----

----

| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011 |
|---|--------------------------------------------------------------------------------------------------------------------------------------|

| 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.) |

| Large Accelerated Filer |  ̈ |   | Accelerated Filer         |  ̈ |
|-------------------------|--------|--------|---------------------------|--------|
| Non-Accelerated Filer   |  ̈ |   | Smaller Reporting Company | x      |

----

----

----

INDEX

| PART I - FINANCIAL INFORMATION                                                                     | 3      |
|----------------------------------------------------------------------------------------------------|--------|
|                                                                                               |   |
| ITEM 1 - FINANCIAL STATEMENTS                                                                      | 4      |
|                                                                                               |   |
| ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATONS | 28     |
|                                                                                               |   |
| ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          | 44     |
|                                                                                               |   |
| ITEM 4 – CONTROLS AND PROCEDURES                                                             | 44     |
|                                                                                               |   |
| PART II - OTHER INFORMATION                                                                        | 45     |
|                                                                                               |   |
| ITEM 1 LEGAL PROCEEDINGS                                                                           | 45     |
|                                                                                               |   |
| ITEM 1A  RISK FACTORS                                                                    | 45     |
|                                                                                               |   |
| ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                 | 45     |
|                                                                                               |   |
| ITEM 3 DEFAULTS UPON SENIOR SECURITIES                                                             | 45     |
|                                                                                               |   |
| ITEM 4 REMOVED AND RESERVED                                                                        | 46     |
|                                                                                               |   |
| ITEM 5 OTHER INFORMATION                                                                           | 46     |
|                                                                                               |   |
| ITEM 6 EXHIBITS                                                                                    | 46     |
|                                                                                               |   |
| SIGNATURES                                                                                         | 47     |
|                                                                                               |   |
| EXHIBIT INDEX                                                                                      | 48     |

----

Index

PART I

----

Index

PART 1 – FINANCIAL INFORMATION

|                                                                                                                                                                                           |   | June 30,2011 |        |   | December 31,2010 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-------------|--------|------------------|--------|
|                                                                                                                                                                                           |   |         |        |   |             |   |
| Assets                                                                                                                                                                                         |   |         |        |   |             |   |
| Cash and due from banks                                                                                                                                                                        |   | $            | 24,426,384  |   |             | $      | 32,667,967 |   |
| Available-for-sale investment securities, at fair value (Notes 3 and 13)                                                                                                                       |   |         | 59,396,000  |   |             |   | 50,823,000 |   |
| Loans, less allowance for loan and lease losses of $7,031,763 at June 30, 2011 and$6,698,952 at December 31, 2010 (Note 4, 5, and 13)                                                     |   |         | 232,032,722 |   |             |   | 234,304,310 |   |
| Bank premises and equipment, net (Note 6)                                                                                                                                                      |   |         | 8,331,312   |   |             |   | 8,510,688 |   |
| Cash surrender value of bank-owned life insurance                                                                                                                                              |   |         | 6,760,398   |   |             |   | 6,627,060 |   |
| Accrued interest receivable and other assets                                                                                                                                                   |   |         | 8,144,609   |   |             |   | 8,487,803 |   |
|                                                                                                                                                                                           |   |         |        |   |             |   |   |   |
| Total assets                                                                                                                                                                                   |   | $            | 339,091,425 |   |             | $      | 341,420,828 |   |
|                                                                                                                                                                                           |   |         |        |   |             |   |   |   |
| Liabilities and Shareholders’ Equity                                                                                                                                                     |   |         |        |   |             |   |   |   |
| Deposits:                                                                                                                                                                                      |   |         |        |   |             |   |   |   |
| Noninterest-bearing                                                                                                                                                                            |   | $            | 91,153,586  |   |             | $      | 91,202,570 |   |
| Interest-bearing                                                                                                                                                                               |   |         | 198,800,204 |   |             |   | 203,075,230 |   |
| Total deposits                                                                                                                                                                                 |   |         | 289,953,790 |   |             |   | 294,277,800 |   |
| Accrued interest payable and other liabilities                                                                                                                                                 |   |         | 3,029,018   |   |             |   | 2,738,686 |   |
| Long-term debt                                                                                                                                                                                 |   |         | 2,357,014   |   |             |   | 2,561,650 |   |
| Junior subordinated deferrable interest debentures                                                                                                                                             |   |         | 3,093,000   |   |             |   | 3,093,000 |   |
| Total liabilities                                                                                                                                                                              |   |         | 298,432,822 |   |             |   | 302,671,136 |   |
|                                                                                                                                                                                           |   |         |        |   |             |   |   |   |
| Commitments and contingencies (Note 7)                                                                                                                                                         |   |         |        |   |             |   |   |   |
|                                                                                                                                                                                           |   |         |        |   |             |   |   |   |
| Shareholders’ equity:                                                                                                                                                                    |   |         |        |   |             |   |   |   |
| Serial preferred stock - no par value; 10,000,000 shares authorized, issued andoutstanding – 7,700 shares class B and 385 shares class C at June 30, 2011 andDecember 31, 2010 (Note 12) |   |         | 7,860,300   |   |             |   | 7,821,800 |   |
| Common stock - no par value; 30,000,000 shares authorized; issued and outstanding –2,762,723 shares at June 30, 2011 and 2,630,480 shares at December 31, 2010                           |   |         | 27,402,563  |   |             |   | 26,137,158 |   |
| Retained earnings                                                                                                                                                                              |   |         | 4,886,393   |   |             |   | 4,831,883 |   |
| Accumulated other comprehensive income (loss), net of taxes (Note 3 and 10)                                                                                                                    |   |         | 509,347     |   |             |   | (41,149 | ) |
| Total shareholders’ equity                                                                                                                                                               |   |         | 40,658,603  |   |             |   | 38,749,692 |   |
|                                                                                                                                                                                           |   |         |        |   |             |   |   |   |
| Total liabilities and shareholders’ equity                                                                                                                                               |   | $            | 339,091,425 |   |             | $      | 341,420,828 |   |

----

Index

|                                                           |   | For the Three Months |      |   | For the Six Months |   |
|----------------------------------------------------------------|--------|----------------------|-----------|--------|--------------------|--------|
|                                                           |   | Ended June 30,       |      |   | Ended June 30,     |   |
|                                                           |   | 2011                 |      |   | 2010               |   |   | 2011 |   |   | 2010 |   |
| Interest Income:                                               |   |                 |      |   |               |   |   |   |   |   |   |   |
| Interest and fees on loans                                     |   | $                    | 3,421,278 |   |               | $      | 3,782,428 |   |   | $ | 6,933,030 |   |   | $ | 7,400,253 |   |
| Interest on investment securities:                             |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                        |   |                 | 263,475   |   |               |   | 190,070 |   |   |   | 470,937 |   |   |   | 372,906 |   |
| Exempt from Federal income taxes                               |   |                 | 170,552   |   |               |   | 158,837 |   |   |   | 323,693 |   |   |   | 315,283 |   |
| Interest on deposits in banks                                  |   |                 | 13,634    |   |               |   | 18,411 |   |   |   | 33,933 |   |   |   | 32,751 |   |
| Total interest income                                          |   |                 | 3,868,939 |   |               |   | 4,149,746 |   |   |   | 7,761,593 |   |   |   | 8,121,193 |   |
|                                                           |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Interest Expense:                                              |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Interest on deposits                                           |   |                 | 383,019   |   |               |   | 651,640 |   |   |   | 780,587 |   |   |   | 1,313,272 |   |
| Interest on long-term debt                                     |   |                 | 30,916    |   |               |   | 48,333 |   |   |   | 62,709 |   |   |   | 94,612 |   |
| Interest on junior subordinated deferrable interest debentures |   |                 | 27,989    |   |               |   | 28,137 |   |   |   | 55,842 |   |   |   | 55,617 |   |
| Total interest expense                                         |   |                 | 441,924   |   |               |   | 728,110 |   |   |   | 899,138 |   |   |   | 1,463,501 |   |
|                                                           |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income before provision for loan losses           |   |                 | 3,427,015 |   |               |   | 3,421,636 |   |   |   | 6,862,455 |   |   |   | 6,657,692 |   |
|                                                           |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses                                      |   |                 | -         |   |               |   | 650,000 |   |   |   | 225,000 |   |   |   | 1,250,000 |   |
| Net interest income after provision for loan losses            |   |                 | 3,427,015 |   |               |   | 2,771,636 |   |   |   | 6,637,455 |   |   |   | 5,407,692 |   |
|                                                           |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest Income:                                           |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Service charges                                                |   |                 | 177,203   |   |               |   | 202,497 |   |   |   | 346,298 |   |   |   | 387,398 |   |
| Gain on sale of available-for-sale investment securities, net  |   |                 | 23,846    |   |               |   | - |   |   |   | 37,466 |   |   |   | - |   |
| Mortgage loan brokerage fees                                   |   |                 | 7,336     |   |               |   | 1,924 |   |   |   | 29,119 |   |   |   | 7,921 |   |
| Earnings on cash surrender value of life insurance policies    |   |                 | 73,391    |   |               |   | 78,949 |   |   |   | 145,842 |   |   |   | 146,456 |   |
| Other                                                          |   |                 | 51,942    |   |               |   | 45,540 |   |   |   | 101,772 |   |   |   | 83,576 |   |
| Total non-interest income                                      |   |                 | 333,718   |   |               |   | 328,910 |   |   |   | 660,497 |   |   |   | 625,351 |   |
|                                                           |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest Expense:                                          |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                                 |   |                 | 1,322,843 |   |               |   | 1,322,857 |   |   |   | 2,772,998 |   |   |   | 2,726,758 |   |
| Occupancy and equipment                                        |   |                 | 348,323   |   |               |   | 322,584 |   |   |   | 669,786 |   |   |   | 662,194 |   |
| Other                                                          |   |                 | 813,285   |   |               |   | 798,859 |   |   |   | 1,617,922 |   |   |   | 1,681,330 |   |
| Total non-interest expense                                     |   |                 | 2,484,451 |   |               |   | 2,444,300 |   |   |   | 5,060,706 |   |   |   | 5,070,282 |   |
|                                                           |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Income before provision for income taxes                       |   |                 | 1,276,282 |   |               |   | 656,246 |   |   |   | 2,237,246 |   |   |   | 962,761 |   |
|                                                           |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Provision for income taxes                                     |   |                 | 417,000   |   |               |   | 183,000 |   |   |   | 753,000 |   |   |   | 239,000 |   |
|                                                           |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                     |   | $                    | 859,282   |   |               | $      | 473,246 |   |   | $ | 1,484,246 |   |   | $ | 723,761 |   |
| Dividends accrued and discount accreted on preferredShares     |   |                 | (106,053  | )      |               |   | (98,387 | ) |   |   | (207,519 | ) |   |   | (193,569 | ) |
| Net income available to common shareholders                    |   | $                    | 753,229   |   |               | $      | 374,859 |   |   | $ | 1,276,727 |   |   | $ | 530,192 |   |
|                                                           |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share (Notes 2 and 6)                       |   | $                    | 0.27      |   |               | $      | 0.14 |   |   | $ | 0.46 |   |   | $ | 0.19 |   |
|                                                           |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings per share (Notes 2 and 6)                     |   | $                    | 0.27      |   |               | $      | 0.14 |   |   | $ | 0.46 |   |   | $ | 0.19 |   |

----

Index

|                                                                                 |   | For the Six Months |        |
|--------------------------------------------------------------------------------------|--------|--------------------|-------------|
|                                                                                 |   | Ended June 30,     |        |
|                                                                                 |   | 2011               |        |   | 2010 |   |
|                                                                                 |   |               |        |   |   |   |
| Cash Flows from Operating Activities:                                                |   |               |        |   |   |   |
| Net income                                                                           |   | $                  | 1,484,246   |   |   | $ | 723,761 |   |
| Adjustments to reconcile net income to net cash provided by operating activities:    |   |               |        |   |   |   |   |   |
| Provision for loan losses                                                            |   |               | 225,000     |   |   |   | 1,250,000 |   |
| (Decrease) increase in deferred loan origination fees, net                           |   |               | (72,061     | ) |   |   | 1,869 |   |
| Depreciation                                                                         |   |               | 272,395     |   |   |   | 249,071 |   |
| Gain on sale of available-for-sale investment securities, net                        |   |               | (37,466     | ) |   |   | - |   |
| Amortization of premiums on investment securities, net                               |   |               | 201,877     |   |   |   | 147,575 |   |
| Increase in cash surrender value of bank-owned life insurance                        |   |               | (133,338    | ) |   |   | (136,148 | ) |
|                                                                                 |   |               |        |   |   |   |   |   |
| Stock-based compensation expense                                                     |   |               | 84,219      |   |   |   | 26,256 |   |
| (Gain) loss on disposition of premises and equipment                                 |   |               | (158        | ) |   |   | 5,544 |   |
| Decrease in accrued interest receivable and other assets                             |   |               | 409,834     |   |   |   | 758,582 |   |
| (Decrease) increase in accrued interest payable and other liabilities                |   |               | (65,822     | ) |   |   | 379,506 |   |
| Net cash provided by operating activities                                            |   |               | 2,368,726   |   |   |   | 3,406,016 |   |
|                                                                                 |   |               |        |   |   |   |   |   |
| Cash Flows from Investing Activities:                                                |   |               |        |   |   |   |   |   |
| Proceeds from matured and called available-for-sale investment securities            |   |               | 20,000      |   |   |   | - |   |
| Proceeds from sales of available-for-sale investment securities                      |   |               | 5,910,430   |   |   |   | - |   |
| Purchases of available-for-sale investment securities                                |   |               | (16,341,087 | ) |   |   | (5,096,574 | ) |
| Proceeds from principal repayments from available-for-salemortgage-backed securities |   |               | 2,608,669   |   |   |   | 3,233,255 |   |
| Purchase of Federal Home Loan Bank Stock, net                                        |   |               | (95,600     | ) |   |   | (241,700 | ) |
| Net increase (decrease) in loans                                                     |   |               | 2,118,836   |   |   |   | (10,535,250 | ) |
| Purchase of premises and equipment                                                   |   |               | (93,461     | ) |   |   | (763,991 | ) |
| Proceeds from sale of premises and equipment                                         |   |               | 600         |   |   |   | - |   |
| Net cash used in investing activities                                                |   |               | (5,871,613  | ) |   |   | (13,404,260 | ) |

