131    | % |   |   | 695 | % |   |   | 495 | % |   |   | 837 | % |   |   | 577 | % |
| Nonperforming      assets to total assets             |   |                        | 1.12   | % |   |   | 0.18 | % |   |   | 0.25 | % |   |   | 0.13 | % |   |   | 0.27 | % |

----

----

----

|                                 |   | At December 31,             |   |
|--------------------------------------|--------|-----------------------------|--------|
|                                 |   | 2008                        |   |   | 2007 |   |   | 2006 |   |
|                                 |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                 |   | Amount                      |   |   | % of TotalLoans (1) |   |   | Amount |   |   | % of TotalLoans (1) |   |   | Amount |   |   | % of TotalLoans (1) |   |
|                                 |   | (Dollars      in thousands) |   |
|                                 |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential      mortgage loans      |   | $                           | 5,170  |   |   |   | 29.9 | % |   | $ | 3,994 |   |   |   | 26.9 | % |   | $ | 1,771 |   |   |   | 25.4 | % |
| Commercial      mortgage loans       |   |                        | 3,645  |   |   |   | 31.9 | % |   |   | 2,950 |   |   |   | 32.8 | % |   |   | 4,173 |   |   |   | 34.8 | % |
| Construction      loans              |   |                        | 4,378  |   |   |   | 19.8 | % |   |   | 3,175 |   |   |   | 21.8 | % |   |   | 3,240 |   |   |   | 20.5 | % |
| Commercial      and industrial loans |   |                        | 3,499  |   |   |   | 16.9 | % |   |   | 2,829 |   |   |   | 16.6 | % |   |   | 2,099 |   |   |   | 17.2 | % |
| Loans      to individuals            |   |                        | 1,058  |   |   |   | 1.5 | % |   |   | 1,158 |   |   |   | 1.9 | % |   |   | 553 |   |   |   | 2.1 | % |
| Unallocated      (2)(3)              |   |                        | 1,101  |   |   |   | - | % |   |   | 152 |   |   |   | - | % |   |   | 1,204 |   |   |   | - | % |
|                                 |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                |   | $                           | 18,851 |   |   |   | 100.0 | % |   | $ | 14,258 |   |   |   | 100.0 | % |   | $ | 13,040 |   |   |   | 100.0 | % |

|                                 |   | At December 31,             |   |
|--------------------------------------|--------|-----------------------------|--------|
|                                 |   | 2005                        |   |   | 2004 |   |
|                                 |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                 |   | Amount                      |   |   | % of TotalLoans (1) |   |   | Amount |   |   | % of TotalLoans (1) |   |
|                                 |   | (Dollars      in thousands) |   |
|                                 |   |                        |   |   |   |   |   |   |   |   |   |   |
| Residential      mortgage loans      |   | $                           | 1,394  |   |   |   | 28.0 | % |   | $ | 1,419 |   |   |   | 30.0 | % |
| Commercial      mortgage loans       |   |                        | 3,151  |   |   |   | 33.0 | % |   |   | 3,500 |   |   |   | 37.1 | % |
| Construction      loans              |   |                        | 2,454  |   |   |   | 18.1 | % |   |   | 1,924 |   |   |   | 12.8 | % |
| Commercial      and industrial loans |   |                        | 1,784  |   |   |   | 17.5 | % |   |   | 1,815 |   |   |   | 16.0 | % |
| Loans      to individuals            |   |                        | 956    |   |   |   | 3.4 | % |   |   | 1,304 |   |   |   | 4.1 | % |
| Unallocated                          |   |                        | 2,046  |   |   |   | - | % |   |   | 2,575 |   |   |   | - | % |
|                                 |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                |   | $                           | 11,785 |   |   |   | 100.0 | % |   | $ | 12,537 |   |   |   | 100.0 | % |

| (1) | Represents      total of all outstanding loans in each category as a percentage of total      loans outstanding. |
|-----|------------------------------------------------------------------------------------------------------------------|

| (2) | During      2007, the ALLL methodology was revised to comply with the Interagency      Policy Statement on the ALLL. As a result the unallocated portion of the      allowance decreased due to the methodology  enhancements. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | During      2008, an unallocated segment was re-established as an additional      qualitative factor due to the current economic environment presenting      potential loss exposures in excess of our historical loss      rates. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                            |   | As of or for the Years Ended December      31, |      |
|-----------------------------------------------------------------|--------|------------------------------------------------|-----------|
|                                                            |   | 2008                                           |      |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                            |   | (Dollars      in thousands)                    |      |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at beginning of period                             |   | $                                              | 14,258    |   |   | $ | 13,040 |   |   | $ | 11,785 |   |   | $ | 12,537 |   |   | $ | 7,275 |   |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Charge-offs:                                                    |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential      mortgage loans                                 |   |                                           | 921       |   |   |   | 974 |   |   |   | 248 |   |   |   | 566 |   |   |   | 210 |   |
| Commercial      mortgage loans                                  |   |                                           | 165       |   |   |   | - |   |   |   | 68 |   |   |   | - |   |   |   | 43 |   |
| Construction      loans                                         |   |                                           | 1,452     |   |   |   | 140 |   |   |   | 130 |   |   |   | 4 |   |   |   | 312 |   |
| Commercial      and industrial loans                            |   |                                           | 702       |   |   |   | 239 |   |   |   | 508 |   |   |   | 349 |   |   |   | 120 |   |
| Loans      to individuals                                       |   |                                           | 594       |   |   |   | 541 |   |   |   | 600 |   |   |   | 443 |   |   |   | 889 |   |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      charge-offs                                          |   |                                           | 3,834     |   |   |   | 1,894 |   |   |   | 1,554 |   |   |   | 1,362 |   |   |   | 1,574 |   |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recoveries:                                                     |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential      mortgage loans                                 |   |                                           | 113       |   |   |   | 86 |   |   |   | 142 |   |   |   | 41 |   |   |   | 29 |   |
| Construction      loans                                         |   |                                           | 4         |   |   |   | 7 |   |   |   | - |   |   |   | 3 |   |   |   | - |   |
| Commercial      and industrial loans                            |   |                                           | 28        |   |   |   | 63 |   |   |   | 36 |   |   |   | 35 |   |   |   | 7 |   |
| Loans      to individuals                                       |   |                                           | 117       |   |   |   | 181 |   |   |   | 121 |   |   |   | 72 |   |   |   | 114 |   |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      recoveries                                           |   |                                           | 262       |   |   |   | 337 |   |   |   | 299 |   |   |   | 151 |   |   |   | 150 |   |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      charge-offs                                            |   |                                           | (3,572    | ) |   |   | (1,557 | ) |   |   | (1,255 | ) |   |   | (1,211 | ) |   |   | (1,424 | ) |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision      for loan losses                                  |   |                                           | 8,165     |   |   |   | 2775 |   |   |   | 2,510 |   |   |   | 950 |   |   |   | 2,239 |   |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loans acquired in purchase transactions, net |   |                                           | -         |   |   |   | - |   |   |   | - |   |   |   | (491 | ) |   |   | 4,447 |   |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at end of period                                   |   | $                                              | 18,851    |   |   | $ | 14,258 |   |   | $ | 13,040 |   |   | $ | 11,785 |   |   | $ | 12,537 |   |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      loans outstanding                                    |   | $                                              | 1,314,811 |   |   | $ | 1,188,438 |   |   | $ | 1,029,816 |   |   | $ | 868,827 |   |   | $ | 796,103 |   |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average      loans outstanding                                  |   | $                                              | 1,279,041 |   |   | $ | 1,114,677 |   |   | $ | 958,001 |   |   | $ | 837,467 |   |   | $ | 742,433 |   |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loan losses to loans outstanding             |   |                                           | 1.43      | % |   |   | 1.20 | % |   |   | 1.27 | % |   |   | 1.36 | % |   |   | 1.57 | % |
|                                                            |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio      of net loan charge-offs to average loans outstanding |   |                                           | 0.28      | % |   |   | 0.14 | % |   |   | 0.13 | % |   |   | 0.14 | % |   |   | 0.19 | % |

----

|                                |   | AmortizedCost               |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | Fair Value |   |
|-------------------------------------|--------|-----------------------------|---------|--------|----------------------|--------|--------|-----------------------|--------|--------|------------|--------|
|                                |   | (Amounts      in thousands) |    |
| December 31, 2008                   |   |                        |    |   |                 |   |   |                  |   |   |       |   |
| Securities      available for sale: |   |                        |    |   |                 |   |   |                  |   |   |       |   |
| U.      S. government agencies      |   | $                           | 76,061  |   |                 | $      | 2,183  |                  |   | $      | 37         |   |   | $ | 78,207 |   |
| Mortgage-backed      securities     |   |                        | 196,386 |   |                 |   | 4,268  |                  |   |   | 194        |   |   |   | 200,460 |   |
| Municipals                          |   |                        | 2,393   |   |                 |   | 19     |                  |   |   | 7          |   |   |   | 2,405 |   |
| Other                               |   |                        | 9,072   |   |                 |   | 4      |                  |   |   | 682        |   |   |   | 8,394 |   |
|                                |   | $                           | 283,912 |   |                 | $      | 6,474  |                  |   | $      | 920        |   |   | $ | 289,466 |   |
|                                |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| Securities      held to maturity:   |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| U.      S. government agencies      |   | $                           | 25,500  |   |                 | $      | 340    |                  |   | $      | -          |   |   | $ | 25,840 |   |
| Mortgage-backed      securities     |   |                        | 1,792   |   |                 |   | 26     |                  |   |   | -          |   |   |   | 1,818 |   |
| Municipals                          |   |                        | 7,939   |   |                 |   | 149    |                  |   |   | 215        |   |   |   | 7,873 |   |
|                                |   | $                           | 35,231  |   |                 | $      | 515    |                  |   | $      | 215        |   |   | $ | 35,531 |   |
|                                |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| December 31, 2007                   |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| Securities      available for sale: |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| U.      S. government agencies      |   | $                           | 72,922  |   |                 | $      | 1,754  |                  |   | $      | 5          |   |   | $ | 74,671 |   |
| Mortgage-backed      securities     |   |                        | 62,782  |   |                 |   | 428    |                  |   |   | 500        |   |   |   | 62,710 |   |
| Municipals                          |   |                        | 2,391   |   |                 |   | 5      |                  |   |   | 8          |   |   |   | 2,388 |   |
| Other                               |   |                        | 8,066   |   |                 |   | 24     |                  |   |   | 433        |   |   |   | 7,657 |   |
|                                |   | $                           | 146,161 |   |                 | $      | 2,211  |                  |   | $      | 946        |   |   | $ | 147,426 |   |
|                                |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| Securities      held to maturity:   |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| U.      S. government agencies      |   | $                           | 58,794  |   |                 | $      | 89     |                  |   | $      | 419        |   |   | $ | 58,464 |   |
| Mortgage-backed      securities     |   |                        | 2,197   |   |                 |   | 8      |                  |   |   | 30         |   |   |   | 2,175 |   |
| Municipals                          |   |                        | 8,821   |   |                 |   | 125    |                  |   |   | 121        |   |   |   | 8,825 |   |
|                                |   | $                           | 69,812  |   |                 | $      | 222    |                  |   | $      | 570        |   |   | $ | 69,464 |   |
|                                |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| December 31, 2006                   |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| Securities      available for sale: |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| U.      S. government agencies      |   | $                           | 77,942  |   |                 | $      | 592    |                  |   | $      | 431        |   |   | $ | 78,103 |   |
| Mortgage-backed      securities     |   |                        | 72,258  |   |                 |   | 234    |                  |   |   | 1,249      |   |   |   | 71,243 |   |
| Municipals                          |   |                        | 1,303   |   |                 |   | 9      |                  |   |   | -          |   |   |   | 1,312 |   |
| Other                               |   |                        | 8,141   |   |                 |   | -      |                  |   |   | 340        |   |   |   | 7,801 |   |
|                                |   | $                           | 159,644 |   |                 | $      | 835    |                  |   | $      | 2,020      |   |   | $ | 158,459 |   |
|                                |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| Securities      held to maturity:   |   |                        |    |   |                 |   |   |                  |   |   |       |   |   |   |   |   |
| U.      S. government agencies      |   | $                           | 74,793  |   |                 | $      | 5      |                  |   | $      | 2,235      |   |   | $ | 72,563 |   |
| Mortgage-backed      securities     |   |                        | 2,795   |   |                 |   | 5      |                  |   |   | 61         |   |   |   | 2,739 |   |
| Municipals                          |   |                        | 8,887   |   |                 |   | 128    |                  |   |   | 104        |   |   |   | 8,911 |   |
|                                |   | $                           | 86,475  |   |                 | $      | 138    |                  |   | $      | 2,400      |   |   | $ | 84,213 |   |

