----

----

| T | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009 |
|---|--------------------------------------------------------------------------------------------------------------------------------------|

| £ | 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 | T      |

----

----

----

INDEX

| PART I - FINANCIAL INFORMATION                                                                      | 3      |
|-----------------------------------------------------------------------------------------------------|--------|
|                                                                                                |   |
| ITEM 1 - FINANCIAL STATEMENTS                                                                       | 4      |
|                                                                                                |   |
| ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATONS | 19     |
|                                                                                                |   |
| ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           | 35     |
|                                                                                                |   |
| ITEM 4 – CONTROLS AND PROCEDURES                                                              | 35     |
|                                                                                                |   |
| PART II - OTHER INFORMATION                                                                         | 36     |
|                                                                                                |   |
| ITEM 1 LEGAL PROCEEDINGS                                                                            | 36     |
|                                                                                                |   |
| ITEM 1A  RISK FACTORS                                                                     | 36     |
|                                                                                                |   |
| ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                  | 36     |
|                                                                                                |   |
| ITEM 3 DEFAULTS UPON SENIOR SECURITIES                                                              | 36     |
|                                                                                                |   |
| ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                          | 37     |
|                                                                                                |   |
| ITEM 5 OTHER INFORMATION                                                                            | 37     |
|                                                                                                |   |
| ITEM 6 EXHIBITS                                                                                     | 37     |
|                                                                                                |   |
| SIGNATURES                                                                                          | 38     |
|                                                                                                |   |
| EXHIBIT INDEX                                                                                       | 39     |

----

Index

PART I

----

Index

ITEM 1

|                                                                                                                                                                                                  |   | June 30,2009 |        |   | December 31,2008 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-------------|--------|-----------------------|--------|
|                                                                                                                                                                                                  |   |              |        |   |                  |   |
| Assets                                                                                                                                                                                                |   |              |        |   |                  |   |
| Cash and due from banks                                                                                                                                                                               |   | $                 | 13,163,808  |   |                  | $      | 8,755,867 |   |
| Federal funds sold                                                                                                                                                                                    |   |              | -           |   |                  |   | 13,390,000 |   |
| Total cash and cash equivalents                                                                                                                                                                       |   |              | 13,163,808  |   |                  |   | 22,145,867 |   |
| Available-for-sale investment securities, at fair value                                                                                                                                               |   |              | 49,885,000  |   |                  |   | 42,018,000 |   |
| Loans, less allowance for loan losses of $4,471,390 at June 30, 2009 and $3,254,454 at December 31, 2008 (Note 3)                                                                                     |   |              | 240,811,278 |   |                  |   | 226,696,838 |   |
| Bank premises and equipment, net                                                                                                                                                                      |   |              | 7,564,355   |   |                  |   | 3,974,845 |   |
| Cash surrender value of bank-owned life insurance                                                                                                                                                     |   |              | 6,218,531   |   |                  |   | 6,421,863 |   |