----

Index

|                                                                         |   | For the Six Months |       |
|------------------------------------------------------------------------------|--------|--------------------|------------|
|                                                                         |   | Ended June 30,     |       |
|                                                                         |   | 2011               |       |   | 2010 |   |
|                                                                         |   |               |       |   |   |   |
| Cash Flows from Financing Activities:                                        |   |               |       |   |   |   |
| Net (decrease) increase in noninterest-bearing and interest-bearing deposits |   | $                  | (1,819,531 | ) |   | $ | 1,423,133 |   |
| Net decrease in time deposits                                                |   |               | (2,504,480 | ) |   |   | (1,766,409 | ) |
| Cash dividends paid on preferred stock                                       |   |               | (207,520   | ) |   |   | (210,992 | ) |
| Principal payments on long-term debt                                         |   |               | (204,636   | ) |   |   | (998,036 | ) |
| Cash paid to repurchase fractional shares                                    |   |               | (2,529     | ) |   |   | - |   |
| Net cash used in financing activities                                        |   |               | (4,738,696 | ) |   |   | (1,552,304 | ) |
|                                                                         |   |               |       |   |   |   |   |   |
| Decrease in cash and cash equivalents                                        |   |               | (8,241,583 | ) |   |   | (11,550,548 | ) |
| Cash and Cash Equivalents at Beginning of Year                               |   |               | 32,667,967 |   |   |   | 39,077,786 |   |
| Cash and Cash Equivalents at End of Period                                   |   | $                  | 24,426,384 |   |   | $ | 27,527,238 |   |
|                                                                         |   |               |       |   |   |   |   |   |
| Supplemental Disclosure of Cash Flow Information:                            |   |               |       |   |   |   |   |   |
| Cash paid during the period for:                                             |   |               |       |   |   |   |   |   |
| Interest expense                                                             |   | $                  | 905,906    |   |   | $ | 1,478,735 |   |
| Income taxes                                                                 |   | $                  | 785,000    |   |   | $ | - |   |
|                                                                         |   |               |       |   |   |   |   |   |
| Non-Cash Investing Activities:                                               |   |               |       |   |   |   |   |   |
| Net change in unrealized gain on available-for-sale securities               |   | $                  | 935,423    |   |   | $ | 441,256 |   |
| Non-Cash Financing Activities:                                               |   |               |       |   |   |   |   |   |
| Accrued dividends on preferred stock                                         |   | $                  | 207,520    |   |   | $ | 210,992 |   |

----

Index

| 1. | GENERAL |
|----|---------|

| 2. | BASIS OF PRESENTATION |
|----|-----------------------|

----

Index

| 2. | BASIS OF PRESENTATION (Continued) |
|----|-----------------------------------|

| 3. | AVAILABLE-FOR-SALE INVESTMENT SECURITIES |
|----|------------------------------------------|

|                          |   | June 30, 2011      |       |
|-------------------------------|--------|--------------------|------------|
|                          |   | GrossAmortizedCost |       |   | GrossUnrealizedGains |   |   | EstimatedUnrealizedLosses |   |   | FairValue |   |
|                          |   |               |       |   |   |   |   |   |   |   |   |   |
| Debt securities:              |   |               |       |   |   |   |   |   |   |   |   |   |
| U.S. government agencies      |   | $                  | 11,528,635 |   |   | $ | 233,996 |   |   | $ | (4,631 | ) |   | $ | 11,758,000 |   |
| Mortgage-backed securities:   |   |               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government agencies      |   |               | 17,323,510 |   |   |   | 412,421 |   |   |   | (10,931 | ) |   |   | 17,725,000 |   |
| Small Business Administration |   |               | 13,242,542 |   |   |   | 227,458 |   |   |   | 13,470,000 |   |   |   |   |   |
| Municipal securities          |   |               | 16,435,812 |   |   |   | 232,112 |   |   |   | (224,924 | ) |   |   | 16,443,000 |   |
|                          |   |               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   | $                  | 58,530,499 |   |   | $ | 1,105,987 |   |   | $ | (240,486 | ) |   | $ | 59,396,000 |   |

|                          |   | December 31, 2010  |       |
|-------------------------------|--------|--------------------|------------|
|                          |   | GrossAmortizedCost |       |   | GrossUnrealizedGains |   |   | EstimatedUnrealizedLosses |   |   | FairValue |   |
|                          |   |               |       |   |   |   |   |   |   |   |   |   |
| Debt securities:              |   |               |       |   |   |   |   |   |   |   |   |   |
| U.S. Treasury securities      |   | $                  | 3,841,257  |   |   | $ | 14,597 |   |   | $ | (55,854 | ) |   | $ | 3,800,000 |   |
| U.S. government agencies      |   |               | 5,538,062  |   |   |   | 56,069 |   |   |   | (61,131 | ) |   |   | 5,533,000 |   |
| Mortgage-backed securities:   |   |               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government agencies      |   |               | 12,576,534 |   |   |   | 260,768 |   |   |   | (67,302 | ) |   |   | 12,770,000 |   |
| Small Business Administration |   |               | 14,387,246 |   |   |   | 201,758 |   |   |   | (12,004 | ) |   |   | 14,577,000 |   |
| Municipal securities          |   |               | 14,549,823 |   |   |   | 22,643 |   |   |   | (429,466 | ) |   |   | 14,143,000 |   |
|                          |   | $                  | 50,892,922 |   |   | $ | 555,835 |   |   | $ | (625,757 | ) |   | $ | 50,823,000 |   |

----

Index

| 3.  | AVAILABLE-FOR-SALE INVESTMENT SECURITIES (Continued) |
|----------|------------------------------------------------------|

|                        |   | Less than 12 Months |      |   | 12 Months or More |   |    | Total     |   |
|-----------------------------|--------|---------------------|-----------|--------|-------------------|--------|---------|-----------|--------|
|                        |   | FairValue           |      |   | UnrealizedLosses  |   |    | FairValue |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |
|                        |   |                |      |   |              |   |    |      |   |   |   |   |   |   |   |   |   |   |
| Debt securities:            |   |                |      |   |              |   |    |      |   |   |   |   |   |   |   |   |   |   |
| U.S. government agencies    |   | $                   | 803,000   |   |              | $      | (4,631  | )         |   | $ | - |   |   | $ | - |   |   | $ | 803,000 |   |   | $ | (4,631 | ) |
| Mortgage-backed securities: |   |                |      |   |              |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government agency      |   |                | 3,021,000 |   |              |   | (10,931 | )         |   |   | - |   |   |   | - |   |   |   | 3,021,000 |   |   |   | (10,931 | ) |
| Municipal securities        |   |                | 3,625,000 |   |              |   | (76,352 | )         |   |   | 2,293,000 |   |   |   | (148,572 | ) |   |   | 5,918,000 |   |   |   | (224,924 | ) |
|                        |   | $                   | 7,449,000 |   |              | $      | (91,914 | )         |   | $ | 2,293,000 |   |   | $ | (148,572 | ) |   | $ | 9,742,000 |   |   | $ | (240,486 | ) |

|                          |   | Less than 12 Months |       |   | 12 Months or More |   |     | Total     |   |
|-------------------------------|--------|---------------------|------------|--------|-------------------|--------|----------|-----------|--------|
|                          |   | FairValue           |       |   | UnrealizedLosses  |   |     | FairValue |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |
|                          |   |                |       |   |              |   |     |      |   |   |   |   |   |   |   |   |   |   |
| Debt securities:              |   |                |       |   |              |   |     |      |   |   |   |   |   |   |   |   |   |   |
| U.S. treasuries               |   | $                   | 2,857,000  |   |              |   | (55,854  | )         |   |   | - |   |   |   | - |   |   | $ | 2,857,000 |   |   |   | (55,854 | ) |
| U.S. government agencies      |   |                | 2,079,000  |   |              |   | (61,131  | )         |   |   | - |   |   |   | - |   |   |   | 2,079,000 |   |   |   | (61,131 | ) |
| Mortgage-backed securities:   |   |                |       |   |              |   |     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government agencies      |   |                | 5,007,000  |   |              |   | (67,302  | )         |   |   | - |   |   |   | - |   |   |   | 5,007,000 |   |   |   | (67,302 | ) |
| Small business administration |   |                | 1,936,000  |   |              |   | (10,413  | )         |   |   | 821,000 |   |   |   | (1,591 | ) |   |   | 2,757,000 |   |   |   | (12,004 | ) |
| Municipal securities          |   |                | 8,712,000  |   |              |   | (172,566 | )         |   |   | 2,174,000 |   |   |   | ( 256,900 | ) |   |   | 10,886,000 |   |   |   | (429,466 | ) |
|                          |   | $                   | 20,591,000 |   |              | $      | (367,266 | )         |   | $ | 2,995,000 |   |   | $ | (258,491 | ) |   | $ | 23,586,000 |   |   | $ | (625,757 | ) |

----

Index

| 3. | AVAILABLE-FOR-SALE INVESTMENT SECURITIES (Continued) |
|----|------------------------------------------------------|

|                     |   |   |      |   |   |   |      | Unrealized |   |   |     |   |   |          |   |   |    |   |
|--------------------------|--------|--------|-----------|--------|--------|--------|-----------|------------|--------|--------|----------|--------|--------|---------------|--------|--------|---------|--------|
|                     |   | Book   |      |   | Market |   |      | Gain       |   |   | State    |   |   | Moody’s |   |   | S&P |   |
| Description              |   | Value  |      |   | Value  |   |      | (Loss)     |   | Type   | Issued   | Issuer |   | Rating        |   |   | Rating  |   |
|                     |   |   |      |   |   |   |      |       |   |   |     |   |   |          |   |   |    |   |
| Alisal USD               |   | $      | 304,473   |   |   | $      | 281,460   |       |   | $      | (23,013  | )      | GO     | CA            | MBIA   |   | A1      |   |   | A |   |
| Barstow USD              |   |   | 413,875   |   |   |   | 401,460   |       |   |   | (12,415  | )      | GO     | CA            | MBIA   |   | A1      |   |   | NR |   |
| Big Bear Lake            |   |   | 240,000   |   |   |   | 215,359   |       |   |   | (24,641  | )      | REV    | CA            | AMBAC  |   | WR      |   |   | NR |   |
| Big Bear Lake            |   |   | 249,161   |   |   |   | 224,333   |       |   |   | (24,828  | )      | REV    | CA            | AMBAC  |   | WR      |   |   | NR |   |
| El Rancho USD            |   |   | 403,450   |   |   |   | 403,264   |       |   |   | (186     | )      | GO     | CA            | FGIC   |   | WR      |   |   | NR |   |
| Fort Bragg USD           |   |   | 222,326   |   |   |   | 200,390   |       |   |   | (21,936  | )      | ZGO    | CA            | FGIC   |   | WR      |   |   | A |   |
| Gonzales USD             |   |   | 180,302   |   |   |   | 160,553   |       |   |   | (19,749  | )      | ZGO    | CA            | FSA    |   | Aa3     |   |   | AA+ |   |
| Mountain View SD         |   |   | 410,455   |   |   |   | 406,932   |       |   |   | (3,523   | )      | GO     | CA            | MBIA   |   | Baa1    |   |   | A+ |   |
| Oroville ESD             |   |   | 368,334   |   |   |   | 335,861   |       |   |   | (32,448  | )      | ZGO    | CA            | FGIC   |   | WR      |   |   | A+ |   |
| Pacific Grove USD        |   |   | 470,505   |   |   |   | 459,620   |       |   |   | (10,885  | )      | GO     | CA            | XLCA   |   | WR      |   |   | AA |   |
| Rancho Mirage PWRS       |   |   | 242,467   |   |   |   | 239,215   |       |   |   | (3,252   | )      | REV    | CA            | AMBAC  |   | Aa2     |   |   | NR |   |
| Rocklin USD              |   |   | 313,718   |   |   |   | 312,922   |       |   |   | (796     | )      | ZGO    | CA            | FSA    |   | Aa2     |   |   | AA+ |   |
| Clinton-McComb P Lib     |   |   | 419,443   |   |   |   | 413,427   |       |   |   | (6,016   | )      | GO     | MI            | XLCA   |   | WR      |   |   | AA- |   |
| Wapakoneta SWR           |   |   | 400,000   |   |   |   | 396,392   |       |   |   | (3,608   | )      | REV    | OH            | AMBAC  |   | WR      |   |   | NR |   |
| North Sewickley TWP |   |   | 300,000   |   |   |   | 267,594   |       |   |   | (32,406  | )      | REV    | PA            | XLCA   |   | WR      |   |   | NR |   |
| Hunters Glen MUD         |   |   | 276,287   |   |   |   | 276,185   |       |   |   | (102     | )      | GO     | TX            | FSA    |   | Aa3     |   |   | NR |   |
| Ingleside ISD            |   |   | 412,284   |   |   |   | 408,288   |       |   |   | (3,996   | )      | GO     | TX            | PSF    |   | NR      |   |   | AAA |   |
| Progreso ISD             |   |   | 515,869   |   |   |   | 514,745   |       |   |   | (1,124   | )      | GO     | TX            | PSF    |   | Aaa     |   |   | NR |   |
|                     |   | $      | 6,142,949 |   |   | $      | 5,918,000 |       |   | $      | (224,924 | )      |   |          |   |   |    |   |   |   |   |