----

|                                     |   | 2008                       |    |   |       |   |
|------------------------------------------|--------|----------------------------|---------|--------|------------|--------|
|                                     |   | Amortized Cost             |    |   | Fair Value |   |   | Weighted AverageYield |   |
|                                     |   | (Amount      in thousands) |    |   |       | (1)    |   |
| Securities available for    sale:        |   |                       |    |   |       |   |   |   |   |   |
| U.      S. government agencies           |   |                       |    |   |       |   |   |   |   |   |
| Due      within one year                 |   | $                          | 3,010   |   |       | $      | 3,117 |   |   |   | 4.27 | % |
| Due      after one but within five years |   |                       | 39,999  |   |       |   | 41,429 |   |   |   | 5.56 | % |
| Due      after five but within ten years |   |                       | 28,052  |   |       |   | 28,698 |   |   |   | 5.23 | % |
| Due      after ten years                 |   |                       | 5,000   |   |       |   | 4,963 |   |   |   | 6.00 | % |
|                                     |   |                       | 76,061  |   |       |   | 78,207 |   |   |   | 5.42 | % |
| Mortgage-backed      securities          |   |                       |    |   |       |   |   |   |   |   |   |   |
| Due      within one year                 |   |                       | 6       |   |       |   | 6 |   |   |   | 6.50 | % |
| Due      after one but within five years |   |                       | 5,871   |   |       |   | 5,876 |   |   |   | 4.16 | % |
| Due      after five but within ten years |   |                       | 66,148  |   |       |   | 68,346 |   |   |   | 4.28 | % |
| Due      after ten years                 |   |                       | 124,361 |   |       |   | 126,232 |   |   |   | 5.20 | % |
|                                     |   |                       | 196,386 |   |       |   | 200,460 |   |   |   | 4.86 | % |
| Municipals                               |   |                       |    |   |       |   |   |   |   |   |   |   |
| Due      within one year                 |   |                       | 140     |   |       |   | 141 |   |   |   | 5.13 | % |
| Due      after one but within five years |   |                       | 950     |   |       |   | 962 |   |   |   | 4.90 | % |
| Due      after ten years                 |   |                       | 1,303   |   |       |   | 1,302 |   |   |   | 6.35 | % |
|                                     |   |                       | 2,393   |   |       |   | 2,405 |   |   |   | 5.70 | % |
| Other                                    |   |                       |    |   |       |   |   |   |   |   |   |   |
| Due      within one year                 |   |                       | 1,000   |   |       |   | 710 |   |   |   | 2.35 | % |
| Due      after five but within ten years |   |                       | -       |   |       |   | - |   |   |   | 0.00 | % |
| Due      after ten years                 |   |                       | 4,250   |   |       |   | 4,067 |   |   |   | 6.28 | % |
| Other      equity securities             |   |                       | 3,822   |   |       |   | 3,617 |   |   |   | 3.95 | % |
|                                     |   |                       | 9,072   |   |       |   | 8,394 |   |   |   | 4.86 | % |
| Total      securities available for sale |   |                       |    |   |       |   |   |   |   |   |   |   |
| Due      within one year                 |   |                       | 4,156   |   |       |   | 3,974 |   |   |   | 3.78 | % |
| Due      after one but within five years |   |                       | 46,820  |   |       |   | 48,267 |   |   |   | 5.34 | % |
| Due      after five but within ten years |   |                       | 94,200  |   |       |   | 97,044 |   |   |   | 4.78 | % |
| Due      after ten years                 |   |                       | 134,914 |   |       |   | 136,564 |   |   |   | 5.26 | % |
| Other      equity securities             |   |                       | 3,822   |   |       |   | 3,617 |   |   |   | 3.95 | % |
|                                     |   | $                          | 283,912 |   |       | $      | 289,466 |   |   |   | 5.07 | % |
| Securities held tomaturity:              |   |                       |    |   |       |   |   |   |   |   |   |   |
| U.      S. government agencies           |   |                       |    |   |       |   |   |   |   |   |   |   |
| Due      within one year                 |   | $                          | 3,000   |   |       | $      | 3,091 |   |   |   | 4.20 | % |
| Due      after one but within five years |   |                       | 2,500   |   |       |   | 2,626 |   |   |   | 5.00 | % |
| Due      after five but within ten years |   |                       | 20,000  |   |       |   | 20,123 |   |   |   | 5.14 | % |
|                                     |   |                       | 25,500  |   |       |   | 25,840 |   |   |   | 4.17 | % |
| Mortgage-backed      securities          |   |                       |    |   |       |   |   |   |   |   |   |   |
| Due      after one but within five years |   |                       | 104     |   |       |   | 106 |   |   |   | 5.49 | % |
| Due      after five but within ten years |   |                       | 948     |   |       |   | 963 |   |   |   | 4.54 | % |
| Due      after ten years                 |   |                       | 740     |   |       |   | 749 |   |   |   | 5.26 | % |
|                                     |   |                       | 1,792   |   |       |   | 1,818 |   |   |   | 4.89 | % |
| Municipals                               |   |                       |    |   |       |   |   |   |   |   |   |   |
| Due      within one year                 |   |                       | 400     |   |       |   | 402 |   |   |   | 5.00 | % |
| Due      after one but within five years |   |                       | 1,789   |   |       |   | 1,815 |   |   |   | 2.95 | % |
| Due      after five but within ten years |   |                       | 3,219   |   |       |   | 3,324 |   |   |   | 4.33 | % |
| Due      after ten years                 |   |                       | 2,531   |   |       |   | 2,332 |   |   |   | 3.24 | % |
|                                     |   |                       | 7,939   |   |       |   | 7,873 |   |   |   | 3.70 | % |
| Total      securities held to maturity   |   |                       |    |   |       |   |   |   |   |   |   |   |
| Due      within one year                 |   |                       | 3,400   |   |       |   | 3,493 |   |   |   | 4.29 | % |
| Due      after one but within five years |   |                       | 4,393   |   |       |   | 4,547 |   |   |   | 4.19 | % |
| Due      after five but within ten years |   |                       | 24,167  |   |       |   | 24,410 |   |   |   | 5.01 | % |
| Due      after ten years                 |   |                       | 3,271   |   |       |   | 3,081 |   |   |   | 3.73 | % |
|                                     |   | $                          | 35,231  |   |       | $      | 35,531 |   |   |   | 4.10 | % |

----

----

|                                                |   | For the Years Ended December      31, |      |
|-----------------------------------------------------|--------|---------------------------------------|-----------|
|                                                |   | 2008                                  |      |   | 2007 |   |   | 2006 |   |
|                                                |   | Average                               |      |   | Average |   |   | Average |   |   | Average |   |   | Average |   |   | Average |   |
|                                                |   | Amount                                |      |   | Rate |   |   | Amount |   |   | Rate |   |   | Amount |   |   | Rate |   |
|                                                |   | (Dollars      in thousands)           |      |
|                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      NOW and money market accounts |   | $                                     | 512,717   |   |   |   | 2.23 | % |   | $ | 441,716 |   |   |   | 3.51 | % |   | $ | 348,486 |   |   |   | 3.03 | % |
| Time      deposits $100,000 or more                 |   |                                  | 137,841   |   |   |   | 4.86 | % |   |   | 311,125 |   |   |   | 4.54 | % |   |   | 326,864 |   |   |   | 4.38 | % |
| Other      time deposits                            |   |                                  | 428,950   |   |   |   | 3.86 | % |   |   | 169,236 |   |   |   | 5.25 | % |   |   | 208,733 |   |   |   | 4.10 | % |
|                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-bearing deposits                |   |                                  | 1,079,508 |   |   |   | 3.21 | % |   |   | 922,077 |   |   |   | 4.18 | % |   |   | 884,083 |   |   |   | 3.78 | % |
|                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand      and other non-interest-bearing deposits |   |                                  | 104,978   |   |   |   |   |   |   |   | 108,874 |   |   |   |   |   |   |   | 105,755 |   |   |   |   |   |
|                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      average deposits                         |   | $                                     | 1,184,486 |   |   |   | 2.93 | % |   | $ | 1,030,951 |   |   |   | 3.74 | % |   | $ | 989,838 |   |   |   | 3.38 | % |

|                        |   | At December 31, 2008 |    |
|-----------------------------|--------|----------------------|---------|
|                        |   | (In      thousands)  |    |
| Remaining      Maturity     |   |                 |    |
| Less      than three months |   | $                    | 24,753  |   |
| Three      to six months    |   |                 | 28,191  |   |
| Six      to twelve months   |   |                 | 83,973  |   |
| Over      twelve months     |   |                 | 26,684  |   |
| Total                       |   | $                    | 163,601 |   |

|                             |   | 2008                        |    |   | 2007   |   |
|----------------------------------|--------|-----------------------------|---------|--------|--------|--------|
|                             |   | (Amounts      in thousands) |    |
| Short-term      borrowings       |   |                        |    |   |   |   |
| FHLB      advances               |   | $                           | 62,000  |   |   | $      | 73,000 |   |
| Federal      funds purchased     |   |                        | -       |   |   |   | 22,100 |   |
| Term      Auction Facility       |   |                        | 60,000  |   |   |   | - |   |
| Repurchase      agreements       |   |                        | 23,197  |   |   |   | 22,672 |   |
|                             |   | $                           | 145,197 |   |   | $      | 117,772 |   |
| Long-term      borrowings        |   |                        |    |   |   |   |   |   |
| FHLB      advances               |   | $                           | 92,139  |   |   | $      | 129,522 |   |
| Term      repurchase agreements  |   |                        | 90,000  |   |   |   | 80,000 |   |
| Jr.      subordinated debentures |   |                        | 45,877  |   |   |   | 45,111 |   |
|                             |   | $                           | 228,016 |   |   | $      | 254,633 |   |

----

|                                                |   | 2008                |   |   | 2007                |   |
|-----------------------------------------------------|--------|---------------------|--------|--------|---------------------|--------|
| Short term borrowings                               |   | Amount              |   |   | Rate                |   |   | Amount |   |   | Rate |   |
|                                                |   | (In      thousands) |   |   | (In      thousands) |   |
| Federal      Home Loan Bank                         |   |                |   |   |                |   |   |   |   |   |   |   |
| At      December 31                                 |   | $                   | 62,000 |   |                |   | 2.52 | % |   | $ | 73,000 |   |   |   | 4.68 | % |
| Average      during year                            |   |                | 54,057 |   |                |   | 3.43 | % |   |   | 61,297 |   |   |   | 4.73 | % |
| Maximum      month-end balance during year          |   |                | 70,000 |   |                |   | - |   |   |   | 88,000 |   |   |   | - |   |
|                                                |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Securities      sold under agreements to repurchase |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |
| At      December 31                                 |   | $                   | 23,197 |   |                |   | 2.99 | % |   | $ | 22,672 |   |   |   | 3.05 | % |
| Average      during year                            |   |                | 20,150 |   |                |   | 2.63 | % |   |   | 26,531 |   |   |   | 4.18 | % |
| Maximum      month-end balance during year          |   |                | 30,455 |   |                |   | - |   |   |   | 22,672 |   |   |   | - |   |
|                                                |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Federal      funds purchased                        |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |
| At      December 31                                 |   | $                   | -      |   |                |   | - |   |   | $ | 22,100 |   |   |   | 4.28 | % |
| Average      during year                            |   |                | 52,240 |   |                |   | 2.33 | % |   |   | 15,921 |   |   |   | 5.34 | % |
| Maximum      month-end balance during year          |   |                | 88,000 |   |                |   | - |   |   |   | 37,873 |   |   |   | - |   |
|                                                |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Term      Auction Facility                          |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |
| At      December 31                                 |   | $                   | 60,000 |   |                |   | 1.00 | % |   |   | - |   |   |   | - |   |
| Average      during year                            |   |                | 53,423 |   |                |   | 1.97 | % |   |   | - |   |   |   | - |   |
| Maximum      month-end balance during year          |   |                | 70,000 |   |                |   | - |   |   |   | - |   |   |   | - |   |

| Long term borrowings |   | At      December 31, 2008 |   |
|----------------------|--------|---------------------------|--------|
|                 |   | FHLB      Advances        |   |   | Term      Repo |   |
| Years of maturity    |   | Interest      Rate        |   |   | Amount |   |   | Interest      Rate |   |   | Amount |   |
|                 |   |                      |   |   | (In      thousands) |   |   |   |   |   | (In      thousands) |   |
|                 |   |                      |   |   |   |   |   |   |   |   |   |   |
| 2010                 |   |                      | 4.05   | % |   |   | 35,000 |   |   |   | 4.95 | % |   |   | 10,000 |   |
| 2011                 |   |                      | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |
| 2012                 |   |                      | 3.84   | % |   |   | 5,000 |   |   |   | 4.56 | % |   |   | 20,000 |   |
| 2013                 |   |                      | 3.46   | % |   |   | 10,000 |   |   |   | - |   |   |   | - |   |
| Thereafter           |   |                      | 5.38   | % |   |   | 42,139 |   |   |   | 1.74 | % |   |   | 60,000 |   |
|                 |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   |                      |   |   |   | $ | 92,139 |   |   |   |   |   |   | $ | 90,000 |   |

----

|   | · | Are      restricted to using only long term restricted stock as the form of payment      for any bonus, retention or incentive compensation plan.  There      are further restrictions on vesting and amount of award per      executive. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Must      extend golden parachute payment restrictions and clawback provisions on      incentive compensation plans beyond the senior executives to a number of      the most highly compensatedemployees. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Must      adopt a company-wide policy regarding excessive or luxury      expenditures. |
|--------|--------|----------------------------------------------------------------------------------------|

----

----

----

----

|                                                                                                                                                                                |   | 2008                                                         |      |   | 2007   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|-----------|--------|--------|--------|
|                                                                                                                                                                                |   | (Amounts in thousands, exceptshare data) |      |
| Assets                                                                                                                                                                              |   |                                                         |      |   |   |   |
|                                                                                                                                                                                |   |                                                         |      |   |   |   |
| Cash      and due from banks                                                                                                                                                        |   | $                                                            | 25,215    |   |   | $      | 31,905 |   |
| Federal      funds sold and other interest-earning deposits                                                                                                                         |   |                                                         | 2,180     |   |   |   | 2,250 |   |
| Investment      securities (Note 3)                                                                                                                                                 |   |                                                         |      |   |   |   |   |   |
| Available      for sale, at fair value                                                                                                                                              |   |                                                         | 289,466   |   |   |   | 147,426 |   |
| Held      to maturity, (fair value of $35,531 and $69,464 at December 31, 2008 and      2007, respectively)                                                                         |   |                                                         | 35,231    |   |   |   | 69,812 |   |
| Federal      Home Loan Bank stock                                                                                                                                                   |   |                                                         | 9,757     |   |   |   | 11,695 |   |
|                                                                                                                                                                                |   |                                                         |      |   |   |   |   |   |
| Loans      held for sale                                                                                                                                                            |   |                                                         | 316       |   |   |   | 1,929 |   |
|                                                                                                                                                                                |   |                                                         |      |   |   |   |   |   |
| Loans      (Note 4)                                                                                                                                                                 |   |                                                         | 1,314,811 |   |   |   | 1,188,438 |   |
| Allowance      for loan losses (Note 5)                                                                                                                                             |   |                                                         | (18,851   | )      |   |   | (14,258 | ) |
| Net      Loans                                                                                                                                                                      |   |                                                         | 1,295,960 |   |   |   | 1,174,180 |   |
|                                                                                                                                                                                |   |                                                         |      |   |   |   |   |   |
| Premises      and equipment (Note 6)                                                                                                                                                |   |                                                         | 40,030    |   |   |   | 38,997 |   |
| Goodwill      (Note 7)                                                                                                                                                              |   |                                                         | 49,501    |   |   |   | 49,792 |   |
| Other      assets (Notes 4, 7 and 14)                                                                                                                                               |   |                                                         | 56,122    |   |   |   | 41,196 |   |
| Total      Assets                                                                                                                                                                   |   | $                                                            | 1,803,778 |   |   | $      | 1,569,182 |   |
|                                                                                                                                                                                |   |                                                         |      |   |   |   |   |   |
| Liabilities      and Stockholders’ Equity                                                                                                                                     |   |                                                         |      |   |   |   |   |   |
| Deposits                                                                                                                                                                            |   |                                                         |      |   |   |   |   |   |
| Demand                                                                                                                                                                              |   | $                                                            | 102,048   |   |   | $      | 109,895 |   |
| Money      market and NOW                                                                                                                                                           |   |                                                         | 465,156   |   |   |   | 485,428 |   |
| Savings                                                                                                                                                                             |   |                                                         | 10,616    |   |   |   | 10,020 |   |
| Time      (Note 8)                                                                                                                                                                  |   |                                                         | 655,292   |   |   |   | 439,894 |   |
| Total      Deposits                                                                                                                                                                 |   |                                                         | 1,233,112 |   |   |   | 1,045,237 |   |
|                                                                                                                                                                                |   |                                                         |      |   |   |   |   |   |
| Short-term      borrowings (Note 9)                                                                                                                                                 |   |                                                         | 145,197   |   |   |   | 117,772 |   |
| Long-term      debt (Notes 9 and 10)                                                                                                                                                |   |                                                         | 228,016   |   |   |   | 254,633 |   |
| Other      liabilities (Note 12)                                                                                                                                                    |   |                                                         | 9,743     |   |   |   | 9,201 |   |
|                                                                                                                                                                                |   |                                                         |      |   |   |   |   |   |
| Total      Liabilities                                                                                                                                                              |   |                                                         | 1,616,068 |   |   |   | 1,426,843 |   |
| Stockholders’      Equity (Notes 10, 11 and 16)                                                                                                                               |   |                                                         |      |   |   |   |   |   |
| Cumulative      perpetual preferred stock (Series A), no par value, 1,000,000 shares      authorized; issued and outstanding 42,750 shares at December 31,      2008                |   |                                                         | 40,690    |   |   |   | - |   |
| Common      stock, no par value, 30,000,000 shares authorized; issued and outstanding      16,769,675 shares and 17,399,882 shares at December 31, 2008 and 2007,      respectively |   |                                                         | 119,054   |   |   |   | 119,101 |   |
| Retained      earnings                                                                                                                                                              |   |                                                         | 24,901    |   |   |   | 22,198 |   |
| Accumulated      other comprehensive income                                                                                                                                         |   |                                                         | 3,065     |   |   |   | 1,040 |   |
| Total      Stockholders’ Equity                                                                                                                                               |   |                                                         | 187,710   |   |   |   | 142,339 |   |
|                                                                                                                                                                                |   |                                                         |      |   |   |   |   |   |
| Commitments      and contingencies (Notes 13 and 18)                                                                                                                                |   |                                                         |      |   |   |   |   |   |
|                                                                                                                                                                                |   |                                                         |      |   |   |   |   |   |
| Total      Liabilities and Stockholders’ Equity                                                                                                                          |   | $                                                            | 1,803,778 |   |   | $      | 1,569,182 |   |

