----

----

|   | (Mark      One)                                                                                                                                                                                                                                                                                                                     |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                |
| x      | QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                |
| o      | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 FOR THE TRANSITION PERIOD FROM                                          TO |

| California                                                             | 46-1981399                                |
|------------------------------------------------------------------------|-------------------------------------------|
| (State      or other jurisdiction of incorporation or organization)    | (I.R.S.      Employer Identification No.) |
|  701      W. Main StreetVisalia,      California  93291 |
| (Address      of principal executive offices)                     |
|                                                                   |
| (559)      622-9000(Issuer’s      telephone number)              |

| Large      Accelerated Filer |  o | Accelerated      Filer         | o      |   |
|------------------------------|---------|--------------------------------|--------|--------|
| Non-Accelerated      Filer   |  o | Smaller      Reporting Company | ý |   |

----

----

----

INDEX

| PART I - FINANCIAL INFORMATION                                                                           | 3      |
|----------------------------------------------------------------------------------------------------------|--------|
|                                                                                                     |   |
| ITEM 1 - FINANCIAL STATEMENTS                                                                            | 4      |
|                                                                                                     |   |
| ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL      CONDITION AND RESULTS OF OPERATONS | 19     |
|                                                                                                     |   |
| ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT      MARKET RISK                           | 36     |
|                                                                                                     |   |
| ITEM 4 – CONTROLS AND PROCEDURES                                                                   | 36     |
|                                                                                                     |   |
| PART II - OTHER INFORMATION                                                                              | 37     |
|                                                                                                     |   |
| ITEM 1 LEGAL PROCEEDINGS                                                                                 | 37     |
|                                                                                                     |   |
| ITEM 1A  RISK FACTORS                                                                          | 37     |
|                                                                                                     |   |
| ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF      PROCEEDS                                  | 37     |
|                                                                                                     |   |
| ITEM 3 DEFAULTS UPON SENIORSECURITIES                                                                    | 37     |
|                                                                                                     |   |
| ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY      HOLDERS                                          | 38     |
|                                                                                                     |   |
| ITEM 5 OTHER INFORMATION                                                                                 | 38     |
|                                                                                                     |   |
| ITEM 6 EXHIBITS                                                                                          | 38     |
|                                                                                                     |   |
| SIGNATURES                                                                                               | 39     |
|                                                                                                     |   |
| EXHIBIT INDEX                                                                                            | 40     |

----

PART I

----

Index

ITEM 1 – FINANCIAL STATEMENTS

|                                                                                                                                                                                                  |   | June      30,2010 |        |   | December      31,2009 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-------------|--------|-----------------------|--------|
|                                                                                                                                                                                                  |   |              |        |   |                  |   |
| Assets                                                                                                                                                                                                |   |              |        |   |                  |   |
| Cash      and due from banks                                                                                                                                                                          |   | $                 | 27,527,238  |   |                  | $      | 39,077,786 |   |
| Available-for-sale      investment securities, at fair value                                                                                                                                          |   |              | 44,723,000  |   |                  |   | 42,566,000 |   |
| Loans,      less allowance for loan losses of $7,439,656 at June 30, 2010 and      $6,231,065 at December 31, 2009 (Note 4)                                                                           |   |              | 244,106,344 |   |                  |   | 234,822,963 |   |
| Bank      premises and equipment, net                                                                                                                                                                 |   |              | 8,551,281   |   |                  |   | 8,041,905 |   |
| Cash      surrender value of bank-owned life insurance                                                                                                                                                |   |              | 6,491,019   |   |                  |   | 6,354,871 |   |
| Accrued      interest receivable and other assets                                                                                                                                                     |   |              | 8,791,116   |   |                  |   | 9,307,998 |   |
|                                                                                                                                                                                                  |   |              |        |   |                  |   |   |   |
| Total      assets                                                                                                                                                                                     |   | $                 | 340,189,998 |   |                  | $      | 340,171,523 |   |
|                                                                                                                                                                                                  |   |              |        |   |                  |   |   |   |
| Liabilities and Shareholders’      Equity                                                                                                                                                       |   |              |        |   |                  |   |   |   |
| Deposits:                                                                                                                                                                                             |   |              |        |   |                  |   |   |   |
| Noninterest-bearing                                                                                                                                                                                   |   | $                 | 76,740,276  |   |                  | $      | 76,574,651 |   |
| Interest-bearing                                                                                                                                                                                      |   |              | 217,198,591 |   |                  |   | 217,707,492 |   |
| Total      deposits                                                                                                                                                                                   |   |              | 293,938,867 |   |                  |   | 294,282,143 |   |
| Accrued      interest payable and other liabilities                                                                                                                                                   |   |              | 2,826,927   |   |                  |   | 2,265,842 |   |
| Long-term      debt                                                                                                                                                                                   |   |              | 2,663,963   |   |                  |   | 3,661,999 |   |
| Junior      subordinated deferrable interest debentures                                                                                                                                               |   |              | 3,093,000   |   |                  |   | 3,093,000 |   |
| Total      liabilities                                                                                                                                                                                |   |              | 302,522,757 |   |                  |   | 303,302,984 |   |
|                                                                                                                                                                                                  |   |              |        |   |                  |   |   |   |
| Commitments      and contingencies (Note 6)                                                                                                                                                           |   |              |        |   |                  |   |   |   |
|                                                                                                                                                                                                  |   |              |        |   |                  |   |   |   |
| Shareholders’      equity:                                                                                                                                                                      |   |              |        |   |                  |   |   |   |
| Serial      preferred stock - no par value; 10,000,000 shares authorized, issued and      outstanding – 7,700 shares class B and 385 shares class C at June 30, 2010      and December 31, 2009 |   |              | 7,783,300   |   |                  |   | 7,744,800 |   |
| Common      stock - no par value; 30,000,000 shares authorized; issued and outstanding      – 2,608,317 shares at June 30, 2010 and December 31, 2009                                           |   |              | 25,979,546  |   |                  |   | 25,953,290 |   |
| Retained      earnings                                                                                                                                                                                |   |              | 3,641,000   |   |                  |   | 3,166,732 |   |
| Accumulated      other comprehensive income, net of taxes (Note 8)                                                                                                                                    |   |              | 263,395     |   |                  |   | 3,717 |   |
| Total      shareholders’ equity                                                                                                                                                                 |   |              | 37,667,241  |   |                  |   | 36,868,539 |   |
| Total      liabilities and shareholders’ equity                                                                                                                                                 |   | $                 | 340,189,998 |   |                  | $      | 340,171,523 |   |