----

Index

| 3.  | AVAILABLE-FOR-SALE INVESTMENT SECURITIES (Continued) |
|----------|------------------------------------------------------|

|                                      |   | AmortizedCost |       |   | EstimatedFairValue |   |
|-------------------------------------------|--------|---------------|------------|--------|--------------------|--------|
|                                      |   |          |       |   |               |   |
| Within one year                           |   | $             | -          |   |               | $      | - |   |
| After one year through five years         |   |          | 8,830,526  |   |               |   | 8,987,000 |   |
| After five years through ten years        |   |          | 3,630,183  |   |               |   | 3,594,000 |   |
| After ten years                           |   |          | 15,503,738 |   |               |   | 15,620,000 |   |
|                                      |   |          | 27,964,447 |   |               |   | 28,201,000 |   |
| Investment securities not due at a single |   |          |       |   |               |   |   |   |
| maturity date:                            |   |          |       |   |               |   |   |   |
| Mortgage-backed securities                |   |          | 30,566,052 |   |               |   | 31,195,000 |   |
|                                      |   |          |       |   |               |   |   |   |
|                                      |   | $             | 58,530,499 |   |               | $      | 59,396,000 |   |

| 4. | LOANS |
|----|-------|

|                                |   | June 30,2011 |        |   | December 31,2010 |   |
|-------------------------------------|--------|--------------|-------------|--------|------------------|--------|
| Commercial                          |   | $            | 50,111,378  |   |             | $      | 46,293,872 |   |
| Real estate – mortgage        |   |         | 162,223,513 |   |             |   | 165,202,316 |   |
| Real estate – construction    |   |         | 20,373,052  |   |             |   | 23,437,082 |   |
| Agricultural                        |   |         | 4,420,746   |   |             |   | 4,303,655 |   |
| Consumer                            |   |         | 2,250,166   |   |             |   | 2,152,766 |   |
|                                |   |         | 239,378,855 |   |             |   | 241,389,691 |   |
|                                |   |         |        |   |             |   |   |   |
| Deferred loan fees,  net  |   |         | (314,370    | )      |             |   | (386,429 | ) |
| Allowance for loan and lease losses |   |         | (7,031,763  | )      |             |   | (6,698,952 | ) |
|                                |   | $            | 232,032,722 |   |             | $      | 234,304,310 |   |

|                            |   | For the Three Months |      |   | For the Six Months |   |
|---------------------------------|--------|----------------------|-----------|--------|--------------------|--------|
|                            |   | Ended June 30,       |      |   | Ended June 30,     |   |
|                            |   | 2011                 |      |   | 2010               |   |   | 2011 |   |   | 2010 |   |
|                            |   |                 |      |   |               |   |   |   |   |   |   |   |
| Balance, beginning of period    |   | $                    | 6,930,851 |   |               | $      | 6,822,349 |   |   | $ | 6,698,952 |   |   | $ | 6,231,065 |   |
|                            |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Provision charged to operations |   |                 | -         |   |               |   | 650,000 |   |   |   | 225,000 |   |   |   | 1,250,000 |   |
| Losses charged to allowance     |   |                 | (4,356    | )      |               |   | (35,693 | ) |   |   | (4,356 | ) |   |   | (48,048 | ) |
| Recoveries                      |   |                 | 105,268   |   |               |   | 3,000 |   |   |   | 112,167 |   |   |   | 6,639 |   |
| Balance, end of period          |   | $                    | 7,031,763 |   |               | $      | 7,439,656 |   |   | $ | 7,031,763 |   |   | $ | 7,439,656 |   |

----

Index

| 5. | ALLOWANCE FOR LOAN AND LEASE LOSSES |
|----|-------------------------------------|

| As of and for the three months ended June 30, 2011 |   |
|----------------------------------------------------|--------|
|                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |   |   |   | Real |   |   | Real |   |   |   |   |   | Consumer |   |   |   |   |   |   |   |
|                                               |   |   |   |   | Estate - |   |   | Estate - |   |   |   |   |   | And |   |   |   |   |   |   |   |
|                                               |   | Commercial |   |   | Mortgage |   |   | Construction |   |   | Agricultural |   |   | Other |   |   | Unallocated |   |   | Total |   |
|                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for Loan and Lease Losses                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, beginning of period                       |   | $ | 2,773,473 |   |   | $ | 698,069 |   |   | $ | 3,341,076 |   |   | $ | 45,320 |   |   | $ | 72,914 |   |   | $ | - |   |   | $ | 6,930,852 |   |
| Losses charged to the allowance                    |   |   | (4,356 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (4,356 | ) |
| Recoveries on loans and leases                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| previously charged-off                             |   |   | 5,277 |   |   |   | 99,990 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | 105,267 |   |
| Provision charged to operations                    |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | -- |   |   |   |   |   |   |   | - |   |
| Balance, end of period                             |   | $ | 2,774,394 |   |   | $ | 798,059 |   |   | $ | 3,341,076 |   |   | $ | 45,320 |   |   | $ | 72,914 |   |   | $ | - |   |   | $ | 7,031,763 |   |

| As of and for the period ended June 30, 2011 |   |
|----------------------------------------------|--------|
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                         |   |   |   |   | Real |   |   | Real |   |   |   |   |   | Consumer |   |   |   |   |   |   |   |
|                                         |   |   |   |   | Estate - |   |   | Estate - |   |   |   |   |   | And |   |   |   |   |   |   |   |
|                                         |   | Commercial |   |   | Mortgage |   |   | Construction |   |   | Agricultural |   |   | Other |   |   | Unallocated |   |   | Total |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for Loan and Lease Losses          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, beginning of period                 |   | $ | 2,641,106 |   |   | $ | 608,792 |   |   | $ | 3,327,863 |   |   | $ | 40,409 |   |   | $ | 80,782 |   |   | $ | - |   |   | $ | 6,698,952 |   |
| Losses charged to the allowance              |   |   | (4,356 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (4,356 | ) |
| Recoveries on loans and leases               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| previously charged-off                       |   |   | 12,177 |   |   |   | 99,990 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 112,167 |   |
| Provision charged to operations              |   |   | 125,467 |   |   |   | 89,277 |   |   |   | 13,213 |   |   |   | 4,911 |   |   |   | (7,868 | ) |   |   |   |   |   |   | 225,000 |   |
| Balance, end of period                       |   | $ | 2,774,394 |   |   | $ | 798,059 |   |   | $ | 3,341,076 |   |   | $ | 45,320 |   |   | $ | 72,914 |   |   | $ | - |   |   | $ | 7,031,763 |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| for impairment                               |   | $ | 1,197,282 |   |   | $ | 488,927 |   |   | $ | 301,852 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 1,988,061 |   |
| Collectively evaluated                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| for impairment                               |   |   | 1,577,112 |   |   |   | 309,132 |   |   |   | 3,039,224 |   |   |   | 45,320 |   |   |   | 72,914 |   |   |   | - |   |   |   | 5,043,702 |   |
| Total                                        |   | $ | 2,774,394 |   |   | $ | 798,059 |   |   | $ | 3,341,076 |   |   | $ | 45,320 |   |   | $ | 72,914 |   |   | $ | - |   |   | $ | 7,031,763 |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance                               |   | $ | 50,111,378 |   |   | $ | 162,223,513 |   |   | $ | 20,373,052 |   |   | $ | 4,420,746 |   |   | $ | 2,250,166 |   |   |   |   |   |   | $ | 239,378,855 |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance: individually                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| evaluated for impairment                     |   | $ | 2,736,316 |   |   | $ | 9,139,305 |   |   | $ | 4,067,686 |   |   | $ | - |   |   | $ | - |   |   |   |   |   |   | $ | 15,943,307 |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance: collectively                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| evaluated for impairment                     |   | $ | 47,375,062 |   |   | $ | 153,084,208 |   |   | $ | 16,305,366 |   |   | $ | 4,420,746 |   |   | $ | 2,250,166 |   |   |   |   |   |   | $ | 223,435,548 |   |

----

Index

| 5. | ALLOWANCE FOR LOAN AND LEASE LOSSES (continued) |
|----|-------------------------------------------------|

| As of December 31, 2010             |   |
|-------------------------------------|--------|
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                |   |   |   |   | Real |   |   | Real |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                |   |   |   |   | Estate - |   |   | Estate - |   |   |   |   |   | Consumer |   |   |   |   |   |   |   |
|                                |   | Commercial |   |   | Mortgage |   |   | Construction |   |   | Agricultural |   |   | And Other |   |   | Unallocated |   |   | Total |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for Loan and Lease Losses |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance allocated            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| to portfolio segments               |   | $ | 2,641,106 |   |   | $ | 608,792 |   |   | $ | 3,327,863 |   |   | $ | 80,782 |   |   | $ | 40,409 |   |   | $ | - |   |   | $ | 6,698,952 |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance: individually        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| evaluated for impairment            |   | $ | 1,430,562 |   |   | $ | 92,658 |   |   | $ | 260,283 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 1,783,503 |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance: collectively        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| evaluated for impairment            |   | $ | 1,210,544 |   |   | $ | 516,134 |   |   | $ | 3,067,580 |   |   | $ | 80,782 |   |   | $ | 40,409 |   |   | $ | - |   |   | $ | 4,915,449 |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance                      |   | $ | 46,293,872 |   |   | $ | 165,202,316 |   |   | $ | 23,437,082 |   |   | $ | 4,303,655 |   |   | $ | 2,152,766 |   |   | $ | - |   |   | $ | 241,389,691 |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance: individually        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| evaluated for impairment            |   | $ | 3,112,068 |   |   | $ | 1,776,842 |   |   | $ | 6,595,040 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 11,483,950 |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance: collectively        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| evaluated for impairment            |   | $ | 43,181,804 |   |   | $ | 163,425,474 |   |   | $ | 16,842,042 |   |   | $ | 4,303,655 |   |   | $ | 2,152,766 |   |   | $ | - |   |   | $ | 229,905,741 |   |

----

Index

| 5. | ALLOWANCE FOR LOAN AND LEASE LOSSES (continued) |
|----|-------------------------------------------------|

|                |   | Commercial Credit Exposure                       |       |
|---------------------|--------|--------------------------------------------------|------------|
|                |   | Credit Risk Profile by Internally Assigned Grade |       |
|                |   |                                             |       |
| As of June 30, 2011 |   | Commercial                                       |       |   | Real Estate - Mortgage |   |   | Real Estate - Construction |   |   | Consumer and Other |   |   | Agriculture |   |   | Total |   |
|                |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Grade:              |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pass                |   | $                                                | 36,427,078 |   |   | $ | 127,969,897 |   |   | $ | 6,002,458 |   |   | $ | 2,214,879 |   |   | $ | 4,247,562 |   |   | $ | 176,861,874 |   |
| Watch               |   |                                             | 605,753    |   |   |   | 4,413,456 |   |   |   | 9,342,142 |   |   |   | - |   |   |   | - |   |   |   | 14,361,351 |   |
| Special Mention     |   |                                             | 8,178,502  |   |   |   | 11,448,054 |   |   |   | 1,343,667 |   |   |   | - |   |   |   | 173,184 |   |   |   | 21,143,407 |   |
| Substandard         |   |                                             | 4,900,045  |   |   |   | 18,392,106 |   |   |   | 3,684,785 |   |   |   | 35,287 |   |   |   | - |   |   |   | 27,012,223 |   |
| Doubtful            |   |                                             | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total               |   | $                                                | 50,111,378 |   |   | $ | 162,223,513 |   |   | $ | 20,373,052 |   |   | $ | 2,250,166 |   |   | $ | 4,420,746 |   |   | $ | 239,378,855 |   |

|                    |   | Commercial Credit Exposure                       |       |
|-------------------------|--------|--------------------------------------------------|------------|
|                    |   | Credit Risk Profile by Internally Assigned Grade |       |
|                    |   |                                             |       |
| As of December 31, 2010 |   | Commercial                                       |       |   | Real Estate -Mortgage |   |   | Real Estate -Construction |   |   | Consumer and Other |   |   | Agriculture |   |   | Total |   |
|                    |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Grade:                  |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pass                    |   | $                                                | 31,512,542 |   |   | $ | 132,778,115 |   |   | $ | 7,246,462 |   |   | $ | 1,967,364 |   |   | $ | 4,116,617 |   |   | $ | 177,621,100 |   |
| Watch                   |   |                                             | 3,908,958  |   |   |   | 6,672,747 |   |   |   | 7,052,354 |   |   |   | 148,659 |   |   |   | 187,038 |   |   |   | 17,969,756 |   |
| Special Mention         |   |                                             | 5,240,543  |   |   |   | 8,589,322 |   |   |   | 1,439,667 |   |   |   | - |   |   |   | - |   |   |   | 15,269,532 |   |
| Substandard             |   |                                             | 5,631,829  |   |   |   | 17,162,132 |   |   |   | 7,698,599 |   |   |   | 36,743 |   |   |   | - |   |   |   | 30,529,303 |   |
| Doubtful                |   |                                             | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total                   |   | $                                                | 46,293,872 |   |   | $ | 165,202,316 |   |   | $ | 23,437,082 |   |   | $ | 2,152,766 |   |   | $ | 4,303,655 |   |   | $ | 241,389,691 |   |