----

----

|                                                        |   | 2008                                          |       |   | 2007   |   |       | 2006   |   |
|-------------------------------------------------------------|--------|-----------------------------------------------|------------|--------|--------|--------|------------|--------|--------|
|                                                        |   | (Amounts in thousands, except  |       |
|                                                        |   | share and per share data) |       |
| Interest      Income                                        |   |                                          |       |   |   |   |       |   |   |
| Loans                                                       |   | $                                             | 82,125     |   |   | $      | 86,673     |   |   | $ | 73,492 |   |
| Investment      securities available for sale               |   |                                          | 12,378     |   |   |   | 8,819      |   |   |   | 8,529 |   |
| Investment      securities held to maturity                 |   |                                          | 2,184      |   |   |   | 3,208      |   |   |   | 3,390 |   |
| Federal      funds sold and other interest-earning deposits |   |                                          | 55         |   |   |   | 208        |   |   |   | 109 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Total      Interest Income                                  |   |                                          | 96,742     |   |   |   | 98,908     |   |   |   | 85,520 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Interest      Expense                                       |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Money      market, savings, and NOW deposits                |   |                                          | 11,412     |   |   |   | 15,499     |   |   |   | 10,552 |   |
| Time      deposits                                          |   |                                          | 23,236     |   |   |   | 23,024     |   |   |   | 22,867 |   |
| Short-term      borrowings                                  |   |                                          | 3,808      |   |   |   | 4,758      |   |   |   | 2,897 |   |
| Long-term      debt                                         |   |                                          | 10,826     |   |   |   | 11,860     |   |   |   | 8,482 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Total      Interest Expense                                 |   |                                          | 49,282     |   |   |   | 55,141     |   |   |   | 44,798 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Net      Interest Income                                    |   |                                          | 47,460     |   |   |   | 43,767     |   |   |   | 40,722 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Provision      for Loan Losses (Note 5)                     |   |                                          | 8,165      |   |   |   | 2,775      |   |   |   | 2,510 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Net      Interest Income After                              |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Provision      for Loan Losses                              |   |                                          | 39,295     |   |   |   | 40,992     |   |   |   | 38,212 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Non-Interest      Income (Note 15)                          |   |                                          | 11,282     |   |   |   | 11,331     |   |   |   | 3,678 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Non-Interest      Expense                                   |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Salaries      and employee benefits                         |   |                                          | 22,038     |   |   |   | 21,218     |   |   |   | 18,826 |   |
| Occupancy      and equipment                                |   |                                          | 7,679      |   |   |   | 7,928      |   |   |   | 6,835 |   |
| Other      (Note 15)                                        |   |                                          | 12,372     |   |   |   | 11,754     |   |   |   | 10,141 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Total      Non-Interest Expense                             |   |                                          | 42,089     |   |   |   | 40,900     |   |   |   | 35,802 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Income      Before Income Taxes                             |   |                                          | 8,488      |   |   |   | 11,423     |   |   |   | 6,088 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Income      Tax Expense (Note 14)                           |   |                                          | 2,634      |   |   |   | 3,869      |   |   |   | 1,890 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Net      Income                                             |   |                                          | 5,854      |   |   |   | 7,554      |   |   |   | 4,198 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Effective      dividend on preferred stock (Note 11)        |   |                                          | 185        |   |   |   | -          |   |   |   | - |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Net      income available to common shareholders            |   | $                                             | 5,669      |   |   | $      | 7,554      |   |   | $ | 4,198 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Net      Income Per Common Share                            |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Basic                                                       |   | $                                             | 0.33       |   |   | $      | 0.43       |   |   | $ | 0.24 |   |
| Diluted                                                     |   |                                          | 0.33       |   |   |   | 0.43       |   |   |   | 0.24 |   |
|                                                        |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Weighted      Average Common Shares Outstanding             |   |                                          |       |   |   |   |       |   |   |   |   |   |
| Basic                                                       |   |                                          | 17,363,395 |   |   |   | 17,559,352 |   |   |   | 17,566,315 |   |
| Diluted                                                     |   |                                          | 17,398,318 |   |   |   | 17,624,399 |   |   |   | 17,757,436 |   |

----

----

|                                                                    |   | 2008                             |   |   | 2007   |   |   | 2006   |   |
|-------------------------------------------------------------------------|--------|----------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                    |   | (Amounts in thousands) |   |
|                                                                    |   |                             |   |   |   |   |   |   |   |
| Net      income                                                         |   | $                                | 5,854  |   |   | $      | 7,554  |   |   | $ | 4,198 |   |
|                                                                    |   |                             |   |   |   |   |   |   |   |   |   |   |
| Other      comprehensive income:                                        |   |                             |   |   |   |   |   |   |   |   |   |   |
|                                                                    |   |                             |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale:                                     |   |                             |   |   |   |   |   |   |   |   |   |   |
| Unrealized      holding gains (losses) on available for sale securities |   |                             | 4,387  |   |   |   | 2,450  |   |   |   | (213 | ) |
| Tax      effect                                                         |   |                             | (1,692 | )      |   |   | (945   | )      |   |   | 81 |   |
| Reclassification      of (gains) losses recognized in net income        |   |                             | (98    | )      |   |   | -      |   |   |   | 4,156 |   |
| Tax      effect                                                         |   |                             | 38     |   |   |   | -      |   |   |   | (1,602 | ) |
| Net      of tax amount                                                  |   |                             | 2,635  |   |   |   | 1,505  |   |   |   | 2,422 |   |
|                                                                    |   |                             |   |   |   |   |   |   |   |   |   |   |
| Cash      flow hedging activities:                                      |   |                             |   |   |   |   |   |   |   |   |   |   |
| Unrealized      holding gains (losses) on cash flow hedging activities  |   |                             | (982   | )      |   |   | 274    |   |   |   | 69 |   |
| Tax      effect                                                         |   |                             | 343    |   |   |   | (105   | )      |   |   | (27 | ) |
| Loss      due to counterparty default net of amortization               |   |                             | 240    |   |   |   | -      |   |   |   | - |   |
| Reclassification      of (gains) losses recognized in net income, net   |   |                             | 78     |   |   |   | 54     |   |   |   | 28 |   |
| Tax      effect                                                         |   |                             | (29    | )      |   |   | (21    | )      |   |   | (10 | ) |
| Net      of tax amount                                                  |   |                             | (350   | )      |   |   | 202    |   |   |   | 60 |   |
|                                                                    |   |                             |   |   |   |   |   |   |   |   |   |   |
| Net      defined benefit pension adjustment                             |   |                             | (423   | )      |   |   | 150    |   |   |   | - |   |
| Tax      effect                                                         |   |                             | 163    |   |   |   | (58    | )      |   |   | - |   |
| Net      of tax amount                                                  |   |                             | (260   | )      |   |   | 92     |   |   |   | - |   |
|                                                                    |   |                             |   |   |   |   |   |   |   |   |   |   |
| Total      other comprehensive income                                   |   |                             | 2,025  |   |   |   | 1,799  |   |   |   | 2,482 |   |
|                                                                    |   |                             |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      income                                               |   | $                                | 7,879  |   |   | $      | 9,353  |   |   | $ | 6,680 |   |

----

----

|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   | Accumulated        |   |   |   |   |
|------------------------------------------------------------------------|--------|----------------------|--------|--------|-------------------|--------|--------|--------------------------------------------------------------------|--------|--------|---------------|--------|--------|---------------|---------|--------|--------------------|--------|--------|--------|--------|
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   | Other              |   |   | Total  |   |
|                                                                   |   | Preferred Stock |   |   | Common Stock |   |   | Retained                                                           |   |   | Comprehensive |   |   | Stockholders' |    |
|                                                                   |   | Shares               |   |   | Amount            |   |   | Shares                                                             |   |   | Amount        |   |   | Earnings      |    |   | Income (Loss) |   |   | Equity |   |
|                                                                   |   |                 |   |   |              |   |   | (Amounts in thousands, except share data) |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |
| Balance      at December 31, 2005                                      |   |                 | -      |   |              |   | -      |                                                               |   |   | 17,612,472    |   |   | $             | 122,490 |   |               | $      | 15,546 |   |   | $ | (3,151 | ) |   | $ | 134,885 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                        |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | 4,198  |   |   |   | - |   |   |   | 4,198 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Other      comprehensive income, net of tax                            |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | -      |   |   |   | 2,482 |   |   |   | 2,482 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Common      shares repurchased                                         |   |                 | -      |   |              |   | -      |                                                               |   |   | (377,126      | )      |   |          | (3,682  | )      |               |   | -      |   |   |   | - |   |   |   | (3,682 | ) |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Stock      options exercised including income tax benefit of      $69  |   |                 | -      |   |              |   | -      |                                                               |   |   | 170,594       |   |   |          | 749     |   |               |   | -      |   |   |   | - |   |   |   | 749 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Stock-based      compensation                                          |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | 59      |   |               |   | -      |   |   |   | - |   |   |   | 59 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Cash      dividends of $0.135 per share                                |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | (2,376 | )      |   |   | - |   |   |   | (2,376 | ) |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SFAS158      transition adjustment, net of    tax                      |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | -      |   |   |   | (90 | ) |   |   | (90 | ) |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2006                                      |   |                 | -      |   |              |   | -      |                                                               |   |   | 17,405,940    |   |   |          | 119,616 |   |               |   | 17,368 |   |   |   | (759 | ) |   |   | 136,225 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                        |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | 7,554  |   |   |   |   |   |   |   | 7,554 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Other      comprehensive income, net of tax                            |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | -      |   |   |   | 1,799 |   |   |   | 1,799 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Common      shares repurchased                                         |   |                 | -      |   |              |   | -      |                                                               |   |   | (286,972      | )      |   |          | (2,357  | )      |               |   | -      |   |   |   | - |   |   |   | (2,357 | ) |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Stock      options exercised including income tax benefit of      $559 |   |                 | -      |   |              |   | -      |                                                               |   |   | 263,414       |   |   |          | 1,737   |   |               |   | -      |   |   |   | - |   |   |   | 1,737 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Restricted      stock issued                                           |   |                 | -      |   |              |   | -      |                                                               |   |   | 17,500        |   |   |          | -       |   |               |   | -      |   |   |   | - |   |   |   | - |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Stock-based      compensation                                          |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | 105     |   |               |   | -      |   |   |   | - |   |   |   | 105 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Cash      dividends of $0.155 per share                                |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | (2,724 | )      |   |   | - |   |   |   | (2,724 | ) |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2007                                      |   |                 | -      |   |              |   | -      |                                                               |   |   | 17,399,882    |   |   |          | 119,101 |   |               |   | 22,198 |   |   |   | 1,040 |   |   |   | 142,339 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                        |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | 5,854  |   |   |   | - |   |   |   | 5,854 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Other      comprehensive income, net of tax                            |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | -      |   |   |   | 2,025 |   |   |   | 2,025 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Common      shares repurchased                                         |   |                 | -      |   |              |   | -      |                                                               |   |   | (733,175      | )      |   |          | (2,700  | )      |               |   | -      |   |   |   | - |   |   |   | (2,700 | ) |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Stock      options exercised including income tax benefit of      $51  |   |                 | -      |   |              |   | -      |                                                               |   |   | 73,968        |   |   |          | 408     |   |               |   | -      |   |   |   | - |   |   |   | 408 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Restricted      stock issued                                           |   |                 | -      |   |              |   | -      |                                                               |   |   | 29,000        |   |   |          | 44      |   |               |   | -      |   |   |   | - |   |   |   | 44 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Stock-based      compensation                                          |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | 111     |   |               |   | -      |   |   |   | - |   |   |   | 111 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Cash      dividends of $0.16 per share                                 |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | (2,781 | )      |   |   | - |   |   |   | (2,781 | ) |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative      effect of accounting  method      change          |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | (185   | )      |   |   | - |   |   |   | (185 | ) |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Preferred      stock transaction:                                      |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Issuance      of preferred stock                                       |   |                 | 42,750 |   |              |   | 42,750 |                                                               |   |   | -             |   |   |          | -       |   |               |   | -      |   |   |   | - |   |   |   | 42,750 |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Discount      on preferred stock                                       |   |                 | -      |   |              |   | (2,090 | )                                                                  |   |   | -             |   |   |          | 2,090   |   |               |   | -      |   |   |   | - |   |   |   | - |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Accretion      of discount                                             |   |                 | -      |   |              |   | 30     |                                                               |   |   | -             |   |   |          | -       |   |               |   | (30    | )      |   |   | - |   |   |   | - |   |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Preferred      stock dividend accrued                                  |   |                 | -      |   |              |   | -      |                                                               |   |   | -             |   |   |          | -       |   |               |   | (155   | )      |   |   | - |   |   |   | (155 | ) |
|                                                                   |   |                 |   |   |              |   |   |                                                               |   |   |          |   |   |          |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2008                                      |   |                 | 42,750 |   |              | $      | 40,690 |                                                               |   |   | 16,769,675    |   |   | $             | 119,054 |   |               | $      | 24,901 |   |   | $ | 3,065 |   |   | $ | 187,710 |   |