| Accrued interest receivable and other assets                                                                                                                                                          |   |              | 6,462,398   |   |                  |   | 4,841,565 |   |
| Total assets                                                                                                                                                                                          |   | $                 | 324,105,370 |   |                  | $      | 306,098,978 |   |
|                                                                                                                                                                                                  |   |              |        |   |                  |   |   |   |
| Liabilities and Shareholders’ Equity                                                                                                                                                            |   |              |        |   |                  |   |   |   |
| Deposits:                                                                                                                                                                                             |   |              |        |   |                  |   |   |   |
| Noninterest-bearing                                                                                                                                                                                   |   | $                 | 66,025,101  |   |                  | $      | 77,405,517 |   |
| Interest-bearing                                                                                                                                                                                      |   |              | 204,810,947 |   |                  |   | 179,917,916 |   |
| Total deposits                                                                                                                                                                                        |   |              | 270,836,048 |   |                  |   | 257,323,433 |   |
|                                                                                                                                                                                                  |   |              |        |   |                  |   |   |   |
| Accrued interest payable and other liabilities                                                                                                                                                        |   |              | 2,420,722   |   |                  |   | 2,357,915 |   |
| Short-term debt                                                                                                                                                                                       |   |              | 5,450,000   |   |                  |   | 8,000,000 |   |
| Long-term debt                                                                                                                                                                                        |   |              | 3,774,537   |   |                  |   | 5,184,346 |   |
| Junior subordinated deferrable interest debentures                                                                                                                                                    |   |              | 3,093,000   |   |                  |   | 3,093,000 |   |
| Total liabilities                                                                                                                                                                                     |   |              | 285,574,307 |   |                  |   | 275,958,694 |   |
|                                                                                                                                                                                                  |   |              |        |   |                  |   |   |   |
| Commitments and contingencies (Note 5)                                                                                                                                                                |   |              |        |   |                  |   |   |   |
|                                                                                                                                                                                                  |   |              |        |   |                  |   |   |   |
| Shareholders’ equity:                                                                                                                                                                           |   |              |        |   |                  |   |   |   |
| Serial preferred stock - no par value; 10,000,000 shares authorized, issued and outstanding – 7,700 shares class B and 385 shares class C at June 30, 2009 and none issued at December 31, 2008 |   |              | 7,707,570   |   |                  |   | - |   |
| Common stock - no par value; 30,000,000 shares authorized; issued and outstanding – 2,597,149 shares at June 30, 2009 and December 31, 2008                                                     |   |              | 25,683,185  |   |                  |   | 24,684,529 |   |
| Retained earnings                                                                                                                                                                                     |   |              | 5,057,810   |   |                  |   | 5,359,535 |   |
| Accumulated other comprehensive income, net of taxes (Note 7)                                                                                                                                         |   |              | 82,498      |   |                  |   | 96,220 |   |
| Total shareholders’ equity income                                                                                                                                                               |   |              | 38,531,063  |   |                  |   | 30,140,284 |   |
| Total liabilities and shareholders’ equity                                                                                                                                                      |   | $                 | 324,105,370 |   |                  | $      | 306,098,978 |   |