----

Index

| 5. | ALLOWANCE FOR LOAN AND LEASE LOSSES (continued) |
|----|-------------------------------------------------|

|                                 |   | 30-89 DaysPast Due |      |   | 90 Days andStillAccruing |   |   | Nonaccrual |   |   | TotalPast Due |   |   | Current |       |   | Total  |   |
|--------------------------------------|--------|--------------------|-----------|--------|--------------------------|--------|--------|------------|--------|--------|---------------|--------|--------|---------|------------|--------|--------|--------|
| As of June 30, 2011                  |   |               |      |   |                     |   |   |       |   |   |          |   |   |    |       |   |   |   |
|                                 |   |               |      |   |                     |   |   |       |   |   |          |   |   |    |       |   |   |   |
| Commercial:                          |   |               |      |   |                     |   |   |       |   |   |          |   |   |    |       |   |   |   |
| Commercial and  industrial |   | $                  | 37,248    |   |                     | $      | -      |       |   | $      | 1,083,976     |   |   | $       | 1,121,224  |   |   | $      | 19,382,543 |   |   | $ | 20,503,767 |   |
| Commercial lines                     |   |               | 250,000   |   |                     |   | -      |       |   |   | -             |   |   |    | 250,000    |   |   |   | 27,774,914 |   |   |   | 28,024,914 |   |
| Commercial guaranteed                |   |               | -         |   |                     |   | -      |       |   |   | -             |   |   |    | -          |   |   |   | 1,582,697 |   |   |   | 1,582,697 |   |
| Agricultural:                        |   |               |      |   |                     |   |   |       |   |   |          |   |   |    |       |   |   |   |   |   |   |   |   |   |
| Agricultural                         |   |               | -         |   |                     |   | -      |       |   |   | -             |   |   |    | -          |   |   |   | 3,834,299 |   |   |   | 3,834,299 |   |
| Agricultural Capital assets          |   |               | -         |   |                     |   | -      |       |   |   | -             |   |   |    | -          |   |   |   | 586,447 |   |   |   | 586,447 |   |
| Real Estate-Construction:            |   |               |      |   |                     |   |   |       |   |   |          |   |   |    |       |   |   |   |   |   |   |   |   |   |
| Construction                         |   |               | -         |   |                     |   | -      |       |   |   |          |   |   |    |       |   |   |   | 12,592,008 |   |   |   | 12,592,008 |   |
| Construction 1-4 family              |   |               | -         |   |                     |   | -      |       |   |   | 748,172       |   |   |    | 748,172    |   |   |   | 2,480,032 |   |   |   | 3,228,204 |   |
| Construction loan others             |   |               | 232,135   |   |                     |   | -      |       |   |   | 1,287,363     |   |   |    | 1,519,498  |   |   |   | 3,033,342 |   |   |   | 4,552,839 |   |
| Real Estate-Mortgage:                |   |               |      |   |                     |   |   |       |   |   |          |   |   |    |       |   |   |   |   |   |   |   |   |   |
| Mortgage 1-4 family                  |   |               | -         |   |                     |   | -      |       |   |   | -             |   |   |    | -          |   |   |   | 10,844,471 |   |   |   | 10,844,471 |   |
| Real Estate                          |   |               | 1,156,165 |   |                     |   | -      |       |   |   | 5,792,358     |   |   |    | 6,948,522  |   |   |   | 139,299,536 |   |   |   | 146,248,058 |   |
| Real Estate - Ag                     |   |               | -         |   |                     |   | -      |       |   |   | -             |   |   |    | -          |   |   |   | 1,586,786 |   |   |   | 1,586,786 |   |
| Home Equity loans                    |   |               | -         |   |                     |   | -      |       |   |   | -             |   |   |    | -          |   |   |   | 3,544,198 |   |   |   | 3,544,198 |   |
| Consumer:                            |   |               |      |   |                     |   |   |       |   |   |          |   |   |    |       |   |   |   |   |   |   |   |   |   |
| Auto                                 |   |               | -         |   |                     |   | -      |       |   |   | -             |   |   |    | -          |   |   |   | 121,580 |   |   |   | 121,580 |   |
| Consumer                             |   |               | -         |   |                     |   | -      |       |   |   | -             |   |   |    | -          |   |   |   | 411,365 |   |   |   | 411,365 |   |
| Other                                |   |               | -         |   |                     |   | -      |       |   |   | -             |   |   |    | -          |   |   |   | 1,717,222 |   |   |   | 1,717,222 |   |
| Total                                |   | $                  | 1,675,548 |   |                     | $      | -      |       |   | $      | 8,911,869     |   |   | $       | 10,587,416 |   |   | $      | 228,791,439 |   |   | $ | 239,378,855 |   |

|                                 |   | 30-89 DaysPast Due |    |   | 90 Days andStillAccruing |   |   | Nonaccrual |   |   | TotalPast Due |   |   | Current |      |   | Total  |   |
|--------------------------------------|--------|--------------------|---------|--------|--------------------------|--------|--------|------------|--------|--------|---------------|--------|--------|---------|-----------|--------|--------|--------|
| As of December 31, 2010              |   |               |    |   |                     |   |   |       |   |   |          |   |   |    |      |   |   |   |
|                                 |   |               |    |   |                     |   |   |       |   |   |          |   |   |    |      |   |   |   |
| Commercial:                          |   |               |    |   |                     |   |   |       |   |   |          |   |   |    |      |   |   |   |
| Commercial and  industrial |   | $                  | 51,135  |   |                     | $      | -      |       |   | $      | -             |   |   | $       | 51,135    |   |   | $      | 22,283,620 |   |   | $ | 22,334,755 |   |
| Commercial lines                     |   |               | -       |   |                     |   | -      |       |   |   | 747,054       |   |   |    | 747,054   |   |   |   | 21,806,591 |   |   |   | 22,553,645 |   |
| Commercial guaranteed                |   |               | 556     |   |                     |   | -      |       |   |   | -             |   |   |    | 556       |   |   |   | 1,404,916 |   |   |   | 1,405,472 |   |
| Agricultural:                        |   |               |    |   |                     |   |   |       |   |   |          |   |   |    |      |   |   |   |   |   |   |   |   |   |
| Agricultural                         |   |               | -       |   |                     |   | -      |       |   |   | -             |   |   |    | -         |   |   |   | 3,630,210 |   |   |   | 3,630,210 |   |
| Agricultural Capital assets          |   |               | -       |   |                     |   | -      |       |   |   | -             |   |   |    | -         |   |   |   | 673,445 |   |   |   | 673,445 |   |
| Real Estate-Construction:            |   |               |    |   |                     |   |   |       |   |   |          |   |   |    |      |   |   |   | - |   |   |   | - |   |
| Construction                         |   |               | -       |   |                     |   | -      |       |   |   | 905,246       |   |   |    | 905,246   |   |   |   | 13,298,945 |   |   |   | 14,204,191 |   |
| Construction 1-4 family              |   |               | 197,544 |   |                     |   | -      |       |   |   | -             |   |   |    | 197,544   |   |   |   | 3,441,631 |   |   |   | 3,639,175 |   |
| Construction loan others             |   |               | -       |   |                     |   | -      |       |   |   | -             |   |   |    | -         |   |   |   | 5,593,716 |   |   |   | 5,593,716 |   |
| Real Estate-Mortgage:                |   |               |    |   |                     |   |   |       |   |   |          |   |   |    |      |   |   |   |   |   |   |   |   |   |
| Mortgage 1-4 family                  |   |               | -       |   |                     |   | -      |       |   |   | -             |   |   |    | -         |   |   |   | 12,792,286 |   |   |   | 12,792,286 |   |
| Real Estate                          |   |               | 4,924   |   |                     |   | -      |       |   |   | 5,170,238     |   |   |    | 5,175,162 |   |   |   | 141,864,623 |   |   |   | 147,039,785 |   |
| Real Estate - Ag                     |   |               | -       |   |                     |   | -      |       |   |   | -             |   |   |    | -         |   |   |   | 1,726,232 |   |   |   | 1,726,232 |   |
| Home Equity loans                    |   |               | -       |   |                     |   | -      |       |   |   | -             |   |   |    | -         |   |   |   | 3,644,013 |   |   |   | 3,644,013 |   |
| Consumer:                            |   |               |    |   |                     |   |   |       |   |   |          |   |   |    |      |   |   |   |   |   |   |   |   |   |
| Auto                                 |   |               | -       |   |                     |   | -      |       |   |   | -             |   |   |    | -         |   |   |   | 160,201 |   |   |   | 160,201 |   |
| Consumer                             |   |               | -       |   |                     |   | -      |       |   |   | -             |   |   |    | -         |   |   |   | 446,960 |   |   |   | 446,960 |   |
| Other                                |   |               | -       |   |                     |   | -      |       |   |   | -             |   |   |    | -         |   |   |   | 1,545,605 |   |   |   | 1,545,605 |   |
| Total                                |   | $                  | 254,159 |   |                     | $      | -      |       |   | $      | 6,822,538     |   |   | $       | 7,076,697 |   |   | $      | 234,312,994 |   |   | $ | 241,389,691 |   |

----

Index

| 5. | ALLOWANCE FOR LOAN AND LEASE LOSSES (continued) |
|----|-------------------------------------------------|

|                               |   |       |      |   | Unpaid    |   |      |      |   |   | Average    |   |   | Interest   |      |
|------------------------------------|--------|------------|-----------|--------|-----------|--------|-----------|-----------|--------|--------|------------|--------|--------|------------|-----------|
|                               |   | Recorded   |      |   | Principal |   |      | Related   |   |   | Recorded   |   |   | Income     |      |
|                               |   | Investment |      |   | Balance   |   |      | Allowance |   |   | Investment |   |   | Recognized |      |
| Impaired loans as of June 30, 2011 |   |       |      |   |      |   |      |      |   |   |       |   |   |
|                               |   |       |      |   |      |   |      |      |   |   |       |   |   |
| With no related allowancerecorded: |   |       |      |   |      |   |      |      |   |   |       |   |   |       |      |
| Commercial                         |   | $          | 266,244   |   |      | $      | 366,236   |      |   | $      | -          |   |   | $          | 1,470,817 |   |   | $ | 919 |   |
| Real estate - mortgage             |   |       | 7,047,502 |   |      |   | 8,130,369 |      |   |   | -          |   |   |       | 7,403,545 |   |   |   | 10,820 |   |
| Real estate - construction         |   |       | 1,925,888 |   |      |   | 3,022,150 |      |   |   | -          |   |   |       | 3,023,447 |   |   |   | 51,795 |   |
|                               |   |       |      |   |      |   |      |      |   |   |       |   |   |       |      |   |   |   |   |   |
| With an allowance recorded:        |   |       |      |   |      |   |      |      |   |   |       |   |   |       |      |   |   |   |   |   |
| Commercial                         |   | $          | 2,368,453 |   |      | $      | 2,370,080 |      |   | $      | 1,197,282  |   |   | $          | 2,352,302 |   |   | $ | 76,117 |   |
| Real estate – mortgage       |   |       | 1,008,938 |   |      |   | 1,008,936 |      |   |   | 488,927    |   |   |       | 1,011,771 |   |   |   | 32,642 |   |
| Real estate – construction   |   |       | 980,308   |   |      |   | 1,045,536 |      |   |   | 301,852    |   |   |       | 1,048,962 |   |   |   | 5,794 |   |
|                               |   |       |      |   |      |   |      |      |   |   |       |   |   |       |      |   |   |   |   |   |
| Total:                             |   |       |      |   |      |   |      |      |   |   |       |   |   |       |      |   |   |   |   |   |
| Commercial                         |   | $          | 2,634,697 |   |      | $      | 2,736,316 |      |   | $      | 1,197,282  |   |   | $          | 3,823,119 |   |   | $ | 77,036 |   |
| Real estate – mortgage       |   |       | 8,056,440 |   |      |   | 9,139,305 |      |   |   | 488,927    |   |   |       | 8,415,316 |   |   |   | 43,462 |   |
| Real estate – construction   |   |       | 2,906,196 |   |      |   | 4,067,686 |      |   |   | 301,852    |   |   |       | 4,072,409 |   |   |   | 57,589 |   |