----

----

|                                                                                        |   | 2008                        |     |   | 2007   |   |     | 2006   |   |
|---------------------------------------------------------------------------------------------|--------|-----------------------------|----------|--------|--------|--------|----------|--------|--------|
|                                                                                        |   | (Amounts      in thousands) |     |
|                                                                                        |   |                        |     |   |   |   |     |   |   |
| Cash      Flows from Operating Activities                                                   |   |                        |     |   |   |   |     |   |   |
| Net      income                                                                             |   | $                           | 5,854    |   |   | $      | 7,554    |   |   | $ | 4,198 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities: |   |                        |     |   |   |   |     |   |   |   |   |   |
| Depreciation      and amortization                                                          |   |                        | 3,817    |   |   |   | 4,184    |   |   |   | 3,732 |   |
| Provision      for loan losses                                                              |   |                        | 8,165    |   |   |   | 2,775    |   |   |   | 2,510 |   |
| Proceeds      from sales of loans held for sale                                             |   |                        | 68,928   |   |   |   | 81,563   |   |   |   | 63,789 |   |
| Originations      of loans held for sale                                                    |   |                        | (67,315  | )      |   |   | (79,897  | )      |   |   | (66,078 | ) |
| Stock      option compensation                                                              |   |                        | 155      |   |   |   | 105      |   |   |   | 59 |   |
| Net      increase in cash surrender value of life insurance                                 |   |                        | (841     | )      |   |   | (670     | )      |   |   | (548 | ) |
| Realized      (gain) loss on sales of available for sale securities                         |   |                        | (98      | )      |   |   | -        |   |   |   | 4,156 |   |
| Realized      (gain) loss on sale of premises and equipment                                 |   |                        | 74       |   |   |   | (119     | )      |   |   | 6 |   |
| Gain      (loss) on economic hedges                                                         |   |                        | (934     | )      |   |   | (79      | )      |   |   | 432 |   |
| Deferred      income taxes                                                                  |   |                        | (2,475   | )      |   |   | (814     | )      |   |   | (1,237 | ) |
| Realized      (gain) loss on sale of foreclosed assets                                      |   |                        | 65       |   |   |   | (2       | )      |   |   | (42 | ) |
| Goodwill      impairment                                                                    |   |                        | 291      |   |   |   | -        |   |   |   | - |   |
| Change      in assets and liabilities:                                                      |   |                        |     |   |   |   |     |   |   |   |   |   |
| Increase      in other assets                                                               |   |                        | 1,706    |   |   |   | (3,440   | )      |   |   | (105 | ) |
| Increase      (decrease) in other liabilities                                               |   |                        | 1,019    |   |   |   | (787     | )      |   |   | 917 |   |
| Total      Adjustments                                                                      |   |                        | 12,557   |   |   |   | 2,819    |   |   |   | 7,591 |   |
| Net      Cash Provided by Operating Activities                                              |   |                        | 18,411   |   |   |   | 10,373   |   |   |   | 11,789 |   |
| Cash      Flows from Investing Activities                                                   |   |                        |     |   |   |   |     |   |   |   |   |   |
| (Increase)      decrease in federal funds sold                                              |   |                        | 70       |   |   |   | (1,467   | )      |   |   | (135 | ) |
| Purchases      of:                                                                          |   |                        |     |   |   |   |     |   |   |   |   |   |
| Available      for sale investment securities                                               |   |                        | (233,507 | )      |   |   | (17,892  | )      |   |   | (80,123 | ) |
| Held      to maturity investment securities                                                 |   |                        | -        |   |   |   | (1,719   | )      |   |   | (1,871 | ) |
| Proceeds      from maturities and calls of:                                                 |   |                        |     |   |   |   |     |   |   |   |   |   |
| Available      for sale investment securities                                               |   |                        | 48,143   |   |   |   | 30,117   |   |   |   | 28,189 |   |
| Held      to maturity investment securities                                                 |   |                        | 34,568   |   |   |   | 18,266   |   |   |   | 3,466 |   |
| Proceeds      from sale of:                                                                 |   |                        |     |   |   |   |     |   |   |   |   |   |
| Available      for sale investment securities                                               |   |                        | 49,602   |   |   |   | -        |   |   |   | 86,126 |   |
| Net      increase in loans                                                                  |   |                        | (135,984 | )      |   |   | (158,513 | )      |   |   | (165,693 | ) |
| OREO      capitalized cost                                                                  |   |                        | (43      | )      |   |   | -        |   |   |   | - |   |
| Purchases      of premises and equipment                                                    |   |                        | (4,599   | )      |   |   | (2,260   | )      |   |   | (13,921 | ) |
| Proceeds      from disposal of premises and equipment                                       |   |                        | 8        |   |   |   | 6        |   |   |   | 307 |   |
| Proceeds      from sale of foreclosed assets                                                |   |                        | 1,047    |   |   |   | 1,415    |   |   |   | 336 |   |
| Purchase      of bank-owned life insurance                                                  |   |                        | (10,000  | )      |   |   | -        |   |   |   | (5,000 | ) |
| Net      Cash Used in Investing Activities                                                  |   |                        | (250,695 | )      |   |   | (132,047 | )      |   |   | (148,319 | ) |
| Cash      Flows from Financing Activities                                                   |   |                        |     |   |   |   |     |   |   |   |   |   |
| Net      increase (decrease) in demand deposits                                             |   |                        | (27,523  | )      |   |   | 103,241  |   |   |   | (2,276 | ) |
| Net      increase (decrease) in time deposits                                               |   |                        | 215,398  |   |   |   | (82,586  | )      |   |   | 84,909 |   |
| Net      increase (decrease) in short-term borrowings                                       |   |                        | 27,425   |   |   |   | 25,024   |   |   |   | 43,562 |   |
| Proceeds      from long-term debt                                                           |   |                        | 50,000   |   |   |   | 120,238  |   |   |   | 80,814 |   |
| Repayment      of long-term debt                                                            |   |                        | (77,383  | )      |   |   | (38,154  | )      |   |   | (60,616 | ) |
| Net      proceeds from issuance of preferred stock                                          |   |                        | 42,750   |   |   |   | -        |   |   |   | - |   |
| Net      proceeds from exercise of stock options                                            |   |                        | 408      |   |   |   | 1,737    |   |   |   | 749 |   |
| Cost      of shares repurchased                                                             |   |                        | (2,700   | )      |   |   | (2,357   | )      |   |   | (3,682 | ) |
| Cash      dividends paid                                                                    |   |                        | (2,781   | )      |   |   | (2,724   | )      |   |   | (2,376 | ) |
| Net      Cash Provided by Financing Activities                                              |   |                        | 225,594  |   |   |   | 124,419  |   |   |   | 141,084 |   |
| Net      Increase (decrease) in Cash and Cash Equivalents                                   |   |                        | (6,690   | )      |   |   | 2,745    |   |   |   | 4,554 |   |
| Cash      and Cash Equivalents, Beginning of Year                                           |   |                        | 31,905   |   |   |   | 29,160   |   |   |   | 24,606 |   |
| Cash      and Cash Equivalents, End of Year                                                 |   | $                           | 25,215   |   |   | $      | 31,905   |   |   | $ | 29,160 |   |

----

----

|                                                                                     |   | 2008                             |   |   | 2007   |   |   | 2006   |   |
|------------------------------------------------------------------------------------------|--------|----------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                     |   | (Amounts in thousands) |   |
| Supplemental      Disclosures of Cash Flow Information                                   |   |                             |   |   |   |   |   |   |   |
| Interest      paid on deposits and borrowed funds                                        |   | $                                | 46,370 |   |   | $      | 55,944 |   |   | $ | 44,143 |   |
| Income      taxes paid                                                                   |   |                             | 5,140  |   |   |   | 4,663  |   |   |   | 2,458 |   |
| Supplemental      Schedule of Noncash Investing and Financing Activities                 |   |                             |   |   |   |   |   |   |   |   |   |   |
| Transfer      of loans to foreclosed assets                                              |   | $                                | 6,082  |   |   | $      | 1,294  |   |   | $ | 916 |   |
| Increase      (decrease) in fair value of securities available for sale, net of      tax |   |                             | 2,635  |   |   |   | 1,505  |   |   |   | (132 | ) |
| Increase      (decrease) in fair value of cash flow hedges, net of tax                   |   |                             | (350   | )      |   |   | 201    |   |   |   | 42 |   |
| Unrealized      gain (loss) on fair value hedges                                         |   |                             | 456    |   |   |   | 238    |   |   |   | (200 | ) |

----

----

----

----

|                                                                                                                                          |   | 2008   |       |   | 2007   |   |       | 2006   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                                                                                                                                          |   |   |       |   |   |   |       |   |   |
| Weighted      average number of common shares used in computing basic net income per      common share                                        |   |   | 17,363,395 |   |   |   | 17,559,352 |   |   |   | 17,566,315 |   |
|                                                                                                                                          |   |   |       |   |   |   |       |   |   |   |   |   |
| Effect      of dilutive stock options                                                                                                         |   |   | 34,923     |   |   |   | 65,047     |   |   |   | 191,121 |   |
|                                                                                                                                          |   |   |       |   |   |   |       |   |   |   |   |   |
| Weighted      average number of common shares and dilutive potential common shares used      in computing diluted net income per common share |   |   | 17,398,318 |   |   |   | 17,624,399 |   |   |   | 17,757,436 |   |

----

|                                                                                    |   | 2008                |   |   | 2007   |   |
|-----------------------------------------------------------------------------------------|--------|---------------------|--------|--------|--------|--------|
|                                                                                    |   | (In      thousands) |   |
|                                                                                    |   |                |   |   |   |   |
| Unrealized      holding gain  - investment securities available for      sale |   | $                   | 5,554  |   |   | $      | 1,265 |   |
| Deferred      income taxes                                                              |   |                | (2,142 | )      |   |   | (488 | ) |
| Net      unrealized holding gain - investment securities available for      sale        |   |                | 3,412  |   |   |   | 777 |   |
|                                                                                    |   |                |   |   |   |   |   |   |
| Unrealized      holding gain (loss) - cash flow hedge instruments                       |   |                | (482   | )      |   |   | 422 |   |
| Deferred      income taxes                                                              |   |                | 392    |   |   |   | (162 | ) |
| Net      unrealized holding gain (loss) - cash flow hedge    instruments                |   |                | (90    | )      |   |   | 260 |   |
|                                                                                    |   |                |   |   |   |   |   |   |
| Postretirement      benefit plans adjustment                                            |   |                | (418   | )      |   |   | 5 |   |
| Deferred      income taxes                                                              |   |                | 161    |   |   |   | (2 | ) |
| Net      postretirement benefit plans adjustment                                        |   |                | (257   | )      |   |   | 3 |   |
|                                                                                    |   |                |   |   |   |   |   |   |
| Total      accumulated other comprehensive income                                       |   | $                   | 3,065  |   |   | $      | 1,040 |   |

----

----

|                                |   | 2008                            |    |
|-------------------------------------|--------|---------------------------------|---------|
|                           |   | Amortized Cost             |    |   | Gross UnrealizedGains |   |   | Gross UnrealizedLosses |   |   | Fair Value |   |
|                                |   | (Amount in thousands) |    |
|                                |   |                            |    |   |   |   |   |   |   |   |   |   |
| Securities      available for sale: |   |                            |    |   |   |   |   |   |   |   |   |   |
| U.      S. government agencies      |   | $                               | 76,061  |   |   | $ | 2,183 |   |   | $ | 37 |   |   | $ | 78,207 |   |
| Mortgage-backed      securities     |   |                            | 196,386 |   |   |   | 4,268 |   |   |   | 194 |   |   |   | 200,460 |   |
| Municipals                          |   |                            | 2,393   |   |   |   | 19 |   |   |   | 7 |   |   |   | 2,405 |   |
| Other                               |   |                            | 9,072   |   |   |   | 4 |   |   |   | 682 |   |   |   | 8,394 |   |
|                                |   | $                               | 283,912 |   |   | $ | 6,474 |   |   | $ | 920 |   |   | $ | 289,466 |   |
|                                |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      held to maturity:   |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.      S. government agencies      |   | $                               | 25,500  |   |   | $ | 340 |   |   | $ | - |   |   | $ | 25,840 |   |
| Mortgage-backed      securities     |   |                            | 1,792   |   |   |   | 26 |   |   |   | - |   |   |   | 1,818 |   |
| Municipals                          |   |                            | 7,939   |   |   |   | 149 |   |   |   | 215 |   |   |   | 7,873 |   |
|                                |   | $                               | 35,231  |   |   | $ | 515 |   |   | $ | 215 |   |   | $ | 35,531 |   |

|                                |   | 2007                            |    |
|-------------------------------------|--------|---------------------------------|---------|
|                           |   | Amortized Cost             |    |   | Gross UnrealizedGains |   |   | Gross UnrealizedLosses |   |   | Fair Value |   |
|                                |   | (Amount in thousands) |    |
|                                |   |                            |    |   |   |   |   |   |   |   |   |   |
| Securities      available for sale: |   |                            |    |   |   |   |   |   |   |   |   |   |
| U.      S. government agencies      |   | $                               | 72,922  |   |   | $ | 1,754 |   |   | $ | 5 |   |   | $ | 74,671 |   |
| Mortgage-backed      securities     |   |                            | 62,782  |   |   |   | 428 |   |   |   | 500 |   |   |   | 62,710 |   |
| Municipals                          |   |                            | 2,391   |   |   |   | 5 |   |   |   | 8 |   |   |   | 2,388 |   |
| Other                               |   |                            | 8,066   |   |   |   | 24 |   |   |   | 433 |   |   |   | 7,657 |   |
|                                |   | $                               | 146,161 |   |   | $ | 2,211 |   |   | $ | 946 |   |   | $ | 147,426 |   |
|                                |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      held to maturity:   |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.      S. government agencies      |   | $                               | 58,794  |   |   | $ | 89 |   |   | $ | 419 |   |   | $ | 58,464 |   |
| Mortgage-backed      securities     |   |                            | 2,197   |   |   |   | 8 |   |   |   | 30 |   |   |   | 2,175 |   |
| Municipals                          |   |                            | 8,821   |   |   |   | 125 |   |   |   | 121 |   |   |   | 8,825 |   |
|                                |   | $                               | 69,812  |   |   | $ | 222 |   |   | $ | 570 |   |   | $ | 69,464 |   |

----

|                                       |   | 2008                               |   |
|--------------------------------------------|--------|------------------------------------|--------|
|                                       |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total |   |
|                                       |   | Fair Value                    |   |   | Unrealizedlosses |   |   | Fair Value |   |   | Unrealizedlosses |   |   | FairValue |   |   | Unrealizedlosses |   |
|                                       |   | (Amount      in thousands)         |   |
|                                       |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale:        |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.      S. government agencies             |   | $                                  | 4,963  |   |   | $ | 37 |   |   | $ | - |   |   | $ | - |   |   | $ | 4,963 |   |   | $ | 37 |   |
| Mortgage-backed      securities            |   |                               | 15,779 |   |   |   | 194 |   |   |   | - |   |   |   | - |   |   |   | 15,779 |   |   |   | 194 |   |
| Municipals                                 |   |                               | 742    |   |   |   | 7 |   |   |   | - |   |   |   | - |   |   |   | 742 |   |   |   | 7 |   |
| Other                                      |   |                               | 1,176  |   |   |   | 324 |   |   |   | 892 |   |   |   | 358 |   |   |   | 2,068 |   |   |   | 682 |   |
|                                       |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      temporarily impaired securities |   | $                                  | 22,660 |   |   | $ | 562 |   |   | $ | 892 |   |   | $ | 358 |   |   | $ | 23,552 |   |   | $ | 920 |   |
|                                       |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      held to maturity:          |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Municipals                                 |   | $                                  | 1,869  |   |   | $ | 81 |   |   | $ | 923 |   |   | $ | 134 |   |   | $ | 2,792 |   |   | $ | 215 |   |

|                                |   | 2007                               |   |
|-------------------------------------|--------|------------------------------------|--------|
|                                |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total |   |
|                                |   | Fair Value                    |   |   | Unrealizedlosses |   |   | Fair Value |   |   | Unrealizedlosses |   |   | FairValue |   |   | Unrealizedlosses |   |
|                                |   | (Amount      in thousands)         |   |
|                                |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale: |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.      S. government agencies      |   | $                                  | 2,998  |   |   | $ | 2 |   |   | $ | 3,996 |   |   | $ | 3 |   |   | $ | 6,994 |   |   | $ | 5 |   |
| Mortgage-backed      securities     |   |                               | -      |   |   |   | - |   |   |   | 31,894 |   |   |   | 500 |   |   |   | 31,894 |   |   |   | 500 |   |
| Municipals                          |   |                               | 994    |   |   |   | 8 |   |   |   | - |   |   |   | - |   |   |   | 994 |   |   |   | 8 |   |
| Other                               |   |                               | -      |   |   |   | - |   |   |   | 732 |   |   |   | 433 |   |   |   | 732 |   |   |   | 433 |   |
|                                |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      temporarily impaired     |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| securities                          |   | $                                  | 3,992  |   |   | $ | 10 |   |   | $ | 36,622 |   |   | $ | 936 |   |   | $ | 40,614 |   |   | $ | 946 |   |
|                                |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      held to maturity:   |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.      S. government agencies      |   | $                                  | 999    |   |   | $ | 1 |   |   | $ | 50,581 |   |   | $ | 418 |   |   | $ | 51,580 |   |   | $ | 419 |   |
| Mortgage-backed      securities     |   |                               | -      |   |   |   | - |   |   |   | 1,558 |   |   |   | 30 |   |   |   | 1,558 |   |   |   | 30 |   |
| Municipals                          |   |                               | 1,045  |   |   |   | 5 |   |   |   | 3,077 |   |   |   | 116 |   |   |   | 4,122 |   |   |   | 121 |   |
|                                |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      temporarily impaired     |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| securities                          |   | $                                  | 2,044  |   |   | $ | 6 |   |   | $ | 55,216 |   |   | $ | 564 |   |   | $ | 57,260 |   |   | $ | 570 |   |