----

Index

|                                                           |   | For the Three Months |      |   | For the Six Months  |   |
|----------------------------------------------------------------|--------|----------------------|-----------|--------|---------------------|--------|
|                                                           |   | Ended June 30,  |      |   | Ended June 30, |   |
|                                                           |   | 2009                 |      |   | 2008                |   |   | 2009 |   |   | 2008 |   |
| Interest Income:                                               |   |                 |      |   |                |   |   |   |   |   |   |   |
| Interest and fees on loans                                     |   | $                    | 3,663,720 |   |                | $      | 3,897,251 |   |   | $ | 7,375,087 |   |   | $ | 7,744,467 |   |
| Interest on investment securities:                             |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                        |   |                 | 317,118   |   |                |   | 311,273 |   |   |   | 623,566 |   |   |   | 716,938 |   |
| Exempt from Federal income taxes                               |   |                 | 199,868   |   |                |   | 197,981 |   |   |   | 396,409 |   |   |   | 393,533 |   |
| Interest on Federal funds sold                                 |   |                 | 1,337     |   |                |   | 47,507 |   |   |   | 9,899 |   |   |   | 48,100 |   |
| Total interest income                                          |   |                 | 4,182,043 |   |                |   | 4,454,012 |   |   |   | 8,404,961 |   |   |   | 8,903,038 |   |
|                                                           |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Interest Expense:                                              |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Interest on deposits                                           |   |                 | 908,246   |   |                |   | 1,176,589 |   |   |   | 1,938,029 |   |   |   | 2,382,965 |   |
| Interest on short-term debt                                    |   |                 | 2,679     |   |                |   | 56,599 |   |   |   | 27,934 |   |   |   | 193,726 |   |
| Interest on long-term debt                                     |   |                 | 50,463    |   |                |   | 77,097 |   |   |   | 116,556 |   |   |   | 163,887 |   |
| Interest on junior subordinated deferrable interest debentures |   |                 | 34,623    |   |                |   | 47,941 |   |   |   | 70,842 |   |   |   | 107,622 |   |
| Total interest expense                                         |   |                 | 996,011   |   |                |   | 1,358,226 |   |   |   | 2,153,361 |   |   |   | 2,848,200 |   |
|                                                           |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income before provision for loan losses           |   |                 | 3,186,032 |   |                |   | 3,095,786 |   |   |   | 6,251,600 |   |   |   | 6,054,838 |   |
|                                                           |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses                                      |   |                 | 1,000,000 |   |                |   | 400,000 |   |   |   | 1,400,000 |   |   |   | 800,000 |   |
| Net interest income after provision for loan losses            |   |                 | 2,186,032 |   |                |   | 2,695,786 |   |   |   | 4,851,600 |   |   |   | 5,254,838 |   |
|                                                           |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest Income:                                           |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Service charges                                                |   |                 | 190,380   |   |                |   | 165,244 |   |   |   | 368,872 |   |   |   | 335,694 |   |
| Gain on sale of available-for-sale investment securities, net  |   |                 | 4,062     |   |                |   | 46,412 |   |   |   | 4,062 |   |   |   | 46,412 |   |
| Mortgage loan brokerage fees                                   |   |                 | 14,982    |   |                |   | 25,721 |   |   |   | 27,482 |   |   |   | 33,801 |   |
| Earnings on cash surrender value of life insurance policies    |   |                 | 67,582    |   |                |   | 66,865 |   |   |   | 142,018 |   |   |   | 132,619 |   |
| Gain from bank owned life insurance                            |   |                 | 317,488   |   |                |   | - |   |   |   | 317,488 |   |   |   | - |   |
| Other                                                          |   |                 | 53,087    |   |                |   | 85,393 |   |   |   | 104,317 |   |   |   | 132,187 |   |
| Total non-interest income                                      |   |                 | 647,581   |   |                |   | 389,635 |   |   |   | 964,239 |   |   |   | 680,713 |   |
|                                                           |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest Expense:                                          |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                                 |   |                 | 1,176,063 |   |                |   | 1,273,029 |   |   |   | 2,462,798 |   |   |   | 2,556,298 |   |
| Occupancy and equipment                                        |   |                 | 401,843   |   |                |   | 313,292 |   |   |   | 782,442 |   |   |   | 599,284 |   |
| Other                                                          |   |                 | 751,658   |   |                |   | 728,390 |   |   |   | 1,603,700 |   |   |   | 1,434,576 |   |
| Total non-interest expense                                     |   |                 | 2,329,564 |   |                |   | 2,314,711 |   |   |   | 4,848,940 |   |   |   | 4,590,158 |   |
|                                                           |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Income before provision for income taxes                       |   |                 | 504,049   |   |                |   | 770,710 |   |   |   | 966,899 |   |   |   | 1,345,393 |   |
|                                                           |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Provision for (benefit from) income taxes                      |   |                 | (28,000   | )      |                |   | 235,000 |   |   |   | 88,000 |   |   |   | 392,000 |   |
|                                                           |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                     |   | $                    | 532,049   |   |                | $      | 535,710 |   |   | $ | 878,899 |   |   | $ | 953,393 |   |
| Dividends accrued and discount accreted on preferred Shares    |   |                 | (69,513   | )      |                |   | - |   |   |   | (161,485 | ) |   |   | - |   |
| Net income available to common shareholders                    |   | $                    | 462,536   |   |                | $      | 535,710 |   |   | $ | 717,414 |   |   | $ | 953,393 |   |
|                                                           |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share (Notes 2 and 6)                       |   | $                    | 0.18      |   |                | $      | 0.21 |   |   | $ | 0.28 |   |   | $ | 0.37 |   |
|                                                           |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings per share (Notes 2 and 6)                     |   | $                    | 0.18      |   |                | $      | 0.21 |   |   | $ | 0.28 |   |   | $ | 0.36 |   |