|                                   |   |       |      |   | Unpaid    |   |      |      |   |   | Average    |   |   | Interest   |      |
|----------------------------------------|--------|------------|-----------|--------|-----------|--------|-----------|-----------|--------|--------|------------|--------|--------|------------|-----------|
|                                   |   | Recorded   |      |   | Principal |   |      | Related   |   |   | Recorded   |   |   | Income     |      |
|                                   |   | Investment |      |   | Balance   |   |      | Allowance |   |   | Investment |   |   | Recognized |      |
| Impaired loans as of December 31, 2010 |   |       |      |   |      |   |      |      |   |   |       |   |   |
|                                   |   |       |      |   |      |   |      |      |   |   |       |   |   |       |      |
| With no related allowancerecorded:     |   |       |      |   |      |   |      |      |   |   |       |   |   |       |      |
| Commercial                             |   | $          | 790,042   |   |      | $      | 884,488   |      |   | $      | -          |   |   | $          | 981,444   |   |   | $ | 3,111 |   |
| Real estate - mortgage                 |   |       | 4,219,223 |   |      |   | 5,182,771 |      |   |   | -          |   |   |       | 5,226,383 |   |   |   | 119,642 |   |
| Real estate - construction             |   |       | 764,604   |   |      |   | 1,854,589 |      |   |   | -          |   |   |       | 1,857,234 |   |   |   | 103,874 |   |
|                                   |   |       |      |   |      |   |      |      |   |   |       |   |   |       |      |   |   |   |   |   |
| With an allowance recorded:            |   |       |      |   |      |   |      |      |   |   |       |   |   |       |      |   |   |   |   |   |
| Commercial                             |   | $          | 2,322,026 |   |      | $      | 2,322,025 |      |   | $      | 1,430,562  |   |   | $          | 2,394,814 |   |   | $ | 139,083 |   |
| Real estate – mortgage           |   |       | 2,375,818 |   |      |   | 2,411,734 |      |   |   | 92,658     |   |   |       | 2,428,367 |   |   |   | 88,045 |   |
| Real estate – construction       |   |       | 1,012,238 |   |      |   | 1,050,946 |      |   |   | 260,283    |   |   |       | 1,077,766 |   |   |   | 24,756 |   |
|                                   |   |       |      |   |      |   |      |      |   |   |       |   |   |       |      |   |   |   |   |   |
| Total:                                 |   |       |      |   |      |   |      |      |   |   |       |   |   |       |      |   |   |   |   |   |
| Commercial                             |   | $          | 3,112,068 |   |      | $      | 3,206,513 |      |   | $      | 1,430,562  |   |   | $          | 3,376,258 |   |   | $ | 142,194 |   |
| Real estate – mortgage           |   |       | 6,595,040 |   |      |   | 7,594,505 |      |   |   | 92,658     |   |   |       | 7,654,750 |   |   |   | 207,687 |   |
| Real estate – construction       |   |       | 1,776,842 |   |      |   | 2,905,535 |      |   |   | 260,283    |   |   |       | 2,935,000 |   |   |   | 128,630 |   |

----

Index

| 5. | ALLOWANCE FOR LOAN AND LEASE LOSSES (continued) |
|----|-------------------------------------------------|

| Dollars in thousands                   |   |          |      |   |              |   |
|----------------------------------------|--------|---------------|-----------|--------|-------------------|--------|
|                                   |   | June 30, 2011 |      |   | December 31, 2010 |   |
|                                   |   | Amount        |      |   | No. of Loans      |   |   | Amount |   |   | No. of Loans |   |
|                                   |   |          |      |   |              |   |   |   |   |   |   |   |
| Nonperforming Loans                    |   | $             | 4,403,916 |   |              |   | 4 |   |   | $ | 4,431,413 |   |   |   | 4 |   |
| Performing Loans                       |   | $             | 1,404,193 |   |              |   | 6 |   |   | $ | 1,324,348 |   |   |   | 4 |   |
|                                   |   |          |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Total troubled debt restructured loans |   | $             | 5,808,109 |   |              |   | 10 |   |   | $ | 5,755,761 |   |   |   | 8 |   |

|                     |   | June 30, 2011 |       |
|--------------------------|--------|---------------|------------|
|                     |   |          |       |
| Commercial               |   | $             | 835,278    |   |
| Real Estate-Mortgage     |   |          | 10,945,823 |   |
| Real Estate-Construction |   |          | -          |   |
| Agricultural             |   |          | -          |   |
| Consumer and Other       |   |          | -          |   |
|                     |   |          |       |   |
| Total                    |   | $             | 11,781,101 |   |

----

Index

| 6. | BANK PREMISES AND EQUIPMENT |
|----|-----------------------------|

|                                           |   | June 30,2011 |       |   | December 31,2010 |   |
|------------------------------------------------|--------|--------------|------------|--------|------------------|--------|
| Furniture and equipment                        |   | $            | 2,722,250  |   |             | $      | 2,646,895 |   |
| Premises                                       |   |         | 6,595,672  |   |             |   | 6,581,465 |   |
| Leasehold improvements                         |   |         | 207,342    |   |             |   | 207,342 |   |
| Land                                           |   |         | 1,461,379  |   |             |   | 1,461,379 |   |
|                                           |   |         | 10,986,643 |   |             |   | 10,897,081 |   |
|                                           |   |         |       |   |             |   |   |   |
| Less accumulated depreciation and amortization |   |         | (2,655,331 | )      |             |   | (2,386,393 | ) |
|                                           |   | $            | 8,331,312  |   |             | $      | 8,510,688 |   |

| 7. | COMMITMENTS AND CONTINGENCIES |
|----|-------------------------------|

----

Index

| 8. | STOCK BASED COMPENSATION |
|----|--------------------------|

|                          |   | Six Months Ended |   |
|-------------------------------|--------|------------------|--------|
|                          |   | June 30, 2011    |   |
| Dividend yield                |   |             | N/A    |   |
| Expected option life          |   | 8.83 years       |   |
| Expected volatility           |   |             | 46.9   | % |
| Risk-free interest rate       |   |             | 1.23   | % |
| Weighted average              |   |             |   |   |
| Fair value of options granted |   | $                | 5.27   |   |

----

Index

| 8. | STOCK BASED COMPENSATION (Continued) |
|----|--------------------------------------|

|                                                   |   | For the Six Months Ended June 30, 2011 |
|--------------------------------------------------------|--------|----------------------------------------|
|                                                   |   | Shares                                 |   |   | Weighted Average Exercise Price |   |  Weighted Average Remaining Contractual Term |   | Aggregate Intrinsic Value (in thousands) |   |
|                                                   |   |                                   |   |   |   |   |   |   |   |   |
| Incentive:                                             |   |                                   |   |   |   |   |   |   |   |   |
| Options outstanding at January 1, 2011                 |   |                                   | 60,641 |   |   | $ | 9.88 |   |   |   |   |   |
| Options granted                                        |   |                                   | 2,100 |   |   |   | 7.81 |   |   |   |   |   |
| Options exercised                                      |   |                                   |   |   |   |   |   |   |   |   |   |   |
| Options cancelled                                      |   |                                   | (1,158 | ) |   |   | 12.53 |   |   |   |   |   |
| Options outstanding at June 30, 2011                   |   |                                   | 61,583 |   |   |   | 9.76 |   | 4.00 years |   | $ | 54,199 | (1) |
| Options vested or expected to vest after June 30, 2011 |   |                                   | 50,469 |   |   |   | 9.10 |   | 3.41 years |   | $ | 54,199 | (1) |
| Options exercisable at June 30, 2011                   |   |                                   | 49,782 |   |   |   | 9.10 |   | 3.41 years |   | $ | 54,199 | (1) |
|                                                   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Nonstatutory:                                          |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Options outstanding at January 1, 2011                 |   |                                   | 66,803 |   |   | $ | 10.50 |   |   |   |   |   |   |
| Options granted                                        |   |                                   | 8,400 |   |   |   | 7.81 |   |   |   |   |   |   |
| Options exercised                                      |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Options cancelled                                      |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Options outstanding at June 30, 2011                   |   |                                   | 75,203 |   |   |   | 10.20 |   | 3.81 years |   | $ | 24,672 | (1) |
| Options vested or expected to vest after June 30, 2011 |   |                                   | 73,684 |   |   |   | 10.13 |   | 3.72 years |   | $ | 24,672 | (1) |
| Options exercisable at June 30, 2011                   |   |                                   | 72,889 |   |   |   | 10.13 |   | 3.72 years |   | $ | 24,672 | (1) |

----

Index

| 9. | EARNINGS PER SHARE COMPUTATION |
|----|--------------------------------|

|                                           |   | For the Three Months |      |   | For the Six Months |   |
|------------------------------------------------|--------|----------------------|-----------|--------|--------------------|--------|
|                                           |   | Ended June 30,       |      |   | Ended June 30,     |   |
|                                           |   | 2011                 |      |   | 2010               |   |   | 2011 |   |   | 2010 |   |
| Net Income:                                    |   |                 |      |   |               |   |   |   |   |   |   |   |
| Net income                                     |   | $                    | 859,282   |   |               | $      | 473,246 |   |   | $ | 1,484,246 |   |   | $ | 723,761 |   |
| Dividends accrued and discounts                |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| accreted on preferred shares                   |   |                 | (106,053  | )      |               |   | (98,387 | ) |   |   | (207,519 | ) |   |   | (193,569 | ) |
| Net income allocated to common                 |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| shareholders                                   |   | $                    | 753,229   |   |               | $      | 374,859 |   |   | $ | 1,276,727 |   |   | $ | 530,192 |   |
| Earnings Per Share:                            |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share                       |   | $                    | 0.27      |   |               | $      | 0.14 |   |   | $ | 0.46 |   |   | $ | 0.19 |   |
| Diluted earnings per share                     |   | $                    | 0.27      |   |               | $      | 0.14 |   |   | $ | 0.46 |   |   | $ | 0.19 |   |
| Weighted Average Number of Shares Outstanding: |   |                 |      |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Basic shares                                   |   |                 | 2,762,723 |   |               |   | 2,739,560 |   |   |   | 2,762,469 |   |   |   | 2,739,560 |   |
| Diluted shares                                 |   |                 | 2,774,847 |   |               |   | 2,742,625 |   |   |   | 2,771,802 |   |   |   | 2,743,007 |   |

| 10. | COMPREHENSIVE INCOME |
|-----|----------------------|

|                                          | For the Three Months |   | For the Six Months |   |
|-----------------------------------------------|----------------------|--------|--------------------|--------|
|                                          | Ended                |   | Ended              |   |
|                                          | June 30, 2011        |   | June 30, 2010      |   | June 30, 2011 |   | June 30, 2010 |   |
|                                          |                 |   |               |   |   |   |   |   |
| Net income                                    |                 | $      | 859,282            |   |   | $ | 473,246 |   |   | $ | 1,484,246 |   |   | $ | 723,761 |   |
| Other comprehensive income:                   |                 |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gain on available-for-sale |                 |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| investment securities, net of tax             |                 |   | 557,915            |   |   |   | 161,888 |   |   |   | 550,496 |   |   |   | 259,678 |   |
| Total other comprehensive income              |                 | $      | 1,417,197          |   |   | $ | 635,134 |   |   | $ | 2,034,742 |   |   | $ | 983,439 |   |

----

Index

| 11. | INCOME TAXES |
|-----|--------------|

| 12. | PREFERRED STOCK |
|-----|-----------------|

----

Index

| 12. | PREFERRED STOCK (Continued) |
|-----|-----------------------------|

| 13. | FAIR VALUE MEASUREMENT |
|-----|------------------------|

|                                     |   | June 30, 2011 |
|------------------------------------------|--------|---------------|
| Description                              |   | Fair Value    |   | Level 1 |   | Level 2 |   | Level 3 |
|                                     |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available-for-sale investment securities |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt securities:                         |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agencies                 |   | $             | 11,758,000 |   |   | $ | — |   |   | $ | 11,758,000 |   |   | $ | — |   |
| Mortgage-backed securities:              |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agencies                 |   |          | 17,725,000 |   |   |   | — |   |   |   | 17,725,000 |   |   |   | — |   |
| Small Business Administration            |   |          | 13,470,000 |   |   |   | — |   |   |   | 13,470,000 |   |   |   | — |   |
| Municipal securities                     |   |          | 16,443,000 |   |   |   | — |   |   |   | 16,443,000 |   |   |   | — |   |
| Total assets measured at fair value      |   | $             | 59,396,000 |   |   | $ | — |   |   | $ | 59,396,000 |   |   | $ | — |   |

|                                     |   | December 31, 2010 |
|------------------------------------------|--------|-------------------|
| Description                              |   | Fair Value        |   | Level 1 |   | Level 2 |   | Level 3 |
|                                     |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available-for-sale investment securities |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt securities:                         |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury securities                 |   | $                 | 3,800,000 |   |   | $ | — |   |   | $ | 3,800,000 |   |   | $ | — |   |
| U.S. Government agencies                 |   |              | 5,533,000 |   |   |   | — |   |   |   | 5,533,000 |   |   |   | — |   |
| Mortgage-backed securities:              |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agencies                 |   |              | 12,770,000 |   |   |   | — |   |   |   | 12,770,000 |   |   |   | — |   |
| Small Business Administration            |   |              | 14,577,000 |   |   |   | — |   |   |   | 14,577,000 |   |   |   | — |   |
| Municipal securities                     |   |              | 14,143,000 |   |   |   | — |   |   |   | 14,143,000 |   |   |   | — |   |
| Total assets measured at fair value      |   | $                 | 50,823,000 |   |   | $ | — |   |   | $ | 50,823,000 |   |   | $ | — |   |