----

|                                      |   | Securities Available for Sale |    |   | Securities Held to Maturity |   |
|-------------------------------------------|--------|----------------------------------------------|---------|--------|--------------------------------------------|--------|
|                                      |   | AmortizedCost                                |    |   | Fair Value                            |   |   | AmortizedCost |   |   | Fair Value |   |
|                                      |   | (Amount in thousands)              |    |
|                                      |   |                                         |    |   |                                       |   |   |   |   |   |   |   |
|                                      |   |                                         |    |   |                                       |   |   |   |   |   |   |   |
| Due      within one year                  |   | $                                            | 4,150   |   |                                       | $      | 3,968 |   |   | $ | 3,400 |   |   | $ | 3,493 |   |
| Due      after one but through five years |   |                                         | 40,949  |   |                                       |   | 42,391 |   |   |   | 4,289 |   |   |   | 4,441 |   |
| Due      after five but through ten years |   |                                         | 28,052  |   |                                       |   | 28,698 |   |   |   | 23,219 |   |   |   | 23,447 |   |
| Due      after ten years                  |   |                                         | 10,553  |   |                                       |   | 10,332 |   |   |   | 2,531 |   |   |   | 2,332 |   |
| Mortgage-backed      securities           |   |                                         | 196,386 |   |                                       |   | 200,460 |   |   |   | 1,792 |   |   |   | 1,818 |   |
| Other      equity securities              |   |                                         | 3,822   |   |                                       |   | 3,617 |   |   |   | - |   |   |   | - |   |
|                                      |   |                                         |    |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
|                                      |   | $                                            | 283,912 |   |                                       | $      | 289,466 |   |   | $ | 35,231 |   |   | $ | 35,531 |   |

----

----

|                                    |   | 2008                        |      |   | 2007   |   |
|-----------------------------------------|--------|-----------------------------|-----------|--------|--------|--------|
|                                    |   | (Amounts      in thousands) |      |
|                                    |   |                        |      |   |   |   |
| Residential      mortgage loans         |   | $                           | 393,360   |   |   | $      | 318,038 |   |
| Commercial      mortgage loans          |   |                        | 419,212   |   |   |   | 390,948 |   |
| Construction      and development loans |   |                        | 260,549   |   |   |   | 259,740 |   |
| Commercial      and industrial loans    |   |                        | 221,231   |   |   |   | 197,851 |   |
| Loans      to individuals               |   |                        | 20,459    |   |   |   | 21,861 |   |
|                                    |   |                        |      |   |   |   |   |   |
| Total                                   |   | $                           | 1,314,811 |   |   | $      | 1,188,438 |   |

|                   |   | 2008                        |   |   | 2007   |   |
|------------------------|--------|-----------------------------|--------|--------|--------|--------|
|                   |   | (Amounts      in thousands) |   |
|                   |   |                        |   |   |   |   |
| Nonaccrual      loans  |   | $                           | 14,433 |   |   | $      | 2,052 |   |
| Foreclosed      assets |   |                        | 5,745  |   |   |   | 775 |   |
|                   |   |                        |   |   |   |   |   |   |
| Total                  |   | $                           | 20,178 |   |   | $      | 2,827 |   |

|                                                 |   | 2008   |    |
|------------------------------------------------------|--------|--------|---------|
| Balance      at beginning of year                    |   | $      | 22,181  |   |
|                                                 |   |   |    |   |
| Disbursements                                        |   |   | 11,184  |   |
|                                                 |   |   |    |   |
| Repayments                                           |   |   | (16,094 | ) |
|                                                 |   |   |    |   |
| Other      increases (decreases) in exposure due to: |   |   |    |   |
| New      insiders                                    |   |   | 2,367   |   |
| Directors      no longer on board                    |   |   | (4,439  | ) |
| Other                                                |   |   | 10,386  |   |
|                                                 |   |   |    |   |
| Balance      at end of year                          |   | $      | 25,585  |   |

----

----

|                              |   | 2008                        |   |   | 2007   |   |   | 2006   |   |
|-----------------------------------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                              |   | (Amounts      in thousands) |   |
|                              |   |                        |   |   |   |   |   |   |   |
| Balance      at beginning of year |   | $                           | 14,258 |   |   | $      | 13,040 |   |   | $ | 11,785 |   |
|                              |   |                        |   |   |   |   |   |   |   |   |   |   |
| Provision      for loan losses    |   |                        | 8,165  |   |   |   | 2,775  |   |   |   | 2,510 |   |
|                              |   |                        |   |   |   |   |   |   |   |   |   |   |
| Charge-offs                       |   |                        | (3,834 | )      |   |   | (1,894 | )      |   |   | (1,554 | ) |
| Recoveries                        |   |                        | 262    |   |   |   | 337    |   |   |   | 299 |   |
| Net      charge-offs              |   |                        | (3,572 | )      |   |   | (1,557 | )      |   |   | (1,255 | ) |
|                              |   |                        |   |   |   |   |   |   |   |   |   |   |
| Balance      at end of year       |   | $                           | 18,851 |   |   | $      | 14,258 |   |   | $ | 13,040 |   |

|                                      |   | 2008                        |    |   | 2007   |   |
|-------------------------------------------|--------|-----------------------------|---------|--------|--------|--------|
|                                      |   | (Amounts      in thousands) |    |
|                                      |   |                        |    |   |   |   |
| Land                                      |   | $                           | 10,621  |   |   | $      | 9,699 |   |
| Buildings      and leasehold improvements |   |                        | 31,185  |   |   |   | 29,726 |   |
| Furniture      and equipment              |   |                        | 16,358  |   |   |   | 15,803 |   |
|                                      |   | $                           | 58,164  |   |   | $      | 55,228 |   |
| Less      accumulated depreciation        |   |                        | (18,134 | )      |   |   | (16,231 | ) |
| Total                                     |   | $                           | 40,030  |   |   | $      | 38,997 |   |

----

----

|                               |   | 2008                        |   |   | 2007   |   |
|------------------------------------|--------|-----------------------------|--------|--------|--------|--------|
|                               |   | (Amounts      in thousands) |   |
|                               |   |                        |   |   |   |   |
| Goodwill,      beginning of year   |   | $                           | 49,792 |   |   | $      | 49,792 |   |
| Davidson      Mortgage write-off   |   |                        | (291   | )      |   |   | - |   |
|                               |   |                        |   |   |   |   |   |   |
| Goodwill,      end of year         |   | $                           | 49,501 |   |   | $      | 49,792 |   |
|                               |   |                        |   |   |   |   |   |   |
| Other      intangibles - gross     |   |                        | 2,225  |   |   |   | 2,627 |   |
| Less      accumulated amortization |   |                        | 1,070  |   |   |   | 1,207 |   |
|                               |   |                        |   |   |   |   |   |   |
| Other      intangibles - net       |   | $                           | 1,155  |   |   | $      | 1,420 |   |

|                                  |   | Estimated Amortization Expense |   |
|---------------------------------------|--------|------------------------------------------|--------|
|                             |   | (Amounts in thousands)         |   |
| For      the Years Ended December 31: |   |                                     |   |
| 2010                                  |   |                                     | 265    |   |
| 2011                                  |   |                                     | 218    |   |
| 2012                                  |   |                                     | 218    |   |
| 2013                                  |   |                                     | 218    |   |
| Thereafter                            |   |                                     | 236    |   |
|                                  |   |                                     |   |   |
|                                  |   | $                                        | 1,155  |   |

----

----

|         |   | $100,000                    |    |   | Under    |   |    |   |   |
|--------------|--------|-----------------------------|---------|--------|----------|--------|---------|--------|--------|
|    |   | and Over               |    |   | $100,000 |   |    | Total  |   |
|         |   | (Amounts      in thousands) |    |
|         |   |                        |    |   |     |   |    |   |   |   |   |
| 2009         |   |                        | 136,916 |   |     |   | 437,657 |   |   |   | 574,573 |   |
| 2010         |   |                        | 9,963   |   |     |   | 19,337  |   |   |   | 29,300 |   |
| 2011         |   |                        | 14,841  |   |     |   | 23,046  |   |   |   | 37,887 |   |
| 2012         |   |                        | 541     |   |     |   | 860     |   |   |   | 1,401 |   |
| 2013         |   |                        | 1,340   |   |     |   | 10,791  |   |   |   | 12,131 |   |
| Thereafter   |   |                        | -       |   |     |   | -       |   |   |   | - |   |
|         |   |                        |    |   |     |   |    |   |   |   |   |   |
| Total        |   | $                           | 163,601 |   |     | $      | 491,691 |   |   | $ | 655,292 |   |

|                             |   | 2008                        |    |   | 2007   |   |
|----------------------------------|--------|-----------------------------|---------|--------|--------|--------|
|                             |   | (Amounts      in thousands) |    |
| Short-term      borrowings       |   |                        |    |   |   |   |
| FHLB      advances               |   | $                           | 62,000  |   |   | $      | 73,000 |   |
| Federal      funds purchased     |   |                        | -       |   |   |   | 22,100 |   |
| Term      Auction Facility       |   |                        | 60,000  |   |   |   | - |   |
| Repurchase      agreements       |   |                        | 23,197  |   |   |   | 22,672 |   |
|                        |   | $                           | 145,197 |   |   | $      | 117,772 |   |
|                             |   |                        |    |   |   |   |   |   |
| Long-term      borrowings        |   |                        |    |   |   |   |   |   |
| FHLB      advances               |   | $                           | 92,139  |   |   | $      | 129,522 |   |
| Term      repurchase agreements  |   |                        | 90,000  |   |   |   | 80,000 |   |
| Jr.      subordinated debentures |   |                        | 45,877  |   |   |   | 45,111 |   |
|                             |   | $                           | 228,016 |   |   | $      | 254,633 |   |

----

----

|             |   | FHLB                        |    |   | Term Repurchase |   |
|------------------|--------|-----------------------------|---------|--------|----------------------|--------|
|        |   | Advances                    |    |   | Agreements           |   |
|             |   | (Amounts      in thousands) |    |
|             |   |                        |    |   |                 |   |
| Due      in 2009 |   | $                           | 62,000  |   |                 | $      | 10,000 |   |
| Due      in 2010 |   |                        | 35,000  |   |                 |   | 10,000 |   |
| Due      in 2011 |   |                        | -       |   |                 |   | - |   |
| Due      in 2012 |   |                        | 5,000   |   |                 |   | 20,000 |   |
| Due      in 2013 |   |                        | 10,000  |   |                 |   | - |   |
| Thereafter       |   |                        | 42,139  |   |                 |   | 60,000 |   |
|             |   |                        |    |   |                 |   |   |   |
|             |   | $                           | 154,139 |   |                 | $      | 100,000 |   |

----

----

| Risk-free      interest rate   |   |          | 2.70   | % |
|--------------------------------|--------|---------------|--------|---|
| Expected      life of warrants |   | 10      years |   |
| Expected      dividend yield   |   |          | 4.57   | % |
| Expected      volatility       |   |          | 33     | % |

----

----

----

----

|                                                                                          |   | 2008                        |   |   | 2007   |   |   | 2006   |   |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                          |   | (Amounts      in thousands) |   |
| Change      in Benefit Obligation                                                             |   |                        |   |   |   |   |   |   |   |
|                                                                                          |   |                        |   |   |   |   |   |   |   |
| Beginning      of year                                                                        |   | $                           | 868    |   |   | $      | 845    |   |   | $ | 823 |   |
| Actuarial      loss                                                                           |   |                        | 6      |   |   |   | 6      |   |   |   | 2 |   |
| Service      cost                                                                             |   |                        | -      |   |   |   | -      |   |   |   | - |   |
| Interest      cost                                                                            |   |                        | 56     |   |   |   | 54     |   |   |   | 53 |   |
| Settlement                                                                                    |   |                        | -      |   |   |   | -      |   |   |   | - |   |
| Benefits      paid                                                                            |   |                        | (40    | )      |   |   | (37    | )      |   |   | (33 | ) |
| End      of year - Benefit obligations                                                        |   | $                           | 890    |   |   | $      | 868    |   |   | $ | 845 |   |
|                                                                                          |   |                        |   |   |   |   |   |   |   |   |   |   |
| Change      in Fair Value of Plan Assets                                                      |   |                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                          |   |                        |   |   |   |   |   |   |   |   |   |   |
| Beginning      of year                                                                        |   | $                           | 1,216  |   |   | $      | 1,171  |   |   | $ | 1,109 |   |
| Benefits      paid                                                                            |   |                        | (40    | )      |   |   | (37    | )      |   |   | (33 | ) |
| Return      on assets                                                                         |   |                        | (303   | )      |   |   | 82     |   |   |   | 95 |   |
| End      of year - Fair value                                                                 |   | $                           | 873    |   |   | $      | 1,216  |   |   | $ | 1,171 |   |
|                                                                                          |   |                        |   |   |   |   |   |   |   |   |   |   |
| Amounts      recognized in the consolidated statement of financial condition consist      of: |   |                        |   |   |   |   |   |   |   |   |   |   |
| Noncurrent      Asset                                                                         |   | $                           | -      |   |   | $      | 348    |   |   | $ | 326 |   |
| Noncurrent      Liability                                                                     |   |                        | (17    | )      |   |   | -      |   |   |   |   |   |
| Funded      status                                                                            |   | $                           | (17    | )      |   | $      | 348    |   |   | $ | 326 |   |