----

Index

|                                                                |   | For      the Three Months Ended      June 30, |      |   | For      the Six MonthsEnded      June 30, |   |
|---------------------------------------------------------------------|--------|----------------------------------------------------|-----------|--------|--------------------------------------------|--------|
|                                                                |   | 2010                                               |      |   | 2009                                       |   |   | 2010 |   |   | 2009 |   |
| Interest      Income:                                               |   |                                               |      |   |                                       |   |   |   |   |   |   |   |
| Interest      and fees on loans                                     |   | $                                                  | 3,782,428 |   |                                       | $      | 3,663,720 |   |   | $ | 7,400,253 |   |   | $ | 7,375,087 |   |
| Interest      on investment securities:                             |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                             |   |                                               | 190,070   |   |                                       |   | 317,118 |   |   |   | 372,906 |   |   |   | 623,566 |   |
| Exempt      from Federal income taxes                               |   |                                               | 158,837   |   |                                       |   | 199,868 |   |   |   | 315,283 |   |   |   | 396,409 |   |
| Interest      on Federal funds sold                                 |   |                                               | -         |   |                                       |   | 1,337 |   |   |   | - |   |   |   | 9,899 |   |
| Interest      on deposits in banks                                  |   |                                               | 18,411    |   |                                       |   | - |   |   |   | 32,751 |   |   |   | - |   |
| Total      interest income                                          |   |                                               | 4,149,746 |   |                                       |   | 4,182,043 |   |   |   | 8,121,193 |   |   |   | 8,404,961 |   |
|                                                                |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Interest      Expense:                                              |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Interest      on deposits                                           |   |                                               | 651,640   |   |                                       |   | 908,246 |   |   |   | 1,313,272 |   |   |   | 1,938,029 |   |
| Interest      on short-term debt                                    |   |                                               | -         |   |                                       |   | 2,679 |   |   |   | - |   |   |   | 27,934 |   |
| Interest      on long-term debt                                     |   |                                               | 48,333    |   |                                       |   | 50,463 |   |   |   | 94,612 |   |   |   | 116,556 |   |
| Interest      on junior subordinated deferrable interest debentures |   |                                               | 28,137    |   |                                       |   | 34,623 |   |   |   | 55,617 |   |   |   | 70,842 |   |
| Total      interest expense                                         |   |                                               | 728,110   |   |                                       |   | 996,011 |   |   |   | 1,463,501 |   |   |   | 2,153,361 |   |
|                                                                |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income before provision for loan losses           |   |                                               | 3,421,636 |   |                                       |   | 3,186,032 |   |   |   | 6,657,692 |   |   |   | 6,251,600 |   |
|                                                                |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Provision      for loan losses                                      |   |                                               | 650,000   |   |                                       |   | 1,000,000 |   |   |   | 1,250,000 |   |   |   | 1,400,000 |   |
| Net      interest income after provision for loan losses            |   |                                               | 2,771,636 |   |                                       |   | 2,186,032 |   |   |   | 5,407,692 |   |   |   | 4,851,600 |   |
|                                                                |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest      Income:                                           |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Service      charges                                                |   |                                               | 202,497   |   |                                       |   | 190,380 |   |   |   | 387,398 |   |   |   | 368,872 |   |
| Gain      on sale of available-for-sale investment securities, net  |   |                                               | -         |   |                                       |   | 4,062 |   |   |   | - |   |   |   | 4,062 |   |
| Mortgage      loan brokerage fees                                   |   |                                               | 1,924     |   |                                       |   | 14,982 |   |   |   | 7,921 |   |   |   | 27,482 |   |
| Earnings      on cash surrender value of life insurance policies    |   |                                               | 78,949    |   |                                       |   | 67,582 |   |   |   | 146,456 |   |   |   | 142,018 |   |
| Gain      from bank owned life insurance                            |   |                                               | -         |   |                                       |   | 317,488 |   |   |   | - |   |   |   | 317,488 |   |
| Other                                                               |   |                                               | 45,540    |   |                                       |   | 53,087 |   |   |   | 83,576 |   |   |   | 104,317 |   |
| Total      non-interest income                                      |   |                                               | 328,910   |   |                                       |   | 647,581 |   |   |   | 625,351 |   |   |   | 964,239 |   |
|                                                                |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest      Expense:                                          |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Salaries      and employee benefits                                 |   |                                               | 1,322,857 |   |                                       |   | 1,176,063 |   |   |   | 2,726,758 |   |   |   | 2,462,798 |   |
| Occupancy      and equipment                                        |   |                                               | 322,584   |   |                                       |   | 401,843 |   |   |   | 662,194 |   |   |   | 782,442 |   |
| Other                                                               |   |                                               | 798,859   |   |                                       |   | 751,658 |   |   |   | 1,681,330 |   |   |   | 1,603,700 |   |
| Total      non-interest expense                                     |   |                                               | 2,444,300 |   |                                       |   | 2,329,564 |   |   |   | 5,070,282 |   |   |   | 4,848,940 |   |
|                                                                |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Income      before provision for income taxes                       |   |                                               | 656,246   |   |                                       |   | 504,049 |   |   |   | 962,761 |   |   |   | 966,899 |   |
|                                                                |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Provision      for (benefit from) income taxes                      |   |                                               | 183,000   |   |                                       |   | (28,000 | ) |   |   | 239,000 |   |   |   | 88,000 |   |
|                                                                |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                     |   | $                                                  | 473,246   |   |                                       | $      | 532,049 |   |   | $ | 723,761 |   |   | $ | 878,899 |   |
| Dividends      accrued and discount accreted on preferred Shares    |   |                                               | (98,387   | )      |                                       |   | (69,513 | ) |   |   | (193,569 | ) |   |   | (161,485 | ) |
| Net      income available to common shareholders                    |   | $                                                  | 374,859   |   |                                       | $      | 462,536 |   |   | $ | 530,192 |   |   | $ | 717,414 |   |
|                                                                |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Basic      earnings per share (Notes 2 and 6)                       |   | $                                                  | 0.14      |   |                                       | $      | 0.18 |   |   | $ | 0.20 |   |   | $ | 0.28 |   |
|                                                                |   |                                               |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Diluted      earnings per share (Notes 2 and 6)                     |   | $                                                  | 0.14      |   |                                       | $      | 0.18 |   |   | $ | 0.20 |   |   | $ | 0.28 |   |

----

Index

|                                                                                           |   | For      the Six Months Ended      June 30, |        |
|------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|-------------|
|                                                                                           |   | 2010                                             |        |   | 2009 |   |
|                                                                                           |   |                                             |        |   |   |   |
| Cash      Flows from Operating Activities:                                                     |   |                                             |        |   |   |   |
| Net      income                                                                                |   | $                                                | 723,761     |   |   | $ | 878,899 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities:    |   |                                             |        |   |   |   |   |   |
| Provision      for loan losses                                                                 |   |                                             | 1,250,000   |   |   |   | 1,400,000 |   |
| Increase      in deferred loan origination fees, net                                           |   |                                             | 1,869       |   |   |   | 101,890 |   |
| Depreciation                                                                                   |   |                                             | 249,071     |   |   |   | 342,308 |   |
| Gain      on sale of available-for-sale investment securities, net                             |   |                                             | -           |   |   |   | (4,062 | ) |
| Amortization      (accretion) of premiums discounts on investment securities,      net         |   |                                             | 147,575     |   |   |   | (7,282 | ) |
| Increase      in cash surrender value of bank-owned life insurance                             |   |                                             | (136,148    | ) |   |   | (142,018 | ) |
| Gain      from bank owned life insurance                                                       |   |                                             | -           |   |   |   | (317,488 | ) |
| Stock-based      compensation expense                                                          |   |                                             | 26,256      |   |   |   | 28,712 |   |
| Loss      on disposition of premises and equipment                                             |   |                                             | 5,544       |   |   |   | - |   |
| Decrease      (increase) in accrued interest receivable and other assets                       |   |                                             | 758,582     |   |   |   | (796,433 | ) |
| Increase      in accrued interest payable and other liabilities                                |   |                                             | 379,506     |   |   |   | 72,402 |   |
| Net      cash provided by operating activities                                                 |   |                                             | 3,406,016   |   |   |   | 1,556,928 |   |
|                                                                                           |   |                                             |        |   |   |   |   |   |
| Cash      Flows from Investing Activities:                                                     |   |                                             |        |   |   |   |   |   |
| Proceeds      from matured and called available-for-sale investment      securities            |   |                                             | -           |   |   |   | 568,561 |   |
| Proceeds      from sales of available-for-sale investment securities                           |   |                                             | -           |   |   |   | 1,578,160 |   |
| Purchases      of available-for-sale investment securities                                     |   |                                             | (5,096,574  | ) |   |   | (12,937,763 | ) |
| Proceeds      from principal repayments from available-for-salemortgage-backed      securities |   |                                             | 3,233,255   |   |   |   | 2,912,070 |   |
| Purchase      of Federal Home Loan Bank Stock, net                                             |   |                                             | (241,700    | ) |   |   | (14,800 | ) |
| Net      increase in loans                                                                     |   |                                             | (10,535,250 | ) |   |   | (16,899,200 | ) |
| Purchase      of premises and equipment                                                        |   |                                             | (763,991    | ) |   |   | (3,931,818 | ) |
| Proceeds      from bank owned life insurance                                                   |   |                                             | -           |   |   |   | 662,838 |   |
| Proceeds      from sale of other real estate                                                   |   |                                             | -           |   |   |   | 473,270 |   |
| Net      cash used in investing activities                                                     |   |                                             | (13,404,260 | ) |   |   | (27,588,682 | ) |

----

Index

|                                                                      |   | For      the Six MonthsEnded      June 30, |
|---------------------------------------------------------------------------|--------|--------------------------------------------|
|                                                                      |   | 2010                                       |   |   | 2009 |
|                                                                      |   |                                       |   |   |   |
| Cash      Flows from Financing Activities:                                |   |                                       |   |   |   |
| Net      increase in noninterest-bearing and interest-bearing    deposits |   | $                                          | 1,423,133 |   |   | $ | 10,099,956 |   |
| Net      (decrease) increase in time deposits                             |   |                                       | (1,766,409 | ) |   |   | 3,412,658 |   |
| Proceeds      from issuance of preferred stock                            |   |                                       | - |   |   |   | 7,499,467 |   |
| Cash      dividends paid on preferred stock                               |   |                                       | (210,992 | ) |   |   | - |   |
| Decrease      in short-term borrowings, net                               |   |                                       | - |   |   |   | (2,550,000 | ) |
| Principal      payments on long-term debt                                 |   |                                       | (998,036 | ) |   |   | (1,409,809 | ) |
| Cash      paid to repurchase fractional shares                            |   |                                       | - |   |   |   | (2,577 | ) |
| Net      cash (used in) provided by financing activities                  |   |                                       | (1,552,304 | ) |   |   | 17,049,695 |   |
|                                                                      |   |                                       |   |   |   |   |   |   |
| Decrease      in cash and cash equivalents                                |   |                                       | (11,550,548 | ) |   |   | (8,982,059 | ) |
| Cash      and Cash Equivalents at Beginning of Year                       |   |                                       | 39,077,786 |   |   |   | 22,145,867 |   |
| Cash      and Cash Equivalents at End of Period                           |   | $                                          | 27,527,238 |   |   | $ | 13,163,808 |   |
|                                                                      |   |                                       |   |   |   |   |   |   |
| Supplemental      Disclosure of Cash Flow Information:                    |   |                                       |   |   |   |   |   |   |
| Cash      paid during the period for:                                     |   |                                       |   |   |   |   |   |   |
| Interest      expense                                                     |   | $                                          | 1,478,735 |   |   | $ | 2,290,252 |   |
| Income      taxes                                                         |   | $                                          |   |   |   | $ | 745,000 |   |
|                                                                      |   |                                       |   |   |   |   |   |   |
| Non-Cash      Investing Activities:                                       |   |                                       |   |   |   |   |   |   |
| Net      change in unrealized loss on available-for-sale securities       |   | $                                          | 441,253 |   |   | $ | (23,317 | ) |
| Real      estate owned acquired through foreclosure                       |   | $                                          | - |   |   | $ | 1,282,870 |   |
| Non-Cash      Financing Activities:                                       |   |                                       |   |   |   |   |   |   |
| Accrued      dividends on preferred stock                                 |   | $                                          | 210,992 |   |   | $ | 176,020 |   |