----

Index

|                                                                                  |   | For the Six Months  |        |
|---------------------------------------------------------------------------------------|--------|---------------------|-------------|
|                                                                                  |   | Ended June 30, |        |
|                                                                                  |   | 2009                |        |   | 2008 |   |
|                                                                                  |   |                |        |   |   |   |
| Cash Flows from Operating Activities:                                                 |   |                |        |   |   |   |
| Net income                                                                            |   | $                   | 878,899     |   |   | $ | 953,393 |   |
| Adjustments to reconcile net income to net cash provided by operating activities:     |   |                |        |   |   |   |   |   |
| Provision for loan losses                                                             |   |                | 1,400,000   |   |   |   | 800,000 |   |
| Increase in deferred loan origination fees, net                                       |   |                | 101,890     |   |   |   | 81,621 |   |
| Depreciation                                                                          |   |                | 342,308     |   |   |   | 213,470 |   |
| Amortization of intangibles                                                           |   |                | -           |   |   |   | 7,718 |   |
| Gain on sale of available-for-sale investment securities, net                         |   |                | (4,062      | ) |   |   | (46,412 | ) |
| Dividends on Federal Home Loan Bank stock                                             |   |                | -           |   |   |   | (45,800 | ) |
| Accretion of discounts on investment securities, net                                  |   |                | (7,282      | ) |   |   | (66,380 | ) |
| Increase in cash surrender value of bank-owned life insurance                         |   |                | (142,018    | ) |   |   | (227,855 | ) |
| Gain from bank owned life insurance                                                   |   |                | (317,488    | ) |   |   | - |   |
| Stock-based compensation expense                                                      |   |                | 28,712      |   |   |   | 34,850 |   |
| Loss on disposition of premises and equipment                                         |   |                | -           |   |   |   | 558 |   |
| Decrease in accrued interest receivable and other assets                              |   |                | (796,433    | ) |   |   | (582,218 | ) |
| Increase in accrued interest payable and other liabilities                            |   |                | 72,402      |   |   |   | 268,144 |   |
| Net cash provided by operating activities                                             |   |                | 1,556,928   |   |   |   | 1,391,089 |   |
|                                                                                  |   |                |        |   |   |   |   |   |
| Cash Flows from Investing Activities:                                                 |   |                |        |   |   |   |   |   |
| Proceeds from matured and called available-for-sale investment securities             |   |                | 568,561     |   |   |   | 8,500,000 |   |
| Proceeds from sales of available-for-sale investment securities                       |   |                | 1,578,160   |   |   |   | 4,500,000 |   |
| Purchases of available-for-sale investment securities                                 |   |                | (12,937,763 | ) |   |   | (1,455,840 | ) |
| Proceeds from principal repayments from available-for-sale mortgage-backed securities |   |                | 2,912,070   |   |   |   | 1,993,103 |   |
| (Purchase) redemption of Federal Home Loan Bank Stock, net                            |   |                | (14,800     | ) |   |   | 256,100 |   |
| Net increase in loans                                                                 |   |                | (16,899,200 | ) |   |   | (17,352,667 | ) |
| Purchase of premises and equipment                                                    |   |                | (3,931,818  | ) |   |   | (1,292,909 | ) |
| Proceeds from bank owned life insurance                                               |   |                | 662,838     |   |   |   |   |   |
| Proceeds from sale of other real estate                                               |   |                | 473,270     |   |   |   | - |   |
| Net cash used in investing activities                                                 |   |                | (27,588,682 | ) |   |   | (4,852,213 | ) |