----

----

| Weighted      average discount rate                                    |   |   | 6.50   | %      |   |   | 6.50   | %      |   |   | 6.50   | %      |
|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Weighted      average rate of increase in compensation level           |   |   | N/A    |   |   |   | N/A    |   |   |   | N/A    |   |
| Weighted      average expected long-term rate of return on plan assets |   |   | 7.50   | %      |   |   | 7.50   | %      |   |   | 7.50   | %      |
|                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components      of Net Periodic Pension Cost (Benefit)                 |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service      cost                                                      |   | $      | -      |   |   | $      | -      |   |   | $      | -      |   |
| Interest      cost                                                     |   |   | 56     |   |   |   | 54     |   |   |   | 53     |   |
| Expected      return on plan assets                                    |   |   | (90    | )      |   |   | (87    | )      |   |   | (82    | )      |
| Loss                                                                   |   |   | -      |   |   |   | -      |   |   |   | -      |   |
| Amortization      of prior service cost                                |   |   | -      |   |   |   | -      |   |   |   | -      |   |
| Net      periodic pension cost (benefit)                               |   | $      | (34    | )      |   | $      | (33    | )      |   | $      | (29    | )      |

| U.S.      equity                       |   |   | 46 | %      |
|----------------------------------------|--------|--------|----|--------|
| International      blend               |   |   | 5  |   |
| Fixed      income and cash equivalents |   |   | 49 |   |

----

----

| Year      |   | Pension Benefits |   |
|-----------|--------|------------------|--------|
| 2009      |   |             | 39     |   |
| 2010      |   |             | 39     |   |
| 2011      |   |             | 38     |   |
| 2012      |   |             | 39     |   |
| 2013      |   |             | 48     |   |
| 2014-2017 |   |             | 286    |   |

----

----

|                        |   |                                                   |    |   | Outstanding Options |   |    | Exercisable Options                       |   |
|-----------------------------|--------|--------------------------------------------------------|---------|--------|--------------------------|--------|---------|------------------------------------------------|--------|
|                   |   | Shares Available for Future Grants |    |   | Number Outstanding  |   |    | Weighted Average Exercise Price |   |   | Number Outstanding |   |   | Weighted Average Exercise Price |   |
|                        |   |                                                   |    |   |                     |   |    |                                           |   |   |   |   |   |   |   |
| At      December 31, 2007   |   |                                                   | 504,038 |   |                     |   | 836,783 |                                           |   | $ | 9.19 |   |   |   | 759,683 |   |   | $ | 9.13 |   |
|                        |   |                                                   |    |   |                     |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Options      authorized     |   |                                                   | -       |   |                     |   | -       |                                           |   |   | - |   |   |   | - |   |   |   | - |   |
| Options      granted/vested |   |                                                   | (34,500 | )      |                     |   | 34,500  |                                           |   |   | 5.07 |   |   |   | 35,800 |   |   |   | 5.07 |   |
| Options      exercised      |   |                                                   | -       |   |                     |   | (73,968 | )                                              |   |   | 4.84 |   |   |   | (73,968 | ) |   |   | 4.84 |   |
| Options      forfeited      |   |                                                   | 34,373  |   |                     |   | (34,373 | )                                              |   |   | 6.41 |   |   |   | (34,373 | ) |   |   | 6.41 |   |
| Options      expired        |   |                                                   | -       |   |                     |   | (18,676 | )                                              |   |   | 8.56 |   |   |   | (18,676 | ) |   |   | 8.56 |   |
|                        |   |                                                   |    |   |                     |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| At      December 31, 2008   |   |                                                   | 503,911 |   |                     |   | 744,266 |                                           |   | $ | 9.58 |   |   |   | 668,466 |   |   | $ | 9.75 |   |

----

----

|                                    |   | Number of           |    |   | Number of           |   |
|-----------------------------------------|--------|--------------------------|---------|--------|--------------------------|--------|
| Range of Exercise Prices |   | Options Outstanding |    |   | Options Exercisable |   |
| $3.45      - $7.15                      |   |                     | 119,190 |   |                     |   | 96,589 |   |
| $7.16      - $10.10                     |   |                     | 314,725 |   |                     |   | 283,126 |   |
| $10.11      - $14.64                    |   |                     | 310,351 |   |                     |   | 288,751 |   |
|                                    |   |                     |    |   |                     |   |   |   |
| Outstanding      at end of year         |   |                     | 744,266 |   |                     |   | 668,466 |   |

|                                                  |   | 2008             |   |   | 2007         |   |   | 2006         |   |
|-------------------------------------------------------|--------|------------------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                  |   |             |   |   |         |   |   |         |   |
| Estimated      fair value of options granted          |   | $                | 0.99   |   |         | $      | 3.40   |         |   | $ | 3.31 |   |
|                                                  |   |             |   |   |         |   |   |         |   |   |   |   |
| Assumptions      in estimating average option values: |   |             |   |   |         |   |   |         |   |   |   |   |
| Risk-free      interest rate                          |   |             | 2.45   | %      |         |   | 4.58   | %            |   |   | 4.69 | % |
| Dividend      yield                                   |   |             | 4.56   | %      |         |   | 2.22   | %            |   |   | 1.34 | % |
| Volatility                                            |   |             | 29     | %      |         |   | 27     | %            |   |   | 28 | % |
| Expected      life                                    |   | 5 -      7 years |   |   | 7      years |   |   | 7      years |   |

----

----

| 2009       |   | $      | 1,053  |   |
|------------|--------|--------|--------|--------|
| 2010       |   |   | 878    |   |
| 2011       |   |   | 621    |   |
| 2012       |   |   | 365    |   |
| 2013       |   |   | 317    |   |
| Thereafter |   |   | 1,898  |   |
|       |   |   |   |   |
|       |   | $      | 5,132  |   |

|                                  |   | 2008                        |   |   | 2007   |   |   | 2006   |   |
|---------------------------------------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                  |   | (Amounts      in thousands) |   |
| Current      tax provision            |   |                        |   |   |   |   |   |   |   |
| Federal                               |   | $                           | 4,349  |   |   | $      | 4,079  |   |   | $ | 2,857 |   |
| State                                 |   |                        | 825    |   |   |   | 604    |   |   |   | 270 |   |
|                                  |   |                        | 5,174  |   |   |   | 4,683  |   |   |   | 3,127 |   |
|                                  |   |                        |   |   |   |   |   |   |   |   |   |   |
| Deferred      tax provision (benefit) |   |                        |   |   |   |   |   |   |   |   |   |   |
| Federal                               |   |                        | (2,085 | )      |   |   | (731   | )      |   |   | (1,070 | ) |
| State                                 |   |                        | (455   | )      |   |   | (83    | )      |   |   | (167 | ) |
|                                  |   |                        | (2,540 | )      |   |   | (814   | )      |   |   | (1,237 | ) |
|                                  |   |                        |   |   |   |   |   |   |   |   |   |   |
| Net      provision for income taxes   |   | $                           | 2,634  |   |   | $      | 3,869  |   |   | $ | 1,890 |   |

|                                            |   | 2008                        |   |   | 2007   |   |   | 2006   |   |
|-------------------------------------------------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                            |   | (Amounts      in thousands) |   |
|                                            |   |                        |   |   |   |   |   |   |   |
| Tax      computed at the statutory federal rate |   | $                           | 2,886  |   |   | $      | 3,884  |   |   | $ | 2,070 |   |
|                                            |   |                        |   |   |   |   |   |   |   |   |   |   |
| Increase      (decrease) resulting from:        |   |                        |   |   |   |   |   |   |   |   |   |   |
| State      income taxes, net of federal benefit |   |                        | 244    |   |   |   | 344    |   |   |   | 68 |   |
| Tax      exempt income                          |   |                        | (498   | )      |   |   | (435   | )      |   |   | (377 | ) |
| Other      permanent differences                |   |                        | 2      |   |   |   | 76     |   |   |   | 129 |   |
|                                            |   |                        | (252   | )      |   |   | (15    | )      |   |   | (180 | ) |
|                                            |   |                        |   |   |   |   |   |   |   |   |   |   |
| Provision      for income taxes                 |   | $                           | 2,634  |   |   | $      | 3,869  |   |   | $ | 1,890 |   |

----

----

|                                        |   | 2008                        |   |   | 2007   |   |
|---------------------------------------------|--------|-----------------------------|--------|--------|--------|--------|
|                                        |   | (Amounts      in thousands) |   |
|                                        |   |                        |   |   |   |   |
| Deferred      tax assets relating to:       |   |                        |   |   |   |   |
| Allowance      for loan losses              |   | $                           | 7,268  |   |   | $      | 5,497 |   |
| Deferred      compensation                  |   |                        | 1,321  |   |   |   | 1,316 |   |
| Derivative      financial instruments       |   |                        | 222    |   |   |   | 244 |   |
| Other                                       |   |                        | 930    |   |   |   | 370 |   |
| Total      deferred tax assets              |   |                        | 9,741  |   |   |   | 7,427 |   |
|                                        |   |                        |   |   |   |   |   |   |
| Deferred      tax liabilities relating to:  |   |                        |   |   |   |   |   |   |
| Property      and equipment                 |   |                        | (786   | )      |   |   | (831 | ) |
| Loan      fees and costs                    |   |                        | (647   | )      |   |   | (672 | ) |
| Core      deposit intangible                |   |                        | (392   | )      |   |   | (457 | ) |
| Accumulated      other comprehensive income |   |                        | (1,772 | )      |   |   | (562 | ) |
| Prepaid      expenses                       |   |                        | (292   | )      |   |   | (307 | ) |
| Other                                       |   |                        | (71    | )      |   |   | (146 | ) |
| Total      deferred tax liabilities         |   |                        | (3,960 | )      |   |   | (2,975 | ) |
|                                        |   |                        |   |   |   |   |   |   |
| Net      recorded deferred tax asset        |   | $                           | 5,781  |   |   | $      | 4,452 |   |

|                                                              |   | 2008                        |   |   | 2007   |   |
|-------------------------------------------------------------------|--------|-----------------------------|--------|--------|--------|--------|
|                                                              |   | (Amounts      in thousands) |   |
|                                                              |   |                        |   |   |   |   |
| Balance      at January 1, 2008                                   |   | $                           | 135    |   |   | $      | 100 |   |
| Additions      based on tax positions related to the current year |   |                        | 42     |   |   |   | 35 |   |
| Additions      for tax positions of prior years                   |   |                        | -      |   |   |   | - |   |
| Reductions      for tax positions of prior years                  |   |                        | (20    | )      |   |   | - |   |
| Settlements                                                       |   |                        | -      |   |   |   | - |   |
| Balance      at December 31, 2008                                 |   | $                           | 157    |   |   | $      | 135 |   |

----

----

|                                              |   | 2008                        |   |   | 2007   |   |   | 2006   |   |
|---------------------------------------------------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                              |   | (Amounts      in thousands) |   |
|                                              |   |                        |   |
| Service      charges and fees on deposit accounts |   | $                           | 5,859  |   |   | $      | 4,931  |   |   | $ | 4,318 |   |
| Income      from mortgage banking activities      |   |                        | 1,294  |   |   |   | 1,343  |   |   |   | 1,205 |   |
| Investment      brokerage and trust fees          |   |                        | 1,138  |   |   |   | 1,141  |   |   |   | 780 |   |
| SBIC      income and management fees              |   |                        | 60     |   |   |   | 2,103  |   |   |   | 792 |   |
| Gain      (loss) on economic hedges               |   |                        | 934    |   |   |   | 79     |   |   |   | (432 | ) |
| Net      cash settlement on economic hedges       |   |                        | -      |   |   |   | -      |   |   |   | (366 | ) |
| Gain      (loss) on sale of investment securities |   |                        | 98     |   |   |   | -      |   |   |   | (4,156 | ) |
| Other                                             |   |                        | 1,899  |   |   |   | 1,734  |   |   |   | 1,537 |   |
|                                              |   |                        |   |   |   |   |   |   |   |   |   |   |
| Total                                             |   | $                           | 11,282 |   |   | $      | 11,331 |   |   | $ | 3,678 |   |

|                                               |   | 2008                        |   |   | 2007   |   |   | 2006   |   |
|----------------------------------------------------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                               |   | (Amounts      in thousands) |   |
|                                               |   |                        |   |   |   |   |   |   |   |
| Postage,      printing and office supplies         |   | $                           | 847    |   |   | $      | 865    |   |   | $ | 846 |   |
| Telephone      and communication                   |   |                        | 954    |   |   |   | 866    |   |   |   | 897 |   |
| Advertising      and promotion                     |   |                        | 1,164  |   |   |   | 1,245  |   |   |   | 1,085 |   |
| Data      processing and other outsourced services |   |                        | 805    |   |   |   | 763    |   |   |   | 905 |   |
| Professional      services                         |   |                        | 1,811  |   |   |   | 1,809  |   |   |   | 1,476 |   |
| Other                                              |   |                        | 6,791  |   |   |   | 6,206  |   |   |   | 4,932 |   |
|                                               |   |                        |   |   |   |   |   |   |   |   |   |   |
| Total                                              |   | $                           | 12,372 |   |   | $      | 11,754 |   |   | $ | 10,141 |   |

----

----

|                                          |   | Actual                      |    |   | Minimum For CapitalAdequacy Purposes |   |   | Minimum To Be WellCapitalized Under PromptCorrective ActionProvisions |   |
|-----------------------------------------------|--------|-----------------------------|---------|--------|-----------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------|--------|
|                                          |   | Amount                      |    |   | Ratio                                               |   |   | Amount                                                                                              |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
|                                          |   | (Amounts      in thousands) |    |
| As      of December 31, 2008                  |   |                        |    |   |                                                |   |   |                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                          |   |                        |    |   |                                                |   |   |                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Total      Capital (to Risk-Weighted Assets)  |   | $                           | 165,013 |   |                                                |   | 11.55  | %                                                                                                   |   | $ | 114,300 |   |   |   | 8.00 | % |   | $ | 142,900 |   |   |   | 10.00 | % |
| Tier      I Capital (to Risk-Weighted Assets) |   |                        | 147,138 |   |                                                |   | 10.30  | %                                                                                                   |   |   | 57,200 |   |   |   | 4.00 | % |   |   | 85,700 |   |   |   | 6.00 | % |
| Tier      I Capital (to Average Assets)       |   |                        | 147,138 |   |                                                |   | 8.42   | %                                                                                                   |   |   | 69,900 |   |   |   | 4.00 | % |   |   | 87,400 |   |   |   | 5.00 | % |
|                                          |   |                        |    |   |                                                |   |   |                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As      of December 31, 2007                  |   |                        |    |   |                                                |   |   |                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                          |   |                        |    |   |                                                |   |   |                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      Capital (to Risk-Weighted Assets)  |   | $                           | 139,128 |   |                                                |   | 10.61  | %                                                                                                   |   | $ | 104,900 |   |   |   | 8.00 | % |   | $ | 131,200 |   |   |   | 10.00 | % |
| Tier      I Capital (to Risk-Weighted Assets) |   |                        | 124,870 |   |                                                |   | 9.52   | %                                                                                                   |   |   | 52,500 |   |   |   | 4.00 | % |   |   | 78,700 |   |   |   | 6.00 | % |
| Tier      I Capital (to Average Assets)       |   |                        | 124,870 |   |                                                |   | 8.30   | %                                                                                                   |   |   | 60,200 |   |   |   | 4.00 | % |   |   | 75,200 |   |   |   | 5.00 | % |

|                                 |   | At December 31, 2008        |    |   | At December 31, 2007 |   |
|--------------------------------------|--------|-----------------------------|---------|--------|----------------------|--------|
|                                 |   | Actual                      |    |   | Actual               |   |
|                                 |   | Amount                      |    |   | Ratio                |   |   | Amount |   |   | Ratio |   |
|                                 |   | (Amounts      in thousands) |    |
|                                 |   |                        |    |   |                 |   |   |   |   |   |   |   |
| Total      risk-based capital ratio  |   | $                           | 197,790 |   |                 |   | 13.80 | % |   | $ | 150,432 |   |   |   | 11.44 | % |
| Tier      1 risk-based capital ratio |   |                        | 178,489 |   |                 |   | 12.46 | % |   |   | 135,107 |   |   |   | 10.28 | % |
| Leverage      ratio                  |   |                        | 178,489 |   |                 |   | 10.57 | % |   |   | 135,107 |   |   |   | 8.96 | % |