----

Index

----

Index

|                             |   | June 30, 2010 |       |
|----------------------------------|--------|---------------|------------|
|                             |   | AmortizedCost |       |   | Gross      UnrealizedGains |   |   | Gross      UnrealizedLosses |   |   | Estimated      FairValue |   |
|                             |   |          |       |   |   |   |   |   |   |   |   |   |
| Debt      securities:            |   |          |       |   |   |   |   |   |   |   |   |   |
| U.S.Government      agencies     |   | $             | 6,936,662  |   |   | $ | 98,338 |   |   |   | - |   |   | $ | 7,035,000 |   |
| Mortgage-backed securities: |   |          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency      MBS                  |   |          | 8,276,578  |   |   |   | 394,258 |   |   |   | (6,836 | ) |   |   | 8,664,000 |   |
| Agency      SBA                  |   |          | 13,716,192 |   |   |   | 155,310 |   |   |   | (2,502 | ) |   |   | 13,869,000 |   |
| Municipal      securities        |   |          | 15,345,998 |   |   |   | 90,447 |   |   |   | (281,445 | ) |   |   | 15,155,000 |   |
|                             |   |          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |   | $             | 44,275,430 |   |   | $ | 738,353 |   |   | $ | (290,783 | ) |   | $ | 44,723,000 |   |

|                             |   | December 31, 2009 |       |
|----------------------------------|--------|-------------------|------------|
|                             |   | AmortizedCost     |       |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | EstimatedFairValue |   |
|                             |   |              |       |   |   |   |   |   |   |   |   |   |
| Debt      securities:            |   |              |       |   |   |   |   |   |   |   |   |   |
| U.S.Government      agencies     |   | $                 | 2,909,941  |   |   | $ | 105,059 |   |   |   | - |   |   | $ | 3,015,000 |   |
| Mortgage-backed      securities: |   |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency      MBS                  |   |              | 8,985,716  |   |   |   | 295,386 |   |   |   | (102 | ) |   |   | 9,281,000 |   |
| Agency      SBA                  |   |              | 15,326,055 |   |   |   | 27,173 |   |   |   | (46,228 | ) |   |   | 15,307,000 |   |
| Municipal      securities        |   |              | 15,337,971 |   |   |   | 48,855 |   |   |   | (423,826 | ) |   |   | 14,963,000 |   |
|                             |   | $                 | 42,559,683 |   |   | $ | 476,473 |   |   | $ | (470,156 | ) |   | $ | 42,566,000 |   |

----

Index

|                       |   | Less than 12 Months |      |   | 12 Months or More |   |    | Total     |   |
|----------------------------|--------|---------------------|-----------|--------|-------------------|--------|---------|-----------|--------|
|                       |   | FairValue           |      |   | UnrealizedLosses  |   |    | FairValue |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |
|                       |   |                |      |   |              |   |    |      |   |   |   |   |   |   |   |   |   |   |
| Debt      securities:      |   |                |      |   |              |   |    |      |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backedsecurities: |   |                |      |   |              |   |    |      |   |   |   |   |   |   |   |   |   |   |
| Agency      MBS            |   | $                   | 1,025,000 |   |              | $      | (6,836  | )         |   | $ | - |   |   | $ | - |   |   | $ | 1,025,000 |   |   | $ | (6,836 | ) |
| Agency      SBA            |   |                | 920,000   |   |              |   | (2,502  | )         |   |   | - |   |   |   | - |   |   |   |  920,000 |   |   |   |  (2,502 | ) |
| Municipal      securities  |   |                | 4,136,000 |   |              |   | (15,729 | )         |   |   |  3,448,000 |   |   |   |  (265,716 | ) |   |   | 7,584,000 |   |   |   | (281,445 | ) |
|                       |   | $                   | 6,081,000 |   |              | $      | (25,067 | )         |   | $ | 3,448,000 |   |   | $ | (265,716 | ) |   | $ | 9,529,000 |   |   | $ | (290,783 | ) |

|                                                                            |   | Less than 12 Months |                |   | 12 Months or More |   |             | Total     |   |
|---------------------------------------------------------------------------------|--------|---------------------|---------------------|--------|-------------------|--------|------------------|-----------|--------|
|                                                                            |   | FairValue           |                |   | UnrealizedLosses  |   |             | FairValue |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |
|                                                                            |   |                |                |   |              |   |             |      |   |   |   |   |   |   |   |   |   |   |
| Debt      securities:                                                           |   |                |                |   |              |   |             |      |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backedsecurities:                                                      |   |                |                |   |              |   |             |      |   |   |   |   |   |   |   |   |   |   |
| Agency      MBS                                                                 |   | $                   |   132,000 |   |              | $      |   (102 | )         |   | $ | - |   |   | $ | - |   |   | $ | 132,000 |   |   | $ |   (102 | ) |
| Agency      SBA                                                                 |   |                | 9,567,000           |   |              |   | (46,228          | )         |   |   | - |   |   |   | - |   |   |   | 9,567,000 |   |   |   | (46,228 | ) |
|     Municipal      securities      |   |                |  6,449,000     |   |              |   |  (179,802   | )         |   |   | 2,789,000 |   |   |   | ( 244,024 | )   |   |   | 9,238,000 |   |   |   | (423,826 | ) |
|                                                                            |   | $                   | 16,148,000          |   |              | $      | (226,132         | )         |   | $ | 2,789,000 |   |   | $ | (244,024 | ) |   | $ | 18,937,000 |   |   | $ | (470,156 | ) |

----

Index

|                                           |   | AmortizedCost |       |   | EstimatedFairValue |   |
|------------------------------------------------|--------|---------------|------------|--------|--------------------|--------|
|                                           |   |          |       |   |               |   |
| Within      one year                           |   | $             | 19,557     |   |               | $      | 20,000 |   |
| After      one year through five years         |   |          | 4,053,420  |   |               |   | 4,083,000 |   |
| After      five years through ten years        |   |          | 4,068,653  |   |               |   | 4,101,000 |   |
| After      ten years                           |   |          | 14,141,030 |   |               |   | 13,986,000 |   |
|                                           |   |          | 22,282,660 |   |               |   | 22,190,000 |   |
| Investment      securities not due at a single |   |          |       |   |               |   |   |   |
| maturity      date:                            |   |          |       |   |               |   |   |   |
| Mortgage-backed      securities                |   |          | 21,992,770 |   |               |   | 22,533,000 |   |
|                                           |   |          |       |   |               |   |   |   |
|                                           |   | $             | 44,275,430 |   |               | $      | 44,723,000 |   |

|                                    |   | June      30, 2010 |        |   | December      31,2009 |   |
|-----------------------------------------|--------|-------------------------|-------------|--------|-----------------------|--------|
| Commercial                              |   | $                       | 58,071,535  |   |                  | $      | 49,442,490 |   |
| Real      estate – mortgage       |   |                    | 166,809,375 |   |                  |   | 162,772,435 |   |
| Real      estate – construction   |   |                    | 20,131,384  |   |                  |   | 22,581,964 |   |
| Agricultural                            |   |                    | 5,081,885   |   |                  |   | 4,727,349 |   |
| Consumer                                |   |                    | 1,860,488   |   |                  |   | 1,936,588 |   |
|                                    |   |                    | 251,954,667 |   |                  |   | 241,460,826 |   |
|                                    |   |                    |        |   |                  |   |   |   |
| Deferred      loan fees,  net |   |                    | (408,667    | )      |                  |   | (406,798 | ) |
| Allowance      for loan losses          |   |                    | (7,439,656  | )      |                  |   | (6,231,065 | ) |
|                                    |   | $                       | 244,106,344 |   |                  | $      | 234,822,963 |   |

|                                 |   | June      30, 2010 |      |   | December      31,2009 |   |
|--------------------------------------|--------|-------------------------|-----------|--------|-----------------------|--------|
| Balance,      beginning of year      |   | $                       | 6,231,065 |   |                  | $      | 3,244,454 |   |
| Provision      charged to operations |   |                    | 1,250,000 |   |                  |   | 7,000,000 |   |
| Losses      charged to allowance     |   |                    | (48,049   | )      |                  |   | (4,013,611 | ) |
| Recoveries                           |   |                    | 6,640     |   |                  |   | 222 |   |
| Balance,      end of year            |   | $                       | 7,439,656 |   |                  | $      | 6,231,065 |   |