----

Index

| 13. | FAIR VALUE MEASUREMENT (Continued) |
|-----|------------------------------------|

|                         |   | Fair Value Measurements at June 30, 2011 Using |      |
|------------------------------|--------|------------------------------------------------|-----------|
|                         |   |                                           |      |   | Quoted Prices in |   |   | Significant Other |   |   | Significant |   |   |   |   |
|                         |   |                                           |      |   | Active Markets for |   |   | Observable |   |   | Unobservable |   |   |   |   |
|                         |   |                                           |      |   | Identical Assets |   |   | Inputs |   |   | Inputs |   |   | Total Gains |   |
|                         |   | Total Fair Value                               |      |   | (Level 1) |   |   | (Level 2) |   |   | (Level 3) |   |   | (Losses) |   |
| Assets:                      |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Impaired loans at:           |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                   |   | $                                              | 1,171,000 |   |   | $ | - |   |   | $ | - |   |   | $ | 1,171,000 |   |   | $ | (255,000 | ) |
| Real estate – mortgage |   |                                           | 3,467,000 |   |   |   | - |   |   |   | 2,947,000 |   |   |   | 520,000 |   |   |   | 193,000 |   |
| Real estate - construction   |   |                                           | 1,317,000 |   |   |   | - |   |   |   | 1,227,000 |   |   |   | 90,000 |   |   |   | (42,000 | ) |
| Agricultural                 |   |                                           | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Consumer and other           |   |                                           | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                         |   | $                                              | 5,955,000 |   |   | $ | - |   |   | $ | 4,174,000 |   |   | $ | 1,781,000 |   |   | $ | (104,000 | ) |

|                         |   | Fair Value Measurements at December 31, 2010 Using |      |
|------------------------------|--------|----------------------------------------------------|-----------|
|                         |   |                                               |      |   | Quoted Prices in |   |   | Significant Other |   |   | Significant |   |   |   |   |
|                         |   |                                               |      |   | Active Markets for |   |   | Observable |   |   | Unobservable |   |   |   |   |
|                         |   |                                               |      |   | Identical Assets |   |   | Inputs |   |   | Inputs |   |   | Total Gains |   |
|                         |   | Total Fair Value                                   |      |   | (Level 1) |   |   | (Level 2) |   |   | (Level 3) |   |   | (Losses) |   |
| Assets:                      |   |                                               |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Impaired loans at:           |   |                                               |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                   |   | $                                                  | 1,906,000 |   |   | $ | - |   |   | $ | - |   |   | $ | 1,906,000 |   |   | $ | (69,000 | ) |
| Real estate – mortgage |   |                                               | 3,021,000 |   |   |   | - |   |   |   | 3,021,000 |   |   |   | - |   |   |   | 472,000 |   |
| Real estate - construction   |   |                                               | 2,460,000 |   |   |   | - |   |   |   | 2,296,000 |   |   |   | 164,000 |   |   |   | (1,099,000 | ) |
| Agricultural                 |   |                                               | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Consumer and other           |   |                                               | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                         |   | $                                                  | 7,387,000 |   |   | $ | - |   |   | $ | 5,317,000 |   |   | $ | 2,070,000 |   |   | $ | (696,000 | ) |

----

Index

| 13. | FAIR VALUE MEASUREMENT (Continued) |
|-----|------------------------------------|

|                           |   | June 30, 2011 |              |   | December 31, 2010 |   |
|--------------------------------|--------|---------------|-------------------|--------|-------------------|--------|
|                           |   | Carrying      |              |   | Fair              |   |   | Carrying |   |   | Fair |   |
|                           |   | Amount        |              |   | Value             |   |   | Amount |   |   | Value |   |
|                           |   |          |              |   |              |   |   |   |   |   |   |   |
| Financial assets:              |   |          |              |   |              |   |   |   |   |   |   |   |
| Cash and cash equivalents      |   | $             | 24,426,384        |   |              | $      | 24,426,384 |   |   | $ | 32,667,967 |   |   | $ | 32,667,967 |   |
| Available-for-sale             |   |          |              |   |              |   |   |   |   |   |   |   |   |   |   |   |
| investment securities          |   |          | 59,396,000        |   |              |   | 59,396,000 |   |   |   | 50,823,000 |   |   |   | 50,823,000 |   |
| Loans, net                     |   |          | 232,032,722       |   |              |   | 228,435,085 |   |   |   | 234,304,310 |   |   |   | 231,913,397 |   |
| Cash surrender value of life   |   |          |              |   |              |   |   |   |   |   |   |   |   |   |   |   |
| insurance policies             |   |          | 6,760,398         |   |              |   | 6,6760,398 |   |   |   | 6,627,060 |   |   |   | 6,627,060 |   |
| Accrued interest receivable    |   |          | 1,240,153         |   |              |   | 1,240,153 |   |   |   | 1,209,657 |   |   |   | 1,209,657 |   |
| FHLB stock                     |   |          | 1,360,700         |   |              |   | 1,360,700 |   |   |   | 1,360,700 |   |   |   | 1,360,700 |   |
|                           |   |          |              |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:         |   |          |              |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                       |   | $             |  289,953,790 |   |              | $      | 290,377,999 |   |   | $ | 294,277,800 |   |   | $ | 294,622,852 |   |
| Long-term debt                 |   |          | 2,357,014         |   |              |   | 2,715,577 |   |   |   | 2,561,650 |   |   |   | 2,847,132 |   |
| Junior subordinated deferrable |   |          |              |   |              |   |   |   |   |   |   |   |   |   |   |   |
| interest debentures            |   |          | 3,093,000         |   |              |   | 804,180 |   |   |   | 3,093,000 |   |   |   | 804,180 |   |
| Accrued interest payable       |   |          | 90,829            |   |              |   | 90,829 |   |   |   | 97,597 |   |   |   | 97,597 |   |

----

Index

| 14. | RECENT ACCOUNTING DEVELOPMENTS |
|-----|--------------------------------|

----

Index

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

----

Index

----

Index

|                                                         |   | Average balances and weighted average yields and costs |    |
|--------------------------------------------------------------|--------|--------------------------------------------------------|---------|
|                                                         |   | Six Months ended June 30,                              |    |
|                                                         |   | 2011                                                   |    |   | 2010 |   |
|                                                         |   |                                                   |    |   | Interest |   |   | Average |   |   |   |   |   | Interest |   |   | Average |   |
|                                                         |   | Average                                                |    |   | income/ |   |   | yield/ |   |   | Average |   |   | income/ |   |   | yield/ |   |
| (dollars in thousands)                                       |   | Balance                                                |    |   | Expense |   |   | Cost |   |   | Balance |   |   | Expense |   |   | Cost |   |
| ASSETS                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Due from banks                                               |   | $                                                      | 27,133  |   |   | $ | 34 |   |   |   | 0.25 | % |   | $ | 27,098 |   |   | $ | 33 |   |   |   | 0.25 | % |
| Available-for-sale investment securities:                    |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                      |   |                                                   | 41,096  |   |   |   | 471 |   |   |   | 2.31 | % |   |   | 27,653 |   |   |   | 373 |   |   |   | 2.72 | % |
| Exempt from Federal income taxes (1)                         |   |                                                   | 15,086  |   |   |   | 324 |   |   |   | 6.56 | % |   |   | 15,342 |   |   |   | 315 |   |   |   | 6.27 | % |
| Total securities (1)                                         |   |                                                   | 56,182  |   |   |   | 795 |   |   |   | 3.45 | % |   |   | 42,995 |   |   |   | 688 |   |   |   | 3.99 | % |
| Loans (2) (3)                                                |   |                                                   | 233,745 |   |   |   | 6,933 |   |   |   | 5.98 | % |   |   | 241,691 |   |   |   | 7,400 |   |   |   | 6.17 | % |
| Total interest-earning assets (1)                            |   |                                                   | 317,060 |   |   |   | 7,762 |   |   |   | 5.04 | % |   |   | 311,784 |   |   |   | 8,121 |   |   |   | 5.36 | % |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-earning assets, net of allowance for loan losses |   |                                                   | 28,391  |   |   |   |   |   |   |   |   |   |   |   | 31,478 |   |   |   |   |   |   |   |   |   |
| Total assets                                                 |   | $                                                      | 345,451 |   |   |   |   |   |   |   |   |   |   | $ | 343,262 |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                   |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                    |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other interest bearing                                       |   | $                                                      | 122,180 |   |   | $ | 300 |   |   |   | 0.50 | % |   | $ | 122,013 |   |   | $ | 379 |   |   |   | 0.63 | % |
| Time deposits less than $100,000                             |   |                                                   | 21,884  |   |   |   | 107 |   |   |   | 0.99 | % |   |   | 25,569 |   |   |   | 199 |   |   |   | 1.57 | % |
| Time deposits $100,000 or more                               |   |                                                   | 61,982  |   |   |   | 374 |   |   |   | 1.22 | % |   |   | 72,591 |   |   |   | 735 |   |   |   | 2.04 | % |
| Total interest-bearing deposits                              |   |                                                   | 206,046 |   |   |   | 781 |   |   |   | 0.76 | % |   |   | 220,173 |   |   |   | 1,313 |   |   |   | 1.20 | % |
| Long-term debt                                               |   |                                                   | 2,476   |   |   |   | 63 |   |   |   | 5.13 | % |   |   | 3,556 |   |   |   | 95 |   |   |   | 5.39 | % |
| Junior subordinated deferrable interest debentures           |   |                                                   | 3,093   |   |   |   | 56 |   |   |   | 3.65 | % |   |   | 3,093 |   |   |   | 56 |   |   |   | 3.65 | % |
| Total interest-bearing liabilities                           |   |                                                   | 211,615 |   |   |   | 900 |   |   |   | 0.86 | % |   |   | 226,822 |   |   |   | 1,464 |   |   |   | 1.30 | % |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing deposits                                 |   |                                                   | 90,843  |   |   |   |   |   |   |   |   |   |   |   | 76,370 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                            |   |                                                   | 3,443   |   |   |   |   |   |   |   |   |   |   |   | 2,738 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                            |   |                                                   | 305,901 |   |   |   |   |   |   |   |   |   |   |   | 305,930 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                   |   |                                                   | 39,550  |   |   |   |   |   |   |   |   |   |   |   | 37,332 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity             |   | $                                                      | 345,451 |   |   |   |   |   |   |   |   |   |   | $ | 343,262 |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income and margin (1)                           |   |                                                   |    |   |   | $ | 6,862 |   |   |   | 4.47 | % |   |   |   |   |   | $ | 6,557 |   |   |   | 4.41 | % |

| (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 $2 and $88 interest received on nonaccrual loans for the six-month periods ended June 30, 2011 and 2010, respectively. There was $57 and $0 interest reversed on loan transferred to nonaccrual status for the periods ended June 30, 2011 and 2010, respectively. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Interest income on loans includes amortized loan fees, net of costs, of $252 and $283 for 2011 and 2010, respectively. |
|-----|------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                               |   | Six months ended June 30, 2011 vs. June 30, 2010due to change in: |   |
|----------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                               |   | Average                                                           |   |   | Average |   |   |   |   |
|                                               |   | Volume                                                            |   |   | Rate (1) |   |   | Total |   |
|                                               |   |                                                              |   |   |   |   |   |   |   |
| (In thousands)                                     |   |                                                              |   |   |   |   |   |   |   |
| Increase (decrease) in interest income:            |   |                                                              |   |   |   |   |   |   |   |
| Due from banks                                     |   | $                                                                 | -      |   |   | $ | 1 |   |   | $ | 1 |   |
| Investment securities                              |   |                                                              |   |   |   |   |   |   |   |   |   |   |
| Taxable                                            |   |                                                              | 91     |   |   |   | 7 |   |   |   | 98 |   |
| Exempt from Federal income taxes                   |   |                                                              | (4     | ) |   |   | 13 |   |   |   | 9 |   |
| Total securities                                   |   |                                                              | 87     |   |   |   | 20 |   |   |   | 107 |   |
| Loans                                              |   |                                                              | (122   | ) |   |   | (345 | ) |   |   | (467 | ) |
| Total interest income                              |   | $                                                                 | (35    | ) |   | $ | (324 | ) |   | $ | (359 | ) |
|                                               |   |                                                              |   |   |   |   |   |   |   |   |   |   |
| Increase (decrease) in interest expense:           |   |                                                              |   |   |   |   |   |   |   |   |   |   |
| Other interest bearing deposits                    |   |                                                              | -      |   |   |   | (79 | ) |   |   | (79 | ) |
| Time deposits less than $100,000                   |   |                                                              | (14    | ) |   |   | (78 | ) |   |   | (92 | ) |
| Time deposits $100,000 or more                     |   |                                                              | (54    | ) |   |   | (307 | ) |   |   | (361 | ) |
| Total interest-bearing deposits                    |   |                                                              | (68    | ) |   |   | (464 | ) |   |   | (532 | ) |
| Long-term debt                                     |   |                                                              | (15    | ) |   |   | (17 | ) |   |   | (32 | ) |
| Junior subordinated deferrable interest debentures |   |                                                              | -      |   |   |   | - |   |   |   | - |   |
| Total interest expense                             |   |                                                              | (83    | ) |   |   | (481 | ) |   |   | (564 | ) |
| Increase in net interest income                    |   | $                                                                 | 48     |   |   | $ | 157 |   |   | $ | 205 |   |

|   | (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)                                              |   | 2011                      |   |   | 2010   |   |   | Increase (Decrease) |   |
| Service charges                                             |   | $                         | 346    |   |   | $      | 387 |   |   | $ | (41 | ) |
| Gain on sale of available-for-sale investment securities    |   |                      | 37     |   |   |   | - |   |   |   | 37 |   |
| Mortgage loan brokerage fees                                |   |                      | 29     |   |   |   | 8 |   |   |   | 21 |   |
| Earnings on cash surrender value of life insurance policies |   |                      | 146    |   |   |   | 146 |   |   |   | - |   |
| Other                                                       |   |                      | 102    |   |   |   | 84 |   |   |   | 18 |   |
| Total non-interest income                                   |   | $                         | 660    |   |   | $      | 625 |   |   | $ | 35 |   |