----

----

|                                                 |   | December 31, 2008 |               |   | December 31, 2007 |   |
|------------------------------------------------------|--------|-----------------------------|--------------------|--------|-----------------------------|--------|
|                                                 |   | Fair Value             |               |   | NotionalAmount              |   |   | Fair Value |   |   | NotionalAmount |   |
|                                                 |   | (Amounts      in thousands) |               |
| Fair      value hedges                               |   |                        |               |   |                        |   |   |   |   |   |   |   |
| Interest      rate swaps associated                  |   |                        |               |   |                        |   |   |   |   |   |   |   |
| with      borrowing activities                       |   | $                           | -                  |   |                        | $      | - |   |   | $ | (490 | ) |   | $ | 20,000 |   |
|                                                 |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Interest      rate swaps associated                  |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| with      deposit taking activities                  |   |                        | (69                | )      |                        |   | 10,000 |   |   |   | 66 |   |   |   | 40,500 |   |
|                                                 |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flow hedges                                |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Derivatives      not designated as accounting hedges |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Interest      rate swaps associated                  |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| with      borrowing activities                       |   |                        | (483               | )      |                        |   | 10,000 |   |   |   | - |   |   |   | - |   |
|                                                 |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Interest      rate options associated                |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| with      borrowing activities                       |   |                        | 3                  |   |                        |   | 10,000 |   |   |   | 33 |   |   |   | 10,000 |   |
|                                                 |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Interest      rate options associated                |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| with      lending activities                         |   |                        | -                  |   |                        |   | - |   |   |   | 423 |   |   |   | 25,000 |   |
|                                                 |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Derivatives      not designated as accounting hedges |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Interest      rate options associated                |   |                        |               |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| with      lending activities                         |   |                        | -                  |   |                        |   | - |   |   |   | 7 |   |   |   | 50,000 |   |
|                                                 |   |                        |          |   |                        |   |          |   |   |   |          |   |   |   |          |   |
|                                                 |   | $                           | (549               | )      |                        | $      | 30,000 |   |   | $ | 39 |   |   | $ | 145,500 |   |

----

----

|                                                                     |   | 2008   |    |   | 2007   |   |
|--------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                                                     |   |   |    |   |   |   |
| Financial      instruments whose contract amounts represent credit risk: |   |   |    |   |   |   |
| Loan      commitments and undisbursed lines of credit                    |   | $      | 252,129 |   |   | $      | 313,839 |   |
| Undisbursed      standby letters of credit                               |   |   | 7,083   |   |   |   | 7,488 |   |
| Undisbursed      portion of construction loans                           |   |   | 55,850  |   |   |   | 98,148 |   |

----

----

----

----

|                                                        |   | 2008                        |      |   | 2007                     |   |
|-------------------------------------------------------------|--------|-----------------------------|-----------|--------|--------------------------|--------|
|                                                        |   | Carryingamount              |      |   | Estimatedfair value |   |   | Carryingamount |   |   | Estimatedfair value |   |
|                                                        |   | (Amounts      in thousands) |      |
|                                                        |   |                        |      |   |                     |   |   |   |   |   |   |   |
| Financial      assets:                                      |   |                        |      |   |                     |   |   |   |   |   |   |   |
| Cash      and due from banks                                |   | $                           | 25,215    |   |                     | $      | 25,215 |   |   | $ | 31,905 |   |   | $ | 31,905 |   |
| Federal      funds sold and other interest-bearing deposits |   |                        | 2,180     |   |                     |   | 2,180 |   |   |   | 2,250 |   |   |   | 2,250 |   |
| Investment      securities available for sale               |   |                        | 289,466   |   |                     |   | 289,466 |   |   |   | 147,426 |   |   |   | 147,426 |   |
| Investment      securities held to maturity                 |   |                        | 35,231    |   |                     |   | 35,531 |   |   |   | 69,812 |   |   |   | 69,464 |   |
| Loans,      net                                             |   |                        | 1,295,960 |   |                     |   | 1,304,117 |   |   |   | 1,174,180 |   |   |   | 1,187,953 |   |
| Investment      in life insurance                           |   |                        | 27,665    |   |                     |   | 27,665 |   |   |   | 16,824 |   |   |   | 16,824 |   |
| Accrued      interest receivable                            |   |                        | 7,690     |   |                     |   | 7,690 |   |   |   | 8,009 |   |   |   | 8,009 |   |
|                                                        |   |                        |      |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Financial      liabilities:                                 |   |                        |      |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                    |   |                        | 1,233,112 |   |                     |   | 1,227,006 |   |   |   | 1,045,237 |   |   |   | 1,044,588 |   |
| Short-term      borrowings                                  |   |                        | 145,197   |   |                     |   | 145,197 |   |   |   | 117,772 |   |   |   | 117,772 |   |
| Long-term      borrowings                                   |   |                        | 228,016   |   |                     |   | 247,223 |   |   |   | 254,633 |   |   |   | 244,039 |   |
| Accrued      interest payable                               |   |                        | 6,427     |   |                     |   | 6,427 |   |   |   | 3,516 |   |   |   | 3,516 |   |
|                                                        |   |                        |      |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| On-balance      sheet derivative financial instruments:     |   |                        |      |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Interest      rate swap and option agreements:              |   |                        |      |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| (Assets)      Liabilities, net                              |   |                        | 549       |   |                     |   | 549 |   |   |   | (39 | ) |   |   | (39 | ) |

----

----

|   | · | Level      1 – Valuations for assets and liabilities traded in active exchange      markets, such as the New York Stock Exchange.  Level 1 also      includes U.S. Treasury, other U.S. government and agency mortgage-backed      securities that are traded by dealers or brokers in active      markets.  Valuations are obtained from readily available pricing      sources for market transactions involving identical assets or      liabilities. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Level      2 – Valuations for assets and liabilities traded in less active dealer or      broker markets.  Valuations are obtained from third party      services for similar or comparable assets or  liabilities. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Level      3 – Valuations for assets and liabilities that are derived from other      valuation methodologies,  including option pricing models,      discounted cash flow models and similar techniques, and not based on      market exchange, dealer, or brokered traded transactions.  Level      3 valuations incorporate certain assumptions and projections in      determining the fair value assigned to such assets or      liabilities. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               |   | At December 31, 2008        |    |
|------------------------------------|--------|-----------------------------|---------|
|                               |   | Total                       |    |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|                               |   | (Amounts      in thousands) |    |
|                               |   |                        |    |   |   |   |   |   |   |   |   |   |
| Securities      available for sale |   | $                           | 289,466 |   |   | $ | 340 |   |   | $ | 286,121 |   |   | $ | 3,005 |   |
| Net      Derivatives               |   |                        | (549    | ) |   |   | - |   |   |   | (480 | ) |   |   | (69 | ) |

|                                                |   | Fair Value Measurements Using Significant      Unobservable Inputs |   |
|-----------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                |   | Securities                                                         |   |   |   |   |
|                                                |   | Available for sale                                                 |   |   | Net Derivatives |   |
|                                                |   | (Dollars      in Thousands)                                        |   |
| Beginning      Balance January 1, 2008              |   | $                                                                  | -      |   |   | $ | - |   |
| Total      realized and unrealized gains or losses: |   |                                                               |   |   |   |   |   |   |
| Included      in earnings                           |   |                                                               | -      |   |   |   | 69 |   |
| Included      in other comprehensive income         |   |                                                               | (40    | ) |   |   | - |   |
| Purchases,      issuances and settlements           |   |                                                               | 500    |   |   |   | - |   |
| Transfers      in and/or out of Level 3             |   |                                                               | 2,545  |   |   |   | - |   |
| Ending      Balance                                 |   | $                                                                  | 3,005  |   |   | $ | 69 |   |

----

----

|                   |   | At December 31, 2008        |   |
|------------------------|--------|-----------------------------|--------|
|                   |   | Total                       |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|                   |   | (Amounts      in thousands) |   |
|                   |   |                        |   |   |   |   |   |   |   |   |   |   |
| Impaired      loans    |   | $                           | 16,223 |   |   | $ | - |   |   | $ | - |   |   | $ | 16,223 |   |
|                   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreclosed      assets |   |                        | 5,745  |   |   |   |   |   |   |   |   |   |   |   | 5,745 |   |

----

----

|                                               |   | 2008   |    |   | 2007   |   |
|----------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Assets:                                            |   |   |    |   |   |   |
| Cash      and due from banks                       |   | $      | 31,409  |   |   | $      | 7,795 |   |
| Investment      in subsidiary                      |   |   | 202,509 |   |   |   | 178,174 |   |
| Investment      securities available for sale      |   |   | 1,223   |   |   |   | 783 |   |
| Other      assets                                  |   |   | 1,298   |   |   |   | 817 |   |
|                                               |   |   |    |   |   |   |   |   |
| Total      assets                                  |   | $      | 236,439 |   |   | $      | 187,569 |   |
|                                               |   |   |    |   |   |   |   |   |
| Liabilities:                                       |   |   |    |   |   |   |   |   |
| Junior      subordinated debentures                |   | $      | 45,877  |   |   | $      | 45,156 |   |
| Other      liabilities                             |   |   | 2,605   |   |   |   | 74 |   |
|                                               |   |   |    |   |   |   |   |   |
| Total      liabilities                             |   |   | 48,482  |   |   |   | 45,230 |   |
|                                               |   |   |    |   |   |   |   |   |
| Stockholders'      equity                          |   |   |    |   |   |   |   |   |
| Preferred      Stock                               |   |   | 40,690  |   |   |   | - |   |
| Common      stock                                  |   |   | 119,054 |   |   |   | 119,101 |   |
| Retained      earnings                             |   |   | 24,901  |   |   |   | 22,198 |   |
| Accumulated      other comprehensive income (loss) |   |   | 3,312   |   |   |   | 1,040 |   |
|                                               |   |   |    |   |   |   |   |   |
| Total      stockholders' equity                    |   |   | 187,957 |   |   |   | 142,339 |   |
|                                               |   |   |    |   |   |   |   |   |
| Total      liablilites and stockholders' equity    |   | $      | 236,439 |   |   | $      | 187,569 |   |

|                                             |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                             |   |   |   |   |   |   |   |   |   |
| Equity      in income of subsidiaries            |   | $      | 8,242  |   |   | $      | 9,936  |   |   | $ | 6,216 |   |
| Interest      income                             |   |   | 58     |   |   |   | 16     |   |   |   | 150 |   |
| Other      income                                |   |   | 128    |   |   |   | 70     |   |   |   | 70 |   |
| Interest      expense                            |   |   | (3,202 | )      |   |   | (3,184 | )      |   |   | (2,740 | ) |
| Other      expense                               |   |   | (594   | )      |   |   | (513   | )      |   |   | (543 | ) |
| Income      tax benefit                          |   |   | 1,222  |   |   |   | 1,229  |   |   |   | 1,045 |   |
|                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                  |   |   | 5,854  |   |   |   | 7,554  |   |   |   | 4,198 |   |
|                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Effective      dividend on preferred stock       |   |   | 185    |   |   |   | -      |   |   |   | - |   |
|                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income available to common shareholders |   | $      | 5,669  |   |   | $      | 7,554  |   |   | $ | 4,198 |   |

----

----

|                                                  |   | 2008   |    |   | 2007   |   |   | 2006   |   |
|-------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
| Operating      activities:                            |   |   |    |   |   |   |   |   |   |
| Net      income                                       |   | $      | 5,854   |   |   | $      | 7,554  |   |   | $ | 4,198 |   |
| Equity      in income of subsidiaries                 |   |   | (8,242  | )      |   |   | (9,936 | )      |   |   | (6,216 | ) |
| Amortization      of debt issuance costs              |   |   | 51      |   |   |   | 51     |   |   |   | 51 |   |
| (Increase)      decrease in other assets              |   |   | (23     | )      |   |   | 138    |   |   |   | 596 |   |
| Increase      in other liabilities                    |   |   | 2,297   |   |   |   | -      |   |   |   | - |   |
| Net      cash used by operating activities            |   |   | (63     | )      |   |   | (2,193 | )      |   |   | (1,371 | ) |
|                                                  |   |   |    |   |   |   |   |   |   |   |   |   |
| Investing      activities:                            |   |   |    |   |   |   |   |   |   |   |   |   |
| Cash      dividend from subsidiary                    |   |   | 1,500   |   |   |   | -      |   |   |   | - |   |
| Purchase      of investments                          |   |   | (500    | )      |   |   | -      |   |   |   | (550 | ) |
| Net      cash provided (used) by investing activities |   |   | 1,000   |   |   |   | -      |   |   |   | (550 | ) |
|                                                  |   |   |    |   |   |   |   |   |   |   |   |   |
| Financing      activities:                            |   |   |    |   |   |   |   |   |   |   |   |   |
| Proceeds      from issuance of preferred stock        |   |   | 42,750  |   |   |   | -      |   |   |   | - |   |
| Proceeds      from issuance of long-term debt         |   |   | -       |   |   |   | 10,000 |   |   |   | - |   |
| Net      proceeds from issuance of common stock       |   |   | 408     |   |   |   | 1,737  |   |   |   | 749 |   |
| Investment      in bank subsidiary                    |   |   | (15,000 | )      |   |   | -      |   |   |   | - |   |
| Cost      of shares repurchased                       |   |   | (2,700  | )      |   |   | (2,357 | )      |   |   | (3,682 | ) |
| Dividends      paid common shareholders               |   |   | (2,781  | )      |   |   | (2,724 | )      |   |   | (2,376 | ) |
| Net      cash provided (used) by financing activities |   |   | 22,677  |   |   |   | 6,656  |   |   |   | (5,309 | ) |
|                                                  |   |   |    |   |   |   |   |   |   |   |   |   |
| Net      increase (decrease) in cash                  |   |   | 23,614  |   |   |   | 4,463  |   |   |   | (7,230 | ) |
|                                                  |   |   |    |   |   |   |   |   |   |   |   |   |
| Cash,      beginning of year                          |   |   | 7,795   |   |   |   | 3,332  |   |   |   | 10,562 |   |
|                                                  |   |   |    |   |   |   |   |   |   |   |   |   |
| Cash,      end of year                                |   | $      | 31,409  |   |   | $      | 7,795  |   |   | $ | 3,332 |   |