----

Index

|                                                |   | June      30, 2010 |       |   | December      31,2009 |   |
|-----------------------------------------------------|--------|-------------------------|------------|--------|-----------------------|--------|
| Furniture      and equipment                        |   | $                       | 3,007,201  |   |                  | $      | 2,955,097 |   |
| Construction      in progress, premises             |   |                    | -          |   |                  |   | 4,567,346 |   |
| Leasehold      improvements                         |   |                    | 207,342    |   |                  |   | 550,548 |   |
| Premises                                            |   |                    | 6,086,188  |   |                  |   | 2,095,490 |   |
| Land                                                |   |                    | 1,461,379  |   |                  |   | 605,060 |   |
|                                                |   |                    | 10,762,110 |   |                  |   | 10,773,541 |   |
|                                                |   |                    |       |   |                  |   |   |   |
| Less      accumulated depreciation and amortization |   |                    | (2,210,829 | )      |                  |   | (2,731,636 | ) |
|                                                |   | $                       | 8,551,281  |   |                  | $      | 8,041,905 |   |

----

Index

|                                                            |   | For      the Six Months Ended June 30, 2010 |    |
|-----------------------------------------------------------------|--------|---------------------------------------------|---------|
|                                                            |   | Shares                                      |    |   | Weighted      Average Exercise Price |   |   | Weighted      Average Remaining Contractual Term |   |   | Aggregate      Intrinsic Value (in thousands) |   |
| Incentive:                                                      |   |                                        |    |   |   |   |   |    |   |   |   |   |
| Options      outstanding at January 1, 2010                     |   |                                        | 74,357  |   |   | $ | 10.34 |   |   |   |   |   |   |   |
| Options      granted                                            |   |                                        | -       |   |   |   | - |   |   |   |   |   |   |   |
| Options      exercised                                          |   |                                        | -       |   |   |   | - |   |   |   |   |   |   |   |
| Options      cancelled                                          |   |                                        | (1,103  | ) |   |   | 13.15 |   |   |   |   |   |   |   |
| Options      outstanding at June 30, 2010                       |   |                                        | 73,254  |   |   |   | 10.30 |   |   | 4.80      years |   |   | $ | - | (1) |
| Options      vested or expected to vestafter      June 30, 2010 |   |                                        | 71,890  |   |   |   | 12.60 |   |   | 3.09      years |   |   | $ | - | (1) |
| Options      exercisable at June 30, 2010                       |   |                                        | 51,096  |   |   |   | 9.06 |   |   | 3.64      years |   |   | $ | - | (1) |
|                                                            |   |                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonstatutory:                                                   |   |                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Options      outstanding at January 1, 2010                     |   |                                        | 87,964  |   |   | $ | 9.10 |   |   |   |   |   |   |   |   |
| Options      granted                                            |   |                                        | -       |   |   |   | - |   |   |   |   |   |   |   |   |
| Options      exercised                                          |   |                                        | -       |   |   |   | - |   |   |   |   |   |   |   |   |
| Options      cancelled                                          |   |                                        | (12,103 | ) |   |   | 5.37 |   |   |   |   |   |   |   |   |
| Options      outstanding at June 30, 2010                       |   |                                        | 75,861  |   |   |   | 9.69 |   |   | 3.01      years |   |   | $ | 7,978 | (1) |
| Options      vested or expected to vestafter      June 30, 2010 |   |                                        | 75,861  |   |   |   | 9.69 |   |   | 3.01      years |   |   |   | 7,978 | (1) |
| Options      exercisable at June 30, 2010                       |   |                                        | 75,861  |   |   |   | 9.69 |   |   | 3.01      years |   |   |   | 7,978 | (1) |

----

Index

|                                                |   | For      the Three MonthsEnded      June 30, |      |   | For      the Six MonthsEnded      June 30, |   |
|-----------------------------------------------------|--------|----------------------------------------------|-----------|--------|--------------------------------------------|--------|
|                                                |   | 2010                                         |      |   | 2009                                       |   |   | 2010 |   |   | 2009 |   |
| Net      Income:                                    |   |                                         |      |   |                                       |   |   |   |   |   |   |   |
| Net      income                                     |   | $                                            | 473,246   |   |                                       | $      | 532,049 |   |   | $ | 723,761 |   |   | $ | 878,899 |   |
| Dividends      accrued and discounts                |   |                                         |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| accreted      on preferred shares                   |   |                                         | (98,387   | )      |                                       |   | (69,513 | ) |   |   | (193,569 | ) |   |   | (161,485 | ) |
| Net      income allocated to common                 |   |                                         |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| shareholders                                        |   | $                                            | 374,859   |   |                                       | $      | 462,536 |   |   | $ | 530,192 |   |   | $ | 717,414 |   |
| Earnings      Per Share:                            |   |                                         |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Basic      earnings per share                       |   | $                                            | 0.14      |   |                                       | $      | 0.18 |   |   | $ | 0.20 |   |   | $ | 0.28 |   |
| Diluted      earnings per share                     |   | $                                            | 0.14      |   |                                       | $      | 0.18 |   |   | $ | 0.20 |   |   | $ | 0.28 |   |
| Weighted      Average Number of Shares Outstanding: |   |                                         |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Basic      shares                                   |   |                                         | 2,608,317 |   |                                       |   | 2,597,149 |   |   |   | 2,608,317 |   |   |   | 2,597,149 |   |
| Diluted      shares                                 |   |                                         | 2,611,382 |   |                                       |   | 2,617,527 |   |   |   | 2,611,764 |   |   |   | 2,605,758 |   |

----

Index

|                                                      |   | For      the Three MonthsEnded |    |   | For      the Six MonthsEnded |
|-----------------------------------------------------------|--------|--------------------------------|---------|--------|------------------------------|
|                                                      |   | June      30, 2010        |    |   | June      30, 2009      |   |   | June      30, 2010 |   |   | June      30, 2009 |
|                                                      |   |                           |    |   |                         |   |   |   |   |   |   |
| Net      income                                           |   | $                              | 473,246 |   |                         | $ | 532,049 |   |   | $ | 723,761 |   |   | $ | 878,899 |   |
| Other      comprehensive income:                          |   |                           |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized      holding gain (loss) on available-for-sale |   |                           |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| investment      securities, net of tax                    |   |                           | 161,888 |   |                         |   | (74,848 | ) |   |   | 259,678 |   |   |   | (13,722 | ) |
| Total      other comprehensive income                     |   | $                              | 635,134 |   |                         | $ | 457,201 |   |   | $ | 983,439 |   |   | $ | 865,177 |   |

----

Index

----

Index

|                                              |   |            |       |        Fair Value Measurements,      Using                          |   |
|---------------------------------------------------|--------|-----------------|------------|--------------------------------------------------------------------------|--------|
|  (in    thousands)                           |   | Fair      Value |       | Quoted      Prices in Active Markets for Identical Assets (Level      1) |   | Other Observable Inputs (Level      2) |   | Significant      UnobservableInputs(Level      3) |   |
| Assets:                                           |   |            |       |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|                                              |   |            |
| Available-for-sale      investment securities at: |   |            |       |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|   June 30,      2010                    |   | $               | 44,723,000 |                                                                     |   | $ | — |   |   | $ | 44,723,000 |   |   | $ |   |   |
| December      31, 2009                            |   | $               | 42,566,000 |                                                                     |   | $ | — |   |   | $ | 42,566,000 |   |   | $ | — |   |

|                               |   |            |      |   | Fair      Value Measurements, Using                                                        |   |
|------------------------------------|--------|-----------------|-----------|--------|--------------------------------------------------------------------------------------------|--------|
| (in      thousands)                |   | Fair      Value |      |   | Quoted Prices inActive      Markets forIdentical      Assets (Level      1) |   |   | OtherObservable Inputs (Level      2) |   |   | Significant UnobservableInputs (Level      3) |   |   | TotalGain(Losses) |   |
|  Assets:                      |   |            |      |   |                                                                                       |   |   |   |   |   |   |   |   |   |   |
| Impaired      loans at:            |   |            |      |   |                                                                                       |   |   |   |   |   |   |   |   |   |   |
|  June 30,      2010           |   | $               | 8,855,000 |   |                                                                                       | $      | — |   |   | $ | 599,000 |   |   | $ | 8,256,000 |   |   | $ | 284,000 |   |
|   December 31,      2009 |   | $               | 7,784,000 |   |                                                                                       | $      | — |   |   | $ | — |   |   | $ | 7,784,000 |   |   | $ | (2,227,000 | ) |