----

Index

|                                 |   | Six Months ended June 30, |   |   |   |   |
|--------------------------------------|--------|---------------------------|--------|--------|--------|--------|
| (in thousands)                       |   | 2011                      |   |   | 2010   |   |   | Increase (Decrease) |   |
| Salaries and employee benefits       |   | $                         | 2,773  |   |   | $      | 2,727 |   |   | $ | 46 |   |
| Occupancy and equipment              |   |                      | 670    |   |   |   | 663 |   |   |   | 7 |   |
| Data processing                      |   |                      | 322    |   |   |   | 314 |   |   |   | 8 |   |
| Operations                           |   |                      | 186    |   |   |   | 178 |   |   |   | 8 |   |
| Professional and legal               |   |                      | 192    |   |   |   | 258 |   |   |   | (66 | ) |
| Advertising and business development |   |                      | 126    |   |   |   | 113 |   |   |   | 13 |   |
| Telephone and postal                 |   |                      | 116    |   |   |   | 108 |   |   |   | 8 |   |
| Supplies                             |   |                      | 102    |   |   |   | 97 |   |   |   | 5 |   |
| Assessment and insurance             |   |                      | 315    |   |   |   | 407 |   |   |   | (92 | ) |
| Other expenses                       |   |                      | 259    |   |   |   | 205 |   |   |   | 54 |   |
| Total non-interest expense           |   | $                         | 5,061  |   |   | $      | 5,070 |   |   | $ | (9 | ) |

----

Index

|                                                         |   | Average balances and weighted average yields and costs |    |
|--------------------------------------------------------------|--------|--------------------------------------------------------|---------|
|                                                         |   | Three Months ended June 30,                            |    |
|                                                         |   | 2011                                                   |    |   | 2010 |   |
|                                                         |   |                                                   |    |   | Interest |   |   | Average |   |   |   |   |   | Interest |   |   | Average |   |
|                                                         |   | Average                                                |    |   | income/ |   |   | yield/ |   |   | Average |   |   | income/ |   |   | yield/ |   |
| (dollars in thousands)                                       |   | Balance                                                |    |   | Expense |   |   | Cost |   |   | Balance |   |   | Expense |   |   | Cost |   |
| ASSETS                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Due from banks                                               |   | $                                                      | 32,773  |   |   | $ | 14 |   |   |   | 0.17 | % |   | $ | 30,460 |   |   | $ | 18 |   |   |   | 0.24 | % |
| Available-for-sale investment securities:                    |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                      |   |                                                   | 44,220  |   |   |   | 263 |   |   |   | 2.39 | % |   |   | 28,738 |   |   |   | 190 |   |   |   | 2.65 | % |
| Exempt from Federal income taxes (1)                         |   |                                                   | 16,379  |   |   |   | 171 |   |   |   | 6.34 | % |   |   | 15,344 |   |   |   | 159 |   |   |   | 6.30 | % |
| Total securities (1)                                         |   |                                                   | 60,599  |   |   |   | 434 |   |   |   | 3.46 | % |   |   | 44,082 |   |   |   | 349 |   |   |   | 3.92 | % |
| Loans (2) (3)                                                |   |                                                   | 234,208 |   |   |   | 3,421 |   |   |   | 5.86 | % |   |   | 242,725 |   |   |   | 3,783 |   |   |   | 6.25 | % |
| Total interest-earning assets (1)                            |   |                                                   | 327,580 |   |   |   | 3,869 |   |   |   | 4.85 | % |   |   | 317,267 |   |   |   | 4,150 |   |   |   | 5.35 | % |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-earning assets, net of allowance for loan losses |   |                                                   | 16,716  |   |   |   |   |   |   |   |   |   |   |   | 26,524 |   |   |   |   |   |   |   |   |   |
| Total assets                                                 |   | $                                                      | 344,296 |   |   |   |   |   |   |   |   |   |   | $ | 343,791 |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                   |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                    |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other interest bearing                                       |   | $                                                      | 120,082 |   |   | $ | 147 |   |   |   | 0.49 | % |   | $ | 119,847 |   |   | $ | 169 |   |   |   | 0.57 | % |
| Time deposits less than $100,000                             |   |                                                   | 21,525  |   |   |   | 51 |   |   |   | 0.95 | % |   |   | 25,640 |   |   |   | 96 |   |   |   | 1.50 | % |
| Time deposits $100,000 or more                               |   |                                                   | 62,650  |   |   |   | 185 |   |   |   | 1.18 | % |   |   | 73,741 |   |   |   | 387 |   |   |   | 2.11 | % |
| Total interest-bearing deposits                              |   |                                                   | 204,257 |   |   |   | 383 |   |   |   | 0.75 | % |   |   | 219,228 |   |   |   | 652 |   |   |   | 1.19 | % |
| Long-term debt                                               |   |                                                   | 2,423   |   |   |   | 31 |   |   |   | 5.13 | % |   |   | 3,484 |   |   |   | 48 |   |   |   | 5.53 | % |
| Junior subordinated deferrable interest debentures           |   |                                                   | 3,093   |   |   |   | 28 |   |   |   | 3.63 | % |   |   | 3,093 |   |   |   | 28 |   |   |   | 3.63 | % |
| Total interest-bearing liabilities                           |   |                                                   | 209,773 |   |   |   | 442 |   |   |   | 0.85 | % |   |   | 225,805 |   |   |   | 728 |   |   |   | 1.29 | % |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest bearing deposits                                 |   |                                                   | 91,308  |   |   |   |   |   |   |   |   |   |   |   | 77,409 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                            |   |                                                   | 3,233   |   |   |   |   |   |   |   |   |   |   |   | 3,059 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                            |   |                                                   | 304,314 |   |   |   |   |   |   |   |   |   |   |   | 306,273 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                   |   |                                                   | 39,982  |   |   |   |   |   |   |   |   |   |   |   | 37,518 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity             |   | $                                                      | 344,296 |   |   |   |   |   |   |   |   |   |   | $ | 343,791 |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income and margin (1)                           |   |                                                   |    |   |   | $ | 3,427 |   |   |   | 4.30 | % |   |   |   |   |   | $ | 3,422 |   |   |   | 4.43 | % |

| (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 $0 and $88 interest received on nonaccrual loans for the three month periods ended June 30, 2011 and 2010, respectively.  There was $57 and $0 interest reversed on loan transferred to nonaccrual status for the periods ended June 30, 2011 and 2010, respectively. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Interest income on loans includes amortized loan fees, net of costs, of $129 and $145 for 2011 and 2010, respectively. |
|-----|------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                               |   | Three months ended June 30, 2011 vs. |   |
|----------------------------------------------------|--------|--------------------------------------|--------|
|                                               |   | June 30, 2010 due to change in:      |   |
|                                               |   | Average                              |   |   | Average |   |   |   |   |
|                                               |   | Volume                               |   |   | Rate (1) |   |   | Total |   |
|                                               |   |                                 |   |   |   |   |   |   |   |
| (In thousands)                                     |   |                                 |   |   |   |   |   |   |   |
| Increase (decrease) in interest income:            |   |                                 |   |   |   |   |   |   |   |
| Due from banks                                     |   | $                                    | 1      |   |   | $ | (5 | ) |   | $ | (4 | ) |
| Investment securities                              |   |                                 |   |   |   |   |   |   |   |   |   |   |
| Taxable                                            |   |                                 | 102    |   |   |   | (29 | ) |   |   | 73 |   |
| Exempt from Federal income taxes                   |   |                                 | 16     |   |   |   | (4 | ) |   |   | 12 |   |
| Total securities                                   |   |                                 | 118    |   |   |   | (33 | ) |   |   | 85 |   |
| Loans                                              |   |                                 | (133   | ) |   |   | (229 | ) |   |   | (362 | ) |
| Total interest income                              |   |                                 | (14    | ) |   |   | (267 | ) |   |   | (281 | ) |
|                                               |   |                                 |   |   |   |   |   |   |   |   |   |   |
| Decrease in interest expense:                      |   |                                 |   |   |   |   |   |   |   |   |   |   |
| Other interest-bearing deposits                    |   |                                 | -      |   |   |   | (22 | ) |   |   | (22 | ) |
| Time deposits less than $100,000                   |   |                                 | (15    | ) |   |   | (30 | ) |   |   | (45 | ) |
| Time deposits $100,000 or more                     |   |                                 | (58    | ) |   |   | (144 | ) |   |   | (202 | ) |
| Total interest-bearing deposits                    |   |                                 | (73    | ) |   |   | (196 | ) |   |   | 69 |   |
| Long-term debt                                     |   |                                 | (15    | ) |   |   | (2 | ) |   |   | (17 | ) |
| Junior subordinated deferrable interest debentures |   |                                 | -      |   |   |   | - |   |   |   | - |   |
| Total interest expense                             |   |                                 | (88    | ) |   |   | (198 | ) |   |   | (286 | ) |
| Increase (decrease) in net interest income         |   | $                                    | 74     |   |   | $ | (69 | ) |   | $ | 5 |   |

----

Index

|                                                               |   | Three Months ended June 30, |   |   |   |   |
|--------------------------------------------------------------------|--------|-----------------------------|--------|--------|--------|--------|
| (in thousands)                                                     |   | 2011                        |   |   | 2010   |   |   | Increase (Decrease) |   |
| Service charges                                                    |   | $                           | 177    |   |   | $      | 202 |   |   | $ | (25 | ) |
| Gain on sale of available-for-sale investment securities, net |   |                        | 23     |   |   |   | - |   |   |   | 23 |   |
| Mortgage loan brokerage fees                                       |   |                        | 7      |   |   |   | 2 |   |   |   | 5 |   |
| Earnings on cash surrender value of life insurance policies        |   |                        | 74     |   |   |   | 79 |   |   |   | (5 | ) |
| Other                                                              |   |                        | 53     |   |   |   | 46 |   |   |   | 7 |   |
| Total non-interest income                                          |   | $                           | 334    |   |   | $      | 329 |   |   | $ | 5 |   |

----

Index

|                                 |   | Three Months ended June 30, |   |   |   |   |
|--------------------------------------|--------|-----------------------------|--------|--------|--------|--------|
| (in thousands)                       |   | 2011                        |   |   | 2010   |   |   | Increase (Decrease) |   |
| Salaries and employee benefits       |   | $                           | 1,323  |   |   | $      | 1,323 |   |   | $ | - |   |
| Occupancy and equipment              |   |                        | 348    |   |   |   | 323 |   |   |   | 25 |   |
| Data processing                      |   |                        | 156    |   |   |   | 151 |   |   |   | 5 |   |
| Operations                           |   |                        | 88     |   |   |   | 89 |   |   |   | (1 | ) |
| Professional and legal               |   |                        | 89     |   |   |   | 129 |   |   |   | (40 | ) |
| Advertising and business development |   |                        | 75     |   |   |   | 57 |   |   |   | 18 |   |
| Telephone and postal                 |   |                        | 52     |   |   |   | 56 |   |   |   | (4 | ) |
| Supplies                             |   |                        | 56     |   |   |   | 49 |   |   |   | 7 |   |
| Assessment and insurance             |   |                        | 143    |   |   |   | 154 |   |   |   | (11 | ) |
| Other expenses                       |   |                        | 155    |   |   |   | 113 |   |   |   | 42 |   |
| Total non-interest expense           |   | $                           | 2,485  |   |   | $      | 2,444 |   |   | $ | 41 |   |