----

Index

|                                                              |   | For the Six Months  |       |
|-------------------------------------------------------------------|--------|---------------------|------------|
|                                                              |   | Ended June 30, |       |
|                                                              |   | 2009                |       |   | 2008 |   |
|                                                              |   |                |       |   |   |   |
| Cash Flows from Financing Activities:                             |   |                |       |   |   |   |
| Net increase in noninterest-bearing and interest-bearing deposits |   | $                   | 10,099,956 |   |   | $ | 5,781,333 |   |
| Net increase in time deposits                                     |   |                | 3,412,658  |   |   |   | 40,833,937 |   |
| Proceeds from exercised stock options                             |   |                | -          |   |   |   | 3,975 |   |
| Proceeds from issuance of preferred stock                         |   |                | 7,499,467  |   |   |   | - |   |
| Cash paid to repurchase common stock                              |   |                | -          |   |   |   | (804,118 | ) |
| Decrease in short-term borrowings,net                             |   |                | (2,550,000 | ) |   |   | (13,804,000 | ) |
| Principal payments on long-term debt                              |   |                | (1,409,809 | ) |   |   | (2,604,555 | ) |
| Cash paid to repurchase fractional shares                         |   |                | (2,577     | ) |   |   | (3,489 | ) |
| Net cash provided by financing activities                         |   |                | 17,049,695 |   |   |   | 24,403,083 |   |
|                                                              |   |                |       |   |   |   |   |   |
| (Decrease) increase in cash and cash equivalents                  |   |                | (8,982,059 | ) |   |   | 25,941,959 |   |
| Cash and Cash Equivalents at Beginning of Year                    |   |                | 22,145,867 |   |   |   | 9,297,346 |   |
| Cash and Cash Equivalents at End of Period                        |   | $                   | 13,163,808 |   |   | $ | 35,239,305 |   |
|                                                              |   |                |       |   |   |   |   |   |
| Supplemental Disclosure of Cash Flow Information:                 |   |                |       |   |   |   |   |   |
| Cash paid during the period for:                                  |   |                |       |   |   |   |   |   |
| Interest expense                                                  |   | $                   | 2,290,252  |   |   | $ | 2,771,740 |   |
| Income taxes                                                      |   | $                   | 745,000    |   |   | $ | 1,027,000 |   |
|                                                              |   |                |       |   |   |   |   |   |
| Non-Cash Investing Activities:                                    |   |                |       |   |   |   |   |   |
| Net change in unrealized loss on available-for-sale securities    |   | $                   | (23,317    | ) |   | $ | (339,118 | ) |
| Non-cash Financing Activities:                                    |   |                |       |   |   |   |   |   |
| Accrued dividends on preferred stock                              |   | $                   | 176,020    |   |   | $ | - |   |
| Cumulative effect of adopting EITF 06-04                          |   | $                   | -          |   |   | $ | 102,115 |   |
| Transfer of loans to other real estate owned                      |   | $                   | 1,282,870  |   |   | $ | - |   |

| See notes to unaudited condensed consolidated financial statements. |
|---------------------------------------------------------------------|

----

Index

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

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

----

Index

| 3. | LOANS |
|----|-------|

|                               |   | June 30,2009 |        |   | December 31,2008 |   |
|------------------------------------|--------|-------------------|-------------|--------|-----------------------|--------|
| Commercial                         |   | $                 | 60,039,379  |   |                  | $      | 58,324,986 |   |
| Real estate – mortgage       |   |              | 148,555,976 |   |                  |   | 129,267,195 |   |
| Real estate – construction   |   |              | 29,502,853  |   |                  |   | 35,113,099 |   |
| Agricultural                       |   |              | 4,856,838   |   |                  |   | 4,010,551 |   |
| Consumer                           |   |              | 2,770,261   |   |                  |   | 3,566,210 |   |
|                               |   |              | 245,725,307 |   |                  |   | 230,282,041 |   |
|                               |   |              |        |   |                  |   |   |   |
| Deferred loan fees,  net |   |              | (442,639    | )      |                  |   | (340,749 | ) |
| Allowance for loan losses          |   |              | (4,471,390  | )      |                  |   | (3,244,454 | ) |
|                               |   | $                 | 240,811,278 |   |                  | $      | 226,696,838 |   |

| 4. | BANK PREMISES AND EQUIPMENT |
|----|-----------------------------|

|                                           |   | June 30,2009 |          |   | December 31,2008 |   |
|------------------------------------------------|--------|-------------------|---------------|--------|-----------------------|--------|
| Furniture and equipment                        |   | $                 | 2,091,678     |   |                  | $      | 2,805,728 |   |
| Premises                                       |   |              | 2,855,444     |   |                  |   | 2,094,517 |   |
| Leasehold improvements                         |   |              | 550,548       |   |                  |   | 550,548 |   |
| Construction in progress, premises             |   |              | 3,041,212     |   |                  |   | 5,957 |   |
| Construction in process, land                  |   |              |  849,685 |   |                  |   |  - |   |
| Land                                           |   |              | 601,530       |   |                  |   | 601,530 |   |
|                                           |   |              | 9,990,097     |   |                  |   | 6,058,280 |   |
|                                           |   |              |          |   |                  |   |   |   |
| Less accumulated depreciation and amortization |   |              | (2,425,742    | )      |                  |   | (2,083,435 | ) |
|                                           |   | $                 