----

Index

|                                |   | June 30, 2010  |        |   | December 31, 2009 |   |
|-------------------------------------|--------|----------------|-------------|--------|-------------------|--------|
|                                |   | CarryingAmount |        |   | FairValue         |   |   | CarryingAmount |   |   | FairValue |   |
|                                |   |           |        |   |              |   |   |   |   |   |   |   |
| Financial      assets:              |   |           |        |   |              |   |   |   |   |   |   |   |
| Cash      and cash equivalents      |   | $              | 27,527,238  |   |              | $      | 27,527,238 |   |   | $ | 33,077,786 |   |   | $ | 39,077,786 |   |
| Available-for-sale                  |   |           |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| investment      securities          |   |           | 44,723,000  |   |              |   | 42,723,000 |   |   |   | 42,566,000 |   |   |   | 42,566,000 |   |
| Loans,      net                     |   |           | 244,106,344 |   |              |   | 244,681,400 |   |   |   | 234,822,963 |   |   |   | 232,495,909 |   |
| Cash      surrender value of life   |   |           |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| insurance      policies             |   |           | 6,491,019   |   |              |   | 6,491,019 |   |   |   | 6,354,871 |   |   |   | 6,354,871 |   |
| Accrued      interest receivable    |   |           | 1,170,853   |   |              |   | 1,170,853 |   |   |   | 1,241,412 |   |   |   | 1,241,412 |   |
| FHLB      stock                     |   |           | 1,360,700   |   |              |   | 1,360,700 |   |   |   | 1,119,000 |   |   |   | 1,119,000 |   |
|                                |   |           |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial      liabilities:         |   |           |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                            |   |           | 293,938,867 |   |              |   | 294,588,120 |   |   |   | 294,282,143 |   |   |   | 294,833,469 |   |
| Long-term      debt                 |   |           | 2,663,963   |   |              |   | 3,076,499 |   |   |   | 3,661,999 |   |   |   | 2,974,335 |   |
| Junior      subordinated deferrable |   |           |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| interest      debentures            |   |           | 3,093,000   |   |              |   | 927,900 |   |   |   | 3,093,000 |   |   |   | 959,000 |   |
| Accrued      interest payable       |   |           | 124,755     |   |              |   | 124,755 |   |   |   | 139,988 |   |   |   | 139,988 |   |

----

Index

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

----

Index

----

Index

----

Index

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Average      balances and weighted average yields and costsSix      Months ended June 30, |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2010                                                                                      |    |   | 2009 |   |
| (dollars      in thousands)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | AverageBalance                                                                            |    |   | Interestincome/Expense |   |   | Averageyield/Cost |   |   | AverageBalance |   |   | Interestincome/Expense |   |   | Averageyield/Cost |   |
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Due      from banks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $                                                                                         | 27,098  |   |   | $ | 33 |   |   |   | 0.25 | % |   | $ | - |   |   | $ | - |   |   |   | - | % |
| Federal      funds sold                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                      | -       |   |   |   | - |   |   |   | - | % |   |   | 8,062 |   |   |   | 10 |   |   |   | 0.25 | % |
| Available-for-sale      investment securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                      | 27,653  |   |   |   | 373 |   |   |   | 2.72 | % |   |   | 25,119 |   |   |   | 624 |   |   |   | 5.01 | % |
| Exempt      from Federal income taxes (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                      | 15,342  |   |   |   | 315 |   |   |   | 6.27 | % |   |   | 19,423 |   |   |   | 396 |   |   |   | 6.23 | % |
| Total      securities (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                      | 42,995  |   |   |   | 688 |   |   |   | 3.99 | % |   |   | 44,542 |   |   |   | 1,020 |   |   |   | 5.54 | % |
| Loans (2) (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                      | 241,691 |   |   |   | 7,400 |   |   |   | 6.17 | % |   |   | 235,839 |   |   |   | 7,375 |   |   |   | 6.31 | % |
| Total      interest-earning assets (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                      | 311,784 |   |   |   | 8,121 |   |   |   | 5.36 | % |   |   | 288,443 |   |   |   | 8,405 |   |   |   | 6.02 | % |
|                                                                                                            |   |                                                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-earning      assets, net of allowance for loan losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                      | 31,478  |   |   |   |   |   |   |   |   |   |   |   | 22,946 |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                                                                                         | 343,262 |   |   |   |   |   |   |   |   |   |   | $ | 311,389 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES      AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      interest bearing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $                                                                                         | 122,013 |   |   | $ | 379 |   |   |   | 0.63 | % |   | $ | 103,364 |   |   | $ | 684 |   |   |   | 1.33 | % |
| Time      deposits less than $100,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                                      | 25,569  |   |   |   | 199 |   |   |   | 1.57 | % |   |   | 24,860 |   |   |   | 327 |   |   |   | 2.65 | % |
| Time      deposits $100,000 or more                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                      | 72,591  |   |   |   | 735 |   |   |   | 2.04 | % |   |   | 64,424 |   |   |   | 927 |   |   |   | 2.90 | % |
| Total      interest-bearing deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                                      | 220,173 |   |   |   | 1,313 |   |   |   | 1.20 | % |   |   | 192,648 |   |   |   | 1,938 |   |   |   | 2.03 | % |
| Short-term      debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                                      | -       |   |   |   | - |   |   |   | - |   |   |   | 3,981 |   |   |   | 21 |   |   |   | 1.06 | % |
| Long-term      debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                      | 3,556   |   |   |   | 95 |   |   |   | 5.39 | % |   |   | 4,691 |   |   |   | 123 |   |   |   | 5.29 | % |
| Junior      subordinated deferrable interest debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                      | 3,093   |   |   |   | 56 |   |   |   | 3.65 | % |   |   | 3,093 |   |   |   | 71 |   |   |   | 4.63 | % |
| Total      interest-bearing liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                      | 226,822 |   |   |   | 1,464 |   |   |   | 1.30 | % |   |   | 204,413 |   |   |   | 2,153 |   |   |   | 2.12 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing      deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                      | 76,370  |   |   |   |   |   |   |   |   |   |   |   | 67,006 |   |   |   |   |   |   |   |   |   |
| Other      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                      | 2,738   |   |   |   |   |   |   |   |   |   |   |   | 2,555 |   |   |   |   |   |   |   |   |   |
| Total      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                      | 305,930 |   |   |   |   |   |   |   |   |   |   |   | 273,974 |   |   |   |   |   |   |   |   |   |
| Shareholders’      equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                      | 37,332  |   |   |   |   |   |   |   |   |   |   |   | 37,415 |   |   |   |   |   |   |   |   |   |
| Total      liabilities and shareholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $                                                                                         | 343,262 |   |   |   |   |   |   |   |   |   |   | $ | 311,389 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income and margin (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                      |    |   |   | $ | 6,657 |   |   |   | 4.41 | % |   |   |   |   |   | $ | 6,252 |   |   |   | 4.51 | % |

| (1)  | Interest      income is not presented on a taxable-equivalent basis, however, the      average yield was calculated on a taxable-equivalent basis by using a      marginal tax rate of 34%. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)  | Nonaccrual      loans are included in total loans.  Interest income is included      on nonaccrual loans only to the extent cash payments have been received.      There was $88 interest received on nonaccrual loans for the period ended      June 30, 2010 and none for June 30,2009. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)  | Interest      income on loans includes amortized loan fees, net of costs, of $283 and      $307 for 2010 and 2009,respectively. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                                    |   | Six      months ended June 30, 2010 vs. June 30, 2009 |   |
|---------------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                                    |   | due      to change in:                                |   |
|                                                    |   | AverageVolume                                         |   |   | AverageRate      (1) |   |   | Total |   |
|                                                    |   |                                                  |   |   |   |   |   |   |   |
| (In      thousands)                                     |   |                                                  |   |   |   |   |   |   |   |
| Increase      (decrease) in interest income:            |   |                                                  |   |   |   |   |   |   |   |
| Due      from banks                                     |   | $                                                     | -      |   |   | $ | 33 |   |   | $ | 33 |   |
| Federal      funds sold                                 |   |                                                  | (10    | ) |   |   | - |   |   |   | (10 | ) |
| Investment      securities                              |   |                                                  |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                 |   |                                                  | 63     |   |   |   | (314 | ) |   |   | (251 | ) |
| Exempt      from Federal income taxes                   |   |                                                  | (126   | ) |   |   | 45 |   |   |   | (81 | ) |
| Total      securities                                   |   |                                                  | (63    | ) |   |   | (269 | ) |   |   | (332 | ) |
| Loans                                                   |   |                                                  | 183    |   |   |   | (158 | ) |   |   | 25 |   |
| Total      interest income                              |   | $                                                     | 110    |   |   | $ | (394 | ) |   | $ | (284 | ) |
|                                                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |
| Increase      (decrease) in interest expense:           |   |                                                  |   |   |   |   |   |   |   |   |   |   |
| Other      interest bearing deposits                    |   |                                                  | 123    |   |   |   | (428 | ) |   |   | (305 | ) |
| Time      deposits less than $100,000                   |   |                                                  | 9      |   |   |   | (137 | ) |   |   | (128 | ) |
| Time      deposits $100,000 or more                     |   |                                                  | 118    |   |   |   | (310 | ) |   |   | (192 | ) |
| Total      interest-bearing deposits                    |   |                                                  | 250    |   |   |   | (875 | ) |   |   | (625 | ) |
| Short-term      debt                                    |   |                                                  | (21    | ) |   |   | - |   |   |   | (21 | ) |
| Long-term      debt                                     |   |                                                  | (30    | ) |   |   | 2 |   |   |   | (28 | ) |
| Junior      subordinated deferrable interest debentures |   |                                                  | -      |   |   |   | (15 | ) |   |   | (15 | ) |
| Total      interest expense                             |   |                                                  | 199    |   |   |   | (888 | ) |   |   | (689 | ) |
| (Decrease)      increase in net interest income         |   | $                                                     | (89    | ) |   | $ | 494 |   |   | $ |  405 |   |

| (1)  | Factors      contributing to both changes in rate and volume have been attributed to      changes in rates. |
|-----------|-------------------------------------------------------------------------------------------------------------|