----

----

----

----

Item 10. Directors, Executive Officers andCorporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain BeneficialOwners and Management

| Equity Compensation Plan      Information                       |   |
|-----------------------------------------------------------------|--------|
| Plan Category                                                   |   | Number of securities tobe issued uponexercised ofoutstanding optionswarrants and rights |   |   | Weighted-averageexercise price ofoutstanding options,warrants and rights |   |   | Number of securitiesremaining available forfuture issuance under equitycompensation plans(excluding securitiesreflected in column (a)) |   |
|                                                            |   | (a) |   |   | (b) |   |   | (c) |   |
| Equity      compensation plans approved by security holders     |   |   |   |   |   |   |   |   |   |
|                                                            |   |   |   |   |   |   |   |   |   |
| Stock      Option Plans                                         |   |   | 744,266 |   |   | $ | 9.58 |   |   |   | 503,911 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Employee      Stock Purchase Plan                               |   |   | 14,591 |   |   | $ | 6.72 |   |   |   | 889,400 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity      compensation plans not approved by security holders |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |
| Total                                                           |   |   | 758,857 |   |   | $ | 9.53 |   |   |   | 1,393,311 |   |

Item 14. Principal Accountant Fees andServices

----

| (a)(1) | Financial Statements. The following      financial statements and supplementary data are included in Item 8 of this      report. |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

| Financial Statements                                                                                                                       |   | Form 10-K Page |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|
|                                                                                                                                       |   |           |
| Report      of Independent Registered Public Accounting Firm                                                                               |   | 63             |
|                                                                                                                                       |   |           |
| Consolidated      Balance Sheets as of December 31, 2008 and 2007                                                                          |   | 64             |
|                                                                                                                                       |   |           |
| Consolidated      Statements of Operations for the years ended  December 31, 2008,      2007 and 2006                            |   | 65             |
|                                                                                                                                       |   |           |
| Consolidated      Statements of Comprehensive Income for the years ended  December      31, 2008, 2007 and 2006                  |   | 66             |
|                                                                                                                                       |   |           |
| Consolidated      Statements of Changes in Stockholders’ Equity for the years      ended  December 31, 2008, 2007 and 2006 |   | 67             |
|                                                                                                                                       |   |           |
| Consolidated      Statements of Cash Flows for the years ended  December 31, 2008,      2007 and 2006                            |   | 68-69          |
|                                                                                                                                       |   |           |
| Notes      to Consolidated Financial Statements                                                                                            |   | 70-102         |

| Exhibit No.   |   | Description                                                                                                                                                                                                                                                                                                                    |
|--------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit      3.1:  |   | Articles      of Incorporation (incorporated by reference to Exhibit 3(i) to the Current      Report on Form 8-K dated October 1, 2001)                                                                                                                                                                                        |
| Exhibit      3.2:  |   | Bylaws                                                                                                                                                                                                                                                                                                                         |
| Exhibit      3.3:  |   | Amendment      to Articles of Incorporation (incorporated by reference to Exhibit 3.3 to      the Annual Report on Form 10-K for the year ended December 31, 2001 (“2001      Annual Report”))                                                                                                                     |
| Exhibit      4.1:  |   | Specimen      certificate for Common Stock of Southern Community Financial Corporation      (incorporated by reference to Exhibit 4 to the Current Report on Form 8-K      dated October 1, 2001)                                                                                                                              |
| Exhibit      4.2:  |   | Form      of 7.95% Junior Subordinated Debenture (incorporated by reference to      Exhibit 4.2 to the Registration Statement on Form S-3 dated September 26,      2003, Registration No. 333-109167 (the “S-3 Registration      Statement”))                                                                      |
| Exhibit      4.3:  |   | Form      of Certificate for 7.95% Trust Preferred Security of Southern Community      Capital Trust II (incorporated by reference to Exhibit 4.6 to the S-3      Registration Statement)                                                                                                                                      |
| Exhibit      10.1: |   | 1997      Incentive Stock Option Plan of Southern Community Financial Corporation      (incorporated by reference to Exhibit 10.1 to Amendment Number One to the      Registration Statement on Form S-2 dated January 10, 2002, Registration      Number 333-74084 (the “Amended S-2 Registration    Statement”)) |
| Exhibit      10.2: |   | 1997      Non-Statutory Stock Option Plan of Southern Community Financial      Corporation (incorporated by reference to Exhibit 10.2 to the Amended S-2      Registration Statement)                                                                                                                                          |
| Exhibit      10.3: |   | 2002      Incentive Stock Option Plan of Southern Community Financial Corporation      (incorporated by reference to Exhibit 10.7 to the Annual Report on Form      10-K for the year ended December 31, 2003 (“2003 Annual      Report”))                                                                         |
| Exhibit      10.4: |   | 2002      Non-Statutory Stock Option Plan of Southern Community Financial      Corporation (incorporated by reference to Exhibit 10.8 to the 2003 Annual      Report)                                                                                                                                                          |
| Exhibit      10.5: |   | Indenture      with respect to the Company’s 7.95% Junior Subordinated Debentures      (incorporated by reference to Exhibit 10.9 to the 2003 Annual      Report)                                                                                                                                                        |
| Exhibit      10.6: |   | Amended      and Restated Trust Agreement of Southern Community Capital Trust II      (incorporated by reference to Exhibit 10.10 to the 2003 Annual      Report)                                                                                                                                                              |
| Exhibit      10.7: |   | Guarantee      Agreement for Southern Community Capital Trust II (incorporated by      reference to Exhibit 10.11 to the 2003 Annual  Report)                                                                                                                                                                                  |

----

| Exhibit      10.8:  |   | Agreement      as to Expenses and Liabilities with respect to Southern Community Capital      Trust II (incorporated by reference to Exhibit 10.12 to the 2003 Annual      Report)                                                               |
|---------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit      10.9:  |   | 2002      Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.13      to the 2003 Annual Report)                                                                                                                               |
| Exhibit      10.10: |   | The      Community Bank Amended and Restated Stock Option Plan for Key Employees      (incorporated by reference to Exhibit 4.2 to the Registration Statement on      Form S-8 dated April 29, 2004, Registration Number    333-114997)          |
| Exhibit      10.11: |   | 2001      Incentive Stock Option Plan of Southern Community Financial Corporation      (incorporated by reference to Exhibit 4.2 to the Registration Statement on      Form S-8 dated April 29, 2004, Registration Number    333-114993)         |
| Exhibit      10.12: |   | 2001      Stock Option Plan for Directors of Southern Community Financial      Corporation (incorporated by reference to Exhibit 4.2 to the Registration      Statement on Form S-8 dated April 29, 2004, Registration Number      333-114991)   |
| Exhibit      10.13: |   | 2006      Nonstatutory Stock Option Plan of Southern Community Financial Corporation      (incorporated by reference to Exhibit 4.2 to the Registration Statement on      Form S-8 dated November 11, 2006, Registration Number      333-138601) |
| Exhibit      10.14: |   | Employment      Agreement with F. Scott Bauer (incorporated by reference to Exhibit 10.1      to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006      (“2006 First Quarter Form 10-Q”))                       |
| Exhibit      10.15: |   | Employment      Agreement with Jeff T. Clark (incorporated by reference to Exhibit 10.2 to      the 2006 First Quarter Form 10-Q)                                                                                                                |
| Exhibit      10.16: |   | Amended      & Restated Salary Continuation Agreement of F. Scott Bauer      (incorporated by reference to Exhibit 10.1 to the 2007 First Quarter Form      10-Q)                                                                            |
| Exhibit      10.17: |   |  Amended      & Restated Salary Continuation Agreement of Jeff T. Clark      (incorporated by reference to Exhibit 10.2 to the 2007 First Quarter Form      10-Q)                                                                       |
| Exhibit      10.18: |   | Employment      Agreement with James C. Monroe, Jr. (incorporated by reference to the      Annual Report of Form 10-K for the year ended December 31,      2007)                                                                                 |
| Exhibit      10.19: |   | Amendment      Number One to Employment Agreement with F. Scott Bauer (incorporated by      reference to Exhibit 10.1 to the 2007 Third Quarter Form    10-Q)                                                                                    |
| Exhibit      10.20: |   | Amendment      Number One to Employment Agreement with Jeff T. Clark (incorporated by      reference to Exhibit 10.2 to the 2007 Third Quarter Form    10-Q)                                                                                     |
| Exhibit      10.21: |   | Amendment      Number One to Employment agreement with James C. Monroe, Jr. (incorporated      by reference to Exhibit 10.3 to the 2007 Third Quarter Form      10-Q)                                                                            |
| Exhibit      10.22: |   | Salary      Continuation Agreement with James C. Monroe, Jr. (incorporated by      reference to Exhibit 10.22 to the Annual Report on Form 10-K for the year      ended December 31, 2007)                                                       |
| Exhibit      10.23: |   | Amendment      Number One to Salary Continuation Agreement with James C. Monroe, Jr.      (incorporated by reference to Exhibit 10.23 to the Annual Report on Form      10-K for the year ended December 31, 2007)                               |
| Exhibit      10.24: |   | Addendum      A to Split Dollar Agreement with F. Scott Bauer (incorporated by reference      to Exhibit 10.24 to the Annual Report on Form 10-K for the year ended      December 31, 2007)                                                      |
| Exhibit      10.25: |   | Addendum      A to Split Dollar Agreement with Jeff T. Clark (incorporated by reference      to Exhibit 10.25 to the Annual Report on Form 10-K for the year ended      December 31, 2007)                                                       |
| Exhibit      10.26: |   | Employment      Agreement with James Hastings (incorporated by reference to Exhibit 10.1      to the Current report on Form 8-K dated June 17, 2008)                                                                                             |
| Exhibit      10:27: |   | Salary      Continuation Agreement with James Hastings (incorporated by reference to      Exhibit 10.2 to the Current report on Form 8-K dated June 17,      2008)                                                                               |
| Exhibit      10.28  |   | Waiver      Agreement and Acknowledgement with F. Scott Bauer                                                                                                                                                                                    |
| Exhibit      10.29  |   | Waiver      Agreement and Acknowledgement with Jeffrey T. Clark                                                                                                                                                                                  |
| Exhibit      10.30  |   | Waiver      Agreement and Acknowledgement with Robert L. Davis, Jr.                                                                                                                                                                              |
| Exhibit      10.31  |   | Waiver      Agreement and Acknowledgement with James Hastings                                                                                                                                                                                    |
| Exhibit      10.32  |   | Waiver      Agreement and Acknowledgement with James C. Monroe, Jr.                                                                                                                                                                              |
| Exhibit      10.33: |   | Amendment      Number Two to Employment Agreement with James C. Monroe,    Jr.                                                                                                                                                                   |
| Exhibit      10.34: |   | Amendment      Number One to Salary Continuation Agreement with F. Scott      Bauer                                                                                                                                                              |
| Exhibit      10.35: |   | Amendment      Number One to Salary Continuation Agreement with Jeff T.    Clark                                                                                                                                                                 |
| Exhibit      10.36: |   | Amendment      Number One to Salary Continuation Agreement with James      Hastings                                                                                                                                                              |

----

| Exhibit      10.37: |         | Amendment      Number One to Employment Agreement with James Hastings                     |
|---------------------|--------------|-------------------------------------------------------------------------------------------|
| Exhibit      10.38: |         | Amendment      Number Two to Employment Agreement with F. Scott Bauer                     |
| Exhibit      10.39: |         | Amendment      Number Two to Employment Agreement with Jeff T. Clark                      |
| Exhibit      10.40: |         | Amendment      Number One to Salary Continuation Agreement with Robert L.      Davis      |
| Exhibit      10.41: |         | Amendment      Number Two to Employment Agreement with Robert L. Davis                    |
| Exhibit      10.42: |         | Amendment      Number Two to Salary Continuation Agreement with James C. Monroe,      Jr. |
| Exhibit      10.43: |         | Amendment      Number Three to Employment Agreement with James C. Monroe,    Jr.          |
| Exhibit      21:    |         | Subsidiaries of the      Registrant                                                       |
| Exhibit      23:    |         | Consent      of Dixon Hughes PLLC                                                         |
| Exhibit      31.1:  |         | Rule      13a-14(a)/15d-14(a) Certification by Chief Executive    Officer                 |
| Exhibit      31.2:  |         | Rule      13a-14(a)/15d-14(a) Certification by Chief Financial    Officer                 |
| Exhibit      32:    |    | Section      1350Certifications                                                           |

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|                      | SOUTHERN      COMMUNITY    |
|---------------------------|----------------------------|
|                      | FINANCIAL      CORPORATION |
|                      |                       |   |
| Date:      March 16, 2009 | By:                        |   /s/ F, Scott      Bauer |
|                      |                       | F.      Scott Bauer |
|                      |                       | Chairman      and Chief Executive Officer |
|                      |                       | (principal      executive officer) |

| SIGNATURE                         |         | TITLE                                                    |         | DATE                     |
|-----------------------------------|--------------|----------------------------------------------------------|--------------|--------------------------|
|                              |         |                                                     |         |                     |
| /s/ F. Scott Bauer |         | Chairman of the Board and Chief |         |                     |
| F. Scott Bauer          |         | Executive Officer (principal                   |         | March 16, 2009 |
|                              |         | executive officer)                                  |         |                     |
|                              |         |                                                     |         |                     |
| /s/ James Hastings      |         | Executive Vice President and Chief   |         |                     |
| James Hastings               |         | Financial Officer (principal financial    |         |                     |
|                              |         | and accounting officer)                        |         | March 16, 2009 |
|                              |         |                                                     |         |                     |
| /s/      Edward T. Brown          |         | Director                                                 |         |                     |
| Edward      T. Brown              |         |                                                     |         | March      16, 2009      |
|                              |         |                                                     |         |                     |
| /s/      James G. Chrysson        |         | Director                                                 |         |                     |
| James      G. Chrysson            |         |                                                     |         | March      16, 2009      |
|                              |         |                                                     |         |                     |
| /s/      James O. Frye            |         | Director                                                 |         |                     |
| James      O. Frye                |         |                                                     |         | March      16, 2009      |
|                              |         |                                                     |         |                     |
| /s/      Matthew G. Gallins       |         | Director                                                 |         |                     |
| Matthew      G. Gallins           |         |                                                     |         | March      16, 2009      |
|                              |         |                                                     |         |                     |
| /s/      Beverly H. Godfrey       |         | Director                                                 |         |                     |
| Beverly      H. Godfrey           |    |                                                     |    | March      16, 2009      |

----

| SIGNATURE                       |         | TITLE    |         | DATE                |
|---------------------------------|--------------|----------|--------------|---------------------|
|                            |         |     |         |                |
| /s/      Lynn L. Lane           |         | Director |         |                |
| Lynn      L. Lane               |         |     |         | March      16, 2009 |
|                            |         |     |         |                |
| /s/      H. Lee Merritt, Jr.    |         | Director |         |                |
| H.      Lee Merritt, Jr.        |         |     |         | March      16, 2009 |
|                            |         |     |         |                |
| /s/      Stephen L. Robertson   |         | Director |         |                |
| Stephen      L. Robertson       |         |     |         | March      16, 2009 |
|                            |         |     |         |                |
| /s/      W. Samuel Smoak        |         | Director |         |                |
| W.      Samuel Smoak            |         |     |         | March      16, 2009 |
|                            |         |     |         |                |
|             |         | Director |         |                |
| William      G. Ward, Sr., M.D. |    |     |    | March      16, 2009 |

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