----

Index

| Market value of securities available for sale |   |
|-----------------------------------------------|--------|
|                                          |   |   |   |
|                                          |   | June 30, 2011 |   |
| (in thousands)                                |   | AmortizedCost |   |   | UnrealizedGain |   |   | UnrealizedLoss |   |   | FairValue |   |
| U.S. Government agencies                      |   | $ | 11,529 |   |   | $ | 234 |   |   | $ | (5 | ) |   | $ | 11,758 |   |
| Mortgage-backed securities:                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agencies                      |   |   | 17,323 |   |   |   | 412 |   |   |   | (10 | ) |   |   | 17,725 |   |
| Small Business Administration                 |   |   | 13,242 |   |   |   | 228 |   |   |   | - |   |   |   | 13,470 |   |
| Municipal securities                          |   |   | 16,436 |   |   |   | 232 |   |   |   | (225 | ) |   |   | 16,443 |   |
| Total                                         |   | $ | 58,530 |   |   | $ | 1,106 |   |   | $ | (240 | ) |   | $ | 59,396 |   |

|                          |   | December 31, 2010 |   |
|-------------------------------|--------|-------------------|--------|
| (in thousands)                |   | AmortizedCost     |   |   | UnrealizedGain |   |   | UnrealizedLoss |   |   | FairValue |   |
| U.S. Treasury securities      |   | $                 | 3,841  |   |   | $ | 15 |   |   | $ | (56 | ) |   | $ | 3,800 |   |
| U.S. Government agencies      |   |              | 5,538  |   |   |   | 56 |   |   |   | (61 | ) |   |   | 5,533 |   |
| Mortgage-backed securities:   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agencies      |   |              | 12,577 |   |   |   | 261 |   |   |   | (68 | ) |   |   | 12,770 |   |
| Small Business Administration |   |              | 14,387 |   |   |   | 202 |   |   |   | (12 | ) |   |   | 14,577 |   |
| Municipal securities          |   |              | 14,550 |   |   |   | 22 |   |   |   | (429 | ) |   |   | 14,143 |   |
| Total                         |   | $                 | 50,893 |   |   | $ | 556 |   |   | $ | (626 | ) |   | $ | 50,823 |   |

----

Index

| (dollars in  thousands)   |   | June 30, 2011 |    |   | December 31, 2010 |   |
|-------------------------------------|--------|---------------|---------|--------|-------------------|--------|
| Commercial                          |   | $             | 50,111  |   |              |   | 21 | % |   | $ | 46,294 |   |   |   | 19 | % |
| Real estate – mortgage (1)    |   |          | 162,224 |   |              |   | 67 |   |   |   | 165,202 |   |   |   | 68 |   |
| Real estate – construction    |   |          | 20,373  |   |              |   | 9 |   |   |   | 23,437 |   |   |   | 10 |   |
| Agricultural                        |   |          | 4,421   |   |              |   | 2 |   |   |   | 4,304 |   |   |   | 2 |   |
| Consumer and other                  |   |          | 2,250   |   |              |   | 1 |   |   |   | 2,153 |   |   |   | 1 |   |
| Subtotal                            |   |          | 239,379 |   |              |   | 100 | % |   |   | 241,390 |   |   |   | 100 | % |
| Deferred loan fees, net             |   |          | (314    | )      |              |   |   |   |   |   | (387 | ) |   |   |   |   |
| Allowance for loan and lease losses |   |          | (7,032  | )      |              |   |   |   |   |   | (6,699 | ) |   |   |   |   |
| Total loans, net                    |   | $             | 232,033 |   |              |   |   |   |   | $ | 234,304 |   |   |   |   |   |

| Dollars in thousands               |   |          |   |   |              |   |   |          |   |
|------------------------------------|--------|---------------|--------|--------|-------------------|--------|--------|---------------|--------|
|                               |   | June 30, 2011 |   |   | December 31, 2010 |   |   | June 30, 2010 |   |
|                               |   |          |   |   |              |   |   |          |   |
| Nonperforming Loans                |   | $             | 8,912  |   |              | $      | 6,822  |          |   | $ | 6,703 |   |
| Loans past due 90 days or more and |   |          |   |   |              |   |   |          |   |   |   |   |
| still accruing                     |   |          | -      |   |              |   | -      |          |   |   | - |   |
| Total nonperforming loans          |   | $             | 8,912  |   |              | $      | 6,822  |          |   | $ | 6,703 |   |
|                               |   |          |   |   |              |   |   |          |   |   |   |   |
| Other real estate owned            |   | $             | -      |   |              | $      | -      |          |   | $ | - |   |
| Other vehicles owned               |   |          | -      |   |              |   | -      |          |   |   | - |   |
| Total nonperforming assets         |   | $             | 8,912  |   |              | $      | 6,822  |          |   | $ | 6,703 |   |
|                               |   |          |   |   |              |   |   |          |   |   |   |   |
| Specific Loss Reserve              |   | $             | 160    |   |              | $      | 284    |          |   | $ | 1,065 |   |
| Foregone Interest                  |   | $             | 469    |   |              | $      | 743    |          |   | $ | 251 |   |
| % of Total Loans                   |   |          | 3.72   | %      |              |   | 2.91   | %             |   |   | 2.66 | % |

----

Index

| Dollars in  thousands         |   | June   |   |   | December |   |
|-----------------------------------------|--------|--------|--------|--------|----------|--------|
|                                    |   | 2011   |   |   | 2010     |   |   | 2010 |   |
| Nonaccrual                              |   | $      | 5,217  |   |     | $      | 584 |   |   | $ | 2,929 |   |
| Restructured nonaccrual loans           |   |   | 3,695  |   |     |   | 6,119 |   |   |   | 3,893 |   |
|                                    |   | $      | 8,912  |   |     | $      | 6,703 |   |   | $ | 6,822 |   |
|                                    |   |   |   |   |     |   |   |   |   |   |   |   |
| Accruing loans past due 90 days or more |   |   | -      |   |     |   | - |   |   |   | - |   |
|                                    |   |   |   |   |     |   |   |   |   |   |   |   |
| Nonaccrual loans to total loans         |   |   | 3.73   | %      |     |   | 2.66 | % |   |   | 2.91 | % |

----

Index

|                                                     |   | Six Months Ended |    |   | Six Months Ended |   |    | Year Ended        |   |
|----------------------------------------------------------|--------|------------------|---------|--------|------------------|--------|---------|-------------------|--------|
| (dollars in thousands)                                   |   | June 30, 2011    |    |   | June 30, 2010    |   |    | December 31, 2010 |   |
|                                                     |   |             |    |   |             |   |    |              |   |
| Balance at beginning of period                           |   | $                | 6,699   |   |             | $      | 6,231   |              |   | $ | 6,231 |   |
| Charge-offs:                                             |   |             |    |   |             |   |    |              |   |   |   |   |
| Commercial and agricultural                              |   |             | (4      | )      |             |   | (36     | )                 |   |   | (35 | ) |
| Real estate mortgage                                     |   |             | -       |   |             |   |    |              |   |   | (1,530 | ) |
| Real estate construction                                 |   |             | -       |   |             |   | -       |              |   |   | - |   |
| Consumer                                                 |   |             | -       |   |             |   | (12     | )                 |   |   | (28 | ) |
| Total charge-offs                                        |   |             | (4      | )      |             |   | (48     | )                 |   |   | (1,593 | ) |
| Recoveries:                                              |   |             |    |   |             |   |    |              |   |   |   |   |
| Commercial and agricultural                              |   |             | 12      |   |             |   | 7       |              |   |   | 11 |   |
| Real estate mortgage                                     |   |             | 100     |   |             |   | -       |              |   |   | - |   |
| Real estate construction                                 |   |             | -       |   |             |   | -       |              |   |   | - |   |
| Consumer                                                 |   |             | -       |   |             |   | -       |              |   |   | - |   |
| Total recoveries                                         |   |             | 112     |   |             |   | 7       |              |   |   | 11 |   |
| Net recoveries/(charge-offs)                             |   |             | 108     |   |             |   | (41     | )                 |   |   | (1,582 | ) |
| Provision for loan losses                                |   |             | 225     |   |             |   | 1,250   |              |   |   | 2,050 |   |
| Balance at end of period                                 |   | $                | 7,032   |   |             | $      | 7,440   |              |   | $ | 6,699 |   |
| Net recoveries (charge-offs) to averageloans outstanding |   |             | 0.05    | %      |             |   | (0.02   | )%                |   |   | (0.65 | )% |
| Average loans outstanding                                |   | $                | 234,084 |   |             | $      | 242,083 |              |   | $ | 243,519 |   |
| Ending allowance to total loansoutstanding               |   |             | 2.94    | %      |             |   | 2.95    | %                 |   |   | 2.78 | % |

| (in thousands)                                 |   | June 30,2011 |   |   | December 31,2010 |   |
|------------------------------------------------|--------|--------------|--------|--------|------------------|--------|
|                                           |   |         |   |   |             |   |
| Furniture and equipment                        |   | $            | 2,722  |   |             | $      | 2,647 |   |
| Premises                                       |   |         | 6,596  |   |             |   | 6,582 |   |
| Leasehold improvements                         |   |         | 207    |   |             |   | 207 |   |
| Land                                           |   |         | 1,461  |   |             |   | 1,461 |   |
|                                           |   |         | 10,986 |   |             |   | 10,897 |   |
|                                           |   |         |   |   |             |   |   |   |
| Less accumulated depreciation and amortization |   |         | (2,655 | )      |             |   | (2,386 | ) |
| Total                                          |   | $            | 8,331  |   |             | $      | 8,511 |   |

----

Index

| (dollars in thousands) |   | June 30, 2011 |    |   | December 31, 2010 |   |
|------------------------|--------|---------------|---------|--------|-------------------|--------|
| Non-interest bearing   |   | $             | 91,154  |   |              |   | 31 | % |   | $ | 91,203 |   |   |   | 31 | % |
| Interest bearing       |   |          | 117,675 |   |              |   | 41 |   |   |   | 119,446 |   |   |   | 41 |   |
| Brokered deposits      |   |          | 9,063   |   |              |   | 3 |   |   |   | 9,162 |   |   |   | 3 |   |
| Time deposits          |   |          | 72,062  |   |              |   | 25 |   |   |   | 74,467 |   |   |   | 25 |   |
| Total                  |   | $             | 289,954 |   |              |   | 100 | % |   | $ | 294,278 |   |   |   | 100 | % |

----

Index

| Capital and capital adequacy ratios                                 |   |
|---------------------------------------------------------------------|--------|
|                                                                |   |   |   |
|                                                                |   | June 30, 2011 |   |   | December 31, 2010 |   |
| (dollars in thousands)                                              |   | Amount |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| Leverage Ratio                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Commerce Bancorp and Subsidiary                              |   | $ | 43,149 |   |   |   | 12.5 | % |   | $ | 41,791 |   |   |   | 12.1 | % |
| Minimum regulatory requirement                                      |   | $ | 13,772 |   |   |   | 4.0 | % |   | $ | 13,859 |   |   |   | 4.0 | % |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Business Bank                                                |   | $ | 43,124 |   |   |   | 12.5 | % |   | $ | 41,663 |   |   |   | 12.0 | % |
| Minimum requirement for “Well- Capitalized” institution |   | $ | 17,215 |   |   |   | 5.0 | % |   | $ | 17,324 |   |   |   | 5.0 | % |
| Minimum regulatory requirement                                      |   | $ | 13,767 |   |   |   | 4.0 | % |   | $ | 13,854 |   |   |   | 4.0 | % |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier 1 Risk-Based Capital Ratio                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Commerce Bancorp and Subsidiary                              |   | $ | 43,149 |   |   |   | 16.6 | % |   | $ | 41,791 |   |   |   | 16.2 | % |
| Minimum regulatory requirement                                      |   | $ | 10,412 |   |   |   | 4.0 | % |   | $ | 10,323 |   |   |   | 4.0 | % |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Business Bank                                                |   | $ | 43,124 |   |   |   | 16.6 | % |   | $ | 41,663 |   |   |   | 16.2 | % |
| Minimum requirement for “Well- Capitalized” institution |   | $ | 15,614 |   |   |   | 6.0 | % |   | $ | 15,479 |   |   |   | 6.0 | % |
| Minimum regulatory requirement                                      |   | $ | 10,409 |   |   |   | 4.0 | % |   | $ | 10,319 |   |   |   | 4.0 | % |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Risk-Based Capital Ratio                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Commerce Bancorp and Subsidiary                              |   | $ | 43,865 |   |   |   | 17.8 | % |   | $ | 45,060 |   |   |   | 17.5 | % |
| Minimum regulatory requirement                                      |   | $ | 20,824 |   |   |   | 8.0 | % |   | $ | 20,645 |   |   |   | 8.0 | % |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Business Bank                                                |   | $ | 43,865 |   |   |   | 17.8 | % |   | $ | 44,931 |   |   |   | 17.4 | % |
| Minimum requirement for “Well- Capitalized” institution |   | $ | 26,023 |   |   |   | 10.0 | % |   | $ | 25,798 |   |   |   | 10.0 | % |
| Minimum regulatory requirement                                      |   | $ | 20,818 |   |   |   | 8.0 | % |   | $ | 20,639 |   |   |   | 8.0 | % |

----

Index

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4 – CONTROLS AND PROCEDURES

----

Index

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

ITEM 1A – RISK FACTORS

ITEM 2 – CHANGES IN SECURITIES AND USE OF PROCEEDS

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

----

Index

ITEM 4 – REMOVED AND RESERVED

ITEM 5 – OTHER INFORMATION

ITEM 6 – EXHIBITS

----

Index

SIGNATURES

|                  | VALLEY COMMERCE BANCORP |
|-----------------------|-------------------------|
|                  |                    |
| Date: August 12, 2011 | By:                     | /s/ Allan W. Stone |
|                  |                    | Allan W. Stone |
|                  |                    | President and Chief Executive Officer |
|                  |                    |
| Date: August 12, 2011 | By:                     | /s/ Roy O. Estridge |
|                  |                    | Roy O. Estridge, Chief Financial Officer and Chief Operating Officer |

----

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 |
|------|-----------------------------|

----