----

Index

|                                                             |   | Six      Months ended June 30, |   |   |   |   |
|------------------------------------------------------------------|--------|--------------------------------|--------|--------|--------|--------|
| (in      thousands)                                              |   | 2010                           |   |   | 2009   |   |   | Increase      (Decrease) |   |
| Service      charges                                             |   | $                              | 387    |   |   | $      | 369 |   |   | $ | 18 |   |
| Gain      on sale of available-for-sale investment securities    |   |                           | -      |   |   |   | 4 |   |   |   | (4 | ) |
| Mortgage      loan brokerage fees                                |   |                           | 8      |   |   |   | 27 |   |   |   | (19 | ) |
| Earnings      on cash surrender value of life insurance policies |   |                           | 146    |   |   |   | 142 |   |   |   | 4 |   |
| Gain      from bank owned life insurance                         |   |                           | -      |   |   |   | 318 |   |   |   | (318 | ) |
| Other                                                            |   |                           | 84     |   |   |   | 104 |   |   |   | (20 | ) |
|                                                             |   |                           |   |   |   |   |   |   |   |   |   |   |
| Total      non-interest income                                   |   | $                              | 625    |   |   | $      | 964 |   |   | $ | (339 | ) |

----

Index

|                                      |   | Six      Months ended June 30, |   |   |   |   |
|-------------------------------------------|--------|--------------------------------|--------|--------|--------|--------|
| (in      thousands)                       |   | 2010                           |   |   | 2009   |   |   | Increase      (Decrease) |   |
| Salaries      and employee benefits       |   | $                              | 2,727  |   |   | $      | 2,463 |   |   | $ | 264 |   |
| Occupancy      and equipment              |   |                           | 663    |   |   |   | 782 |   |   |   | (119 | ) |
| Other      real estate owned              |   |                           | -      |   |   |   | 11 |   |   |   | (11 | ) |
| Data      processing                      |   |                           | 314    |   |   |   | 275 |   |   |   | 39 |   |
| Operations                                |   |                           | 178    |   |   |   | 242 |   |   |   | (64 | ) |
| Professional      and legal               |   |                           | 258    |   |   |   | 234 |   |   |   | 24 |   |
| Advertising      and business development |   |                           | 113    |   |   |   | 121 |   |   |   | (8 | ) |
| Telephone      and postal                 |   |                           | 108    |   |   |   | 106 |   |   |   | 2 |   |
| Supplies                                  |   |                           | 97     |   |   |   | 75 |   |   |   | 22 |   |
| Assessment      and insurance             |   |                           | 407    |   |   |   | 333 |   |   |   | 74 |   |
| Other      expenses                       |   |                           | 205    |   |   |   | 207 |   |   |   | (2 | ) |
|                                      |   |                           |   |   |   |   |   |   |   |   |   |   |
| Total      non-interest expense           |   | $                              | 5,070  |   |   | $      | 4,849 |   |   | $ | 221 |   |

----

Index

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Average      balances and weighted average yields and costsThree      Months ended June 30, |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 2010                                                                                        |    |   | 2009 |   |
| (dollars      in thousands)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | AverageBalance                                                                              |    |   | Interestincome/Expense |   |   | Averageyield/Cost |   |   | AverageBalance |   |   | Interestincome/Expense |   |   | Averageyield/Cost |   |
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Due      from banks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $                                                                                           | 30,460  |   |   | $ | 18 |   |   |   | 0.24 | % |   | $ | 3,187 |   |   | $ | 1 |   |   |   | 0.16 | % |
| Federal      funds sold                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                        | -       |   |   |   | - |   |   |   | - | % |   |   | 8,062 |   |   |   | 10 |   |   |   | 0.25 | % |
| Available-for-sale      investment securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                        | 28,738  |   |   |   | 190 |   |   |   | 2.65 | % |   |   | 26,212 |   |   |   | 317 |   |   |   | 4.85 | % |
| Exempt      from Federal income taxes (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                        | 15,344  |   |   |   | 159 |   |   |   | 6.30 | % |   |   | 19,365 |   |   |   | 200 |   |   |   | 6.28 | % |
| Total      securities (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                        | 44,082  |   |   |   | 349 |   |   |   | 3.92 | % |   |   | 45,577 |   |   |   | 517 |   |   |   | 5.46 | % |
| Loans      (2) (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                                        | 242,725 |   |   |   | 3,783 |   |   |   | 6.25 | % |   |   | 239,614 |   |   |   | 3,664 |   |   |   | 6.13 | % |
| Total      interest-earning assets (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                                        | 317,267 |   |   |   | 4,150 |   |   |   | 5.35 | % |   |   | 288,378 |   |   |   | 4,182 |   |   |   | 5.96 | % |
|                                                                                                             |   |                                                                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-earning      assets, net of allowance for loan losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                        | 26,524  |   |   |   |   |   |   |   |   |   |   |   | 24,506 |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $                                                                                           | 343,791 |   |   |   |   |   |   |   |   |   |   | $ | 312,884 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES      AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      interest bearing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $                                                                                           | 119,847 |   |   | $ | 169 |   |   |   | 0.57 | % |   | $ | 107,613 |   |   | $ | 328 |   |   |   | 1.22 | % |
| Time      deposits less than $100,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                        | 25,640  |   |   |   | 96 |   |   |   | 1.50 | % |   |   | 24,351 |   |   |   | 150 |   |   |   | 2.47 | % |
| Time      deposits $100,000 or more                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                                        | 73,741  |   |   |   | 387 |   |   |   | 2.11 | % |   |   | 62,750 |   |   |   | 430 |   |   |   | 2.75 | % |
| Total      interest-bearing deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                        | 219,228 |   |   |   | 652 |   |   |   | 1.19 | % |   |   | 194,714 |   |   |   | 908 |   |   |   | 1.87 | % |
| Short-term      debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                        | -       |   |   |   | - |   |   |   | - | % |   |   | 3,720 |   |   |   | 3 |   |   |   | 0.32 | % |
| Long-term      debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                                        | 3,484   |   |   |   | 48 |   |   |   | 5.53 | % |   |   | 4,235 |   |   |   | 50 |   |   |   | 4.74 | % |
| Junior      subordinated deferrable interest debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                        | 3,093   |   |   |   | 28 |   |   |   | 3.63 | % |   |   | 3,093 |   |   |   | 35 |   |   |   | 4.54 | % |
| Total      interest-bearing liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                        | 225,805 |   |   |   | 728 |   |   |   | 1.29 | % |   |   | 205,762 |   |   |   | 996 |   |   |   | 1.94 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest      bearing deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                        | 77,409  |   |   |   |   |   |   |   |   |   |   |   | 65,160 |   |   |   |   |   |   |   |   |   |
| Other      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                                        | 3,059   |   |   |   |   |   |   |   |   |   |   |   | 3,065 |   |   |   |   |   |   |   |   |   |
| Total      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                                        | 306,273 |   |   |   |   |   |   |   |   |   |   |   | 273,987 |   |   |   |   |   |   |   |   |   |
| Shareholders’      equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                        | 37,518  |   |   |   |   |   |   |   |   |   |   |   | 38,897 |   |   |   |   |   |   |   |   |   |
| Total      liabilities and shareholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $                                                                                           | 343,791 |   |   |   |   |   |   |   |   |   |   | $ | 312,884 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income and margin (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                        |    |   |   | $ | 3,422 |   |   |   | 4.43 | % |   |   |   |   |   | $ | 3,186 |   |   |   | 4.58 | % |

| (1)  | Interest      income is not presented on a taxable-equivalent basis, however, the      average yield was calculated on a taxable-equivalent      basis by using a marginal tax rate of34%. |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)  | Nonaccrual      loans are included in total loans.  Interest income is included on      nonaccrual loans only to the extent cash payments have been received.      There was $88,000 interest income received on nonaccrual loans for the      period ended June 30, 2010 and $9,300 for June 30,  2009. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)  | Interest      income on loans includes amortized loan fees, net of costs, of $145 and      $157 for 2010 and 2009,respectively. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                                    |   | Three      months ended June 30, 2010 vs.June      30, 2009 due to change in: |   |
|---------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|
|                                                    |   | AverageVolume                                                                 |   |   | AverageRate      (1) |   |   | Total |   |
|                                                    |   |                                                                          |   |   |   |   |   |   |   |
| (In      thousands)                                     |   |                                                                          |   |   |   |   |   |   |   |
| Increase      (decrease) in interest income:            |   |                                                                          |   |   |   |   |   |   |   |
| Due      from banks                                     |   | $                                                                             | -      |   |   | $ | 17 |   |   | $ | 17 |   |
| Federal      funds sold                                 |   |                                                                          | -      |   |   |   | - |   |   |   | - |   |
| Investment      securities                              |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                 |   |                                                                          | 31     |   |   |   | (158 | ) |   |   | (127 | ) |
| Exempt      from Federal income taxes                   |   |                                                                          | (63    | ) |   |   | 22 |   |   |   | (41 | ) |
| Total      securities                                   |   |                                                                          | (32    | ) |   |   | (136 | ) |   |   | (168 | ) |
| Loans                                                   |   |                                                                          | 48     |   |   |   | 71 |   |   |   | 119 |   |
| Total      interest income                              |   |                                                                          | 27     |   |   |   | (59 | ) |   |   | (32 | ) |
|                                                    |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Increase      (decrease) in interest expense:           |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Other      interest-bearing deposits                    |   |                                                                          | 37     |   |   |   | (196 | ) |   |   | (159 | ) |
| Time      deposits less than $100,000                   |   |                                                                          | 8      |   |   |   | (62 | ) |   |   | (54 | ) |
| Time      deposits $100,000 or more                     |   |                                                                          | 75     |   |   |   | (118 | ) |   |   | (43 | ) |
| Total      interest-bearing deposits                    |   |                                                                          | 120    |   |   |   | (376 | ) |   |   | (256 | ) |
| Short-term      debt                                    |   |                                                                          | (3     | ) |   |   | - |   |   |   | (3 | ) |
| Long-term      debt                                     |   |                                                                          | (9     | ) |   |   | 7 |   |   |   | (2 | ) |
| Junior      subordinated deferrable interest debentures |   |                                                                          | -      |   |   |   | (7 | ) |   |   | (7 | ) |
| Total      interest expense                             |   |                                                                          | 108    |   |   |   | (376 | ) |   |   | (268 | ) |
| (Decrease)      increase in net interest income         |   | $                                                                             | (81    | ) |   | $ | 317 |   |   | $ | 236 |   |

| (1)  | Factors      contributing to both changes in rate and volume have been attributed to      changes in rates. |
|-----------|-------------------------------------------------------------------------------------------------------------|

----

Index

|                                                              |   | Six      Months ended June 30, |   |   |   |   |
|-------------------------------------------------------------------|--------|--------------------------------|--------|--------|--------|--------|
| (in      thousands)                                               |   | 2010                           |   |   | 2009   |   |   | Increase      (Decrease) |   |
| Service      charges                                              |   | $                              | 387    |   |   | $      | 369 |   |   | $ | 18 |   |
| Gain      on sale of available-for-sale investment securities,net |   |                           | -      |   |   |   | 4 |   |   |   | (4 | ) |
| Mortgage      loan brokerage fees                                 |   |                           | 8      |   |   |   | 27 |   |   |   | (19 | ) |
| Earnings      on cash surrender value of life insurance policies  |   |                           | 146    |   |   |   | 142 |   |   |   | 4 |   |
| Gain      from bank owned life insurance                          |   |                           | -      |   |   |   | 318 |   |   |   | (318 | ) |
| Other                                                             |   |                           | 84     |   |   |   | 104 |   |   |   | (20 | ) |
| Total      non-interest income                                    |   | $                              | 625    |   |   | $      | 964 |   |   | $ | (339 | ) |

----

Index

|                                      |   | Three      Months ended June 30, |   |   |   |   |
|-------------------------------------------|--------|----------------------------------|--------|--------|--------|--------|
| (in      thousands)                       |   | 2010                             |   |   | 2009   |   |   | Increase(Decrease) |   |
| Salaries      and employee benefits       |   | $                                | 1,323  |   |   | $      | 1,176 |   |   | $ | 147 |   |
| Occupancy      and equipment              |   |                             | 323    |   |   |   | 402 |   |   |   | (79 | ) |
| Other      real estate owned              |   |                             | -      |   |   |   | 11 |   |   |   | (11 | ) |
| Data      processing                      |   |                             | 151    |   |   |   | 139 |   |   |   | 12 |   |
| Operations                                |   |                             | 89     |   |   |   | 121 |   |   |   | (32 | ) |
| Professional      and legal               |   |                             | 129    |   |   |   | 117 |   |   |   | 12 |   |
| Advertising      and business development |   |                             | 57     |   |   |   | 65 |   |   |   | (8 | ) |
| Telephone      and postal                 |   |                             | 56     |   |   |   | 53 |   |   |   | 3 |   |
| Supplies                                  |   |                             | 49     |   |   |   | 35 |   |   |   | 14 |   |
| Assessment      and insurance             |   |                             | 154    |   |   |   | 126 |   |   |   | 28 |   |
| Other      expenses                       |   |                             | 113    |   |   |   | 85 |   |   |   | 28 |   |
| Total      non-interest expense           |   | $                                | 2,444  |   |   | $      | 2,330 |   |   | $ | 114 |   |

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Index

|                             |   | June      30, 2010 |   |
|----------------------------------|--------|--------------------|--------|
| (in      thousands)              |   | AmortizedCost      |   |   | Unrealized Gain |   |   | UnrealizedLoss |   |   | Fair       Value |   |
| U.S.      government agencies    |   | $                  | 6,937  |   |   | $ | 98 |   |   | $ | - |   |   | $ | 7,035 |   |
| Mortgage-backed      securities: |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency      MBS                  |   |               | 8,277  |   |   |   | 394 |   |   |   | (7 | ) |   |   | 8,664 |   |
| SBA      MBS                     |   |               | 13,716 |   |   |   | 155 |   |   |   | (2 | ) |   |   | 13,869 |   |
| Municipal      securities        |   |               | 15,346 |   |   |   | 90 |   |   |   | (281 | ) |   |   | 15,155 |   |
| Total                            |   | $                  | 44,276 |   |   | $ | 737 |   |   | $ | (290 | ) |   | $ | 44,723 |   |

|                             |   | December      31, 2009 |   |
|----------------------------------|--------|------------------------|--------|
| (in      thousands)              |   | AmortizedCost          |   |   | UnrealizedGain |   |   | UnrealizedLoss |   |   | Fair Value |   |
| U.S.      government agencies    |   | $                      | 2,910  |   |   | $ | 105 |   |   | $ | - |   |   | $ | 3,015 |   |
| Mortgage-backed      securities: |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency      MBS                  |   |                   | 8,986  |   |   |   | 295 |   |   |   | - |   |   |   | 9,281 |   |
| SBA      MBS                     |   |                   | 15,326 |   |   |   | 27 |   |   |   | (46 | ) |   |   | 15,307 |   |
| Municipal      securities        |   |                   | 15,338 |   |   |   | 49 |   |   |   | (424 | ) |   |   | 14,963 |   |
| Total                            |   | $                      | 42,560 |   |   | $ | 476 |   |   | $ | (470 | ) |   | $ | 42,566 |   |

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Index

| (dollars      in  thousands) |   | June      30, 2010 |    |   | December      31, 2009 |   |
|----------------------------------------|--------|--------------------|---------|--------|------------------------|--------|
| Commercial                             |   | $                  | 58,072  |   |                   |   | 23 | % |   | $ | 49,443 |   |   |   | 21 | % |
| Real      estate – mortgage (1)  |   |               | 166,809 |   |                   |   | 66 |   |   |   | 162,772 |   |   |   | 67 |   |
| Real      estate – construction  |   |               | 20,131  |   |                   |   | 8 |   |   |   | 22,582 |   |   |   | 9 |   |
| Agricultural                           |   |               | 5,082   |   |                   |   | 2 |   |   |   | 4,727 |   |   |   | 2 |   |
| Consumer      and other                |   |               | 1,861   |   |                   |   | 1 |   |   |   | 1,937 |   |   |   | 1 |   |
| Subtotal                               |   |               | 251,955 |   |                   |   | 100 | % |   |   | 241,461 |   |   |   | 100 | % |
| Deferred      loan fees, net           |   |               | (409    | )      |                   |   |   |   |   |   | (407 | ) |   |   |   |   |
| Allowance      for loan losses         |   |               | (7,440  | )      |                   |   |   |   |   |   | (6,231 | ) |   |   |   |   |
| Total      loans, net                  |   | $                  | 244,106 |   |                   |   |   |   |   | $ | 234,823 |   |   |   |   |   |

| (1)      Consists primarily of commercial mortgageloans. |
|----------------------------------------------------------|

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Index

|                                              |   | Six Months endedJune 30, 2010 |    |   | Six Months endedJune 30, 2009 |   |    | Year endedDecember 31, 2009 |   |
|---------------------------------------------------|--------|-----------------------------------------|---------|--------|-----------------------------------------|--------|---------|--------------------------------------------|--------|
| (dollars      in thousands)                       |   |                                    |    |   |                                    |   |    |                                       |   |
|                                              |   |                                    |    |   |                                    |   |    |                                       |   |
| Balance,      beginning                           |   | $                                       | 6,231   |   |                                    | $      | 3,244   |                                       |   | $ | 3,244 |   |
| Provision      for  loan losses         |   |                                    | 1,250   |   |                                    |   | 1,400   |                                       |   |   | 7,000 |   |
| Charge-offs-real      estate                      |   |                                    | -       |   |                                    |   | (173    | )                                          |   |   | - |   |
| Charge-offs-commercial                            |   |                                    | (36     | )      |                                    |   | -       |                                       |   |   | (4,013 | ) |
| Charge-offs-other                                 |   |                                    | (12     | )      |                                    |   | -       |                                       |   |   | - |   |
| Recoveries                                        |   |                                    | 7       |   |                                    |   | -       |                                       |   |   | - |   |
| Balance,      ending                              |   | $                                       | 7,440   |   |                                    | $      | 4,471   |                                       |   | $ | 6,231 |   |
|                                              |   |                                    |    |   |                                    |   |    |                                       |   |   |   |   |
| Net      charge-offs to average loans outstanding |   |                                    | 0.02    | %      |                                    |   | 0.07    | %                                          |   |   | 1.67 | % |
| Average      loans outstanding                    |   | $                                       | 242,083 |   |                                    | $      | 236,229 |                                       |   | $ | 239,428 |   |
| Ending      allowance to total loans outstanding  |   |                                    | 2.95    | %      |                                    |   | 1.82    | %                                          |   |   | 2.58 | % |

| (in      thousands)                                 |   | June      30, 2010 |   |   | December      31,2009 |   |
|-----------------------------------------------------|--------|-------------------------|--------|--------|-----------------------|--------|
|                                                |   |                    |   |   |                  |   |
| Furniture      and equipment                        |   | $                       | 3,007  |   |                  | $      | 2,955 |   |
| Construction      in progress                       |   |                    | -      |   |                  |   | 4,567 |   |
| Premises                                            |   |                    | 6,086  |   |                  |   | 2,095 |   |
| Leasehold      improvements                         |   |                    | 207    |   |                  |   | 551 |   |
| Land                                                |   |                    | 1,462  |   |                  |   | 606 |   |
|                                                |   |                    | 10,762 |   |                  |   | 10,774 |   |
|                                                |   |                    |   |   |                  |   |   |   |
| Less      accumulated depreciation and amortization |   |                    | (2,211 | )      |                  |   | (2,732 | ) |
| Total                                               |   | $                       | 8,551  |   |                  | $      | 8,042 |   |

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Index

| (dollars      in thousands) |   | June      30, 2010 |          |   | December      31, 2009 |   |
|-----------------------------|--------|--------------------|---------------|--------|------------------------|--------|
| Non-interest      bearing   |   | $                  | 76,740        |   |                   |   | 26 | % |   | $ | 76,575 |   |   |   | 26 | % |
| Interest      bearing       |   |               |  122,656 |   |                   |   | 42 |   |   |   | 121,398 |   |   |   | 41 |   |
| Brokered      deposits      |   |               |  13,028  |   |                   |   |  4 |   |   |   | 17,849 |   |   |   | 6 |   |
| Time      deposits          |   |               |  81,515  |   |                   |   |  28 |   |   |   | 78,460 |   |   |   | 27 |   |
| Total                       |   | $                  | 293,939       |   |                   |   | 100 | % |   | $ | 294,282 |   |   |   | 100 | % |

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Index

|                                                                         |   | June 30, 2010 |   | December 31, 2009 |
|------------------------------------------------------------------------------|--------|---------------|--------|-------------------|
| (dollars      in thousands)                                                  |   | Amount        |   | Ratio             |   | Amount |   | Ratio |
| Leverage Ratio                                                               |   |          |   |              |   |   |   |   |
| Valley      Commerce Bancorp and      Subsidiary                             |   | $             | 40,404 |              | 11.8% |   | $ | 39,865 |   | 11.4% |
| Minimum      regulatory requirement                                          |   | $             | 13,752 |              | 4.0% |   | $ | 13,982 |   | 4.0% |
|                                                                         |   |          |   |              |   |   |   |   |
| Valley      Business Bank                                                    |   | $             | 40,402 |              | 11.8% |   | $ | 39,845 |   | 11.4% |
| Capitalized”      institution                                          |   | $             | 17,184 |              | 5.0% |   | $ | 17,472 |   | 5.0% |
| Minimum      regulatory requirement                                          |   | $             | 13,747 |              | 4.0% |   | $ | 13,977 |   | 4.0% |
|                                                                         |   |          |   |              |   |   |   |   |
| Tier 1 Risk-Based Capital    Ratio                                           |   |          |   |              |   |   |   |   |
| Valley      Commerce Bancorp and      Subsidiary                        |   | $             | 40,404 |              | 14.9% |   | $ | 39,865 |   | 14.8% |
| Minimum      regulatory requirement                                          |   | $             | 10,863 |              | 4.0% |   | $ | 10,804 |   | 4.0% |
|                                                                         |   |          |   |              |   |   |   |   |
| Valley      Business Bank                                                    |   | $             | 40,402 |              | 14.9% |   | $ | 39,845 |   | 14.8% |
| Minimum      requirement for “Well-Capitalized”      institution |   | $             | 16,294 |              | 6.0% |   | $ | 16,201 |   | 6.0% |
| Minimum      regulatory requirement                                          |   | $             | 10,863 |              | 4.0% |   | $ | 10,801 |   | 4.0% |
|                                                                         |   |          |   |              |   |   |   |   |
| Total Risk-Based Capital    Ratio                                            |   |          |   |              |   |   |   |   |
| and      Subsidiary                                                          |   | $             | 43,848 |              | 16.2% |   | $ | 43,277 |   | 16.0% |
| Minimum      regulatory requirement                                          |   | $             | 21,725 |              | 8.0% |   | $ | 21,608 |   | 8.0% |
|                                                                         |   |          |   |              |   |   |   |   |
| Valley      Business Bank                                                    |   | $             | 43,848 |              | 16.2% |   | $ | 43,256 |   | 16.0% |
| Minimum      requirement for “Well-Capitalized”      institution |   | $             | 27,156 |              | 10.0% |   | $ | 27,002 |   | 10.0% |
| Minimum      regulatory requirement                                          |   | $             | 21,725 |              | 8.0% |   | $ | 21,601 |   | 8.0% |

----

Index

----

Index

ITEM 3 – QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4 – CONTROLS AND PROCEDURES

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Index

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

ITEM 1A – RISK FACTORS

ITEM 2 – CHANGES IN SECURITIES AND USE OFPROCEEDS

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

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Index

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

|   | 1.    | Elected Directors of      the Company to serve until the 2010 Annual Meeting of Shareholders and      until their successors      are elected and qualified. In the election for directors, no candidates      were nominated for election as a   director other than the nominees      of the Board of Directors whose names were set forth in the Company’s      proxy statement dated April 14, 2010. Set forth below is a tabulation of      the votes cast in the election of Directors with respect to each nominee      for office: |
|--------|----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                        |   | Votes CastFor Election |      |   | Withheld |   |
|-----------------------------|--------|----------------------------------|-----------|--------|----------|--------|
|                        |   |                             |      |   |     |   |
| David      B. Day           |   |                             | 1,357,548 |   |     |   | 18,236 |   |
| Walter      A. Dwelle       |   |                             | 1,356,332 |   |     |   | 19,452 |   |
| Thomas      A. Gaebe        |   |                             | 1,358,762 |   |     |   | 17,022 |   |
| Donald      A. Gilles       |   |                             | 1,267,459 |   |     |   | 108,325 |   |
| Philip      R. Hammond, Jr. |   |                             | 1,358,762 |   |     |   | 17,022 |   |
| Russell      F. Hurley      |   |                             | 1,358,762 |   |     |   | 17,022 |   |
| Fred      P. LoBue, Jr.     |   |                             | 1,356,332 |   |     |   | 19,452 |   |
| Kenneth      H. Macklin     |   |                             | 1,358,762 |   |     |   | 17,022 |   |
| Barry      R. Smith         |   |                             | 1,358,762 |   |     |   | 17,022 |   |

|   | 2.  | Approved      the non-binding advisory proposal concerning the compensation of the      Company’s executives.  The votes tabulated  were: |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | VotesFor |      |   | VotesAgainst |   |
|--------|--------|----------|-----------|--------|--------------|--------|
|   |   |     | 1,943,098 |   |         |   | 96,524 |   |

|   | 3.  | Ratified the appointment by the Board of Directors of      Perry-Smith LLP, independent certified public accountants, to serve as the      Company’s auditors for the fiscal year ending December 31, 2010. The votes      tabulated were: |
|--------|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | VotesFor |      |   | VotesAgainst |   |
|--------|--------|----------|-----------|--------|--------------|--------|
|   |   |     | 2,034,520 |   |         |   | 17,843 |   |

ITEM 5 – OTHER INFORMATION

ITEM 6 – EXHIBITS

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Index

SIGNATURES

|                       | VALLEY      COMMERCE BANCORP |
|----------------------------|------------------------------|
|                       |                         |
|                       |                         |
| Date:      August 10, 2010 | By:                          | /s/      Allan W. Stone |
|                       |                         |   |
|                       |                         | Allan      W. Stone |
|                       |                         |   |
|                       |                         | President      and Chief Executive Officer |
|                       |                         |
|                       |                         |
| Date:      August 10, 2010 | By:                          | /s/Roy      O. Estridge  |
|                       |                         |   |
|                       |                         | Roy      O. Estridge, Chief FinancialOfficer |

----

Index

Exhibit Index

| 31.1 | Rule      13a-14(a)/15d-14(a) Certification |
|------|---------------------------------------------|
| 31.2 | Rule      13a-14(a)/15d-14(a) Certification |
| 32.1 | Section      1350 Certifications            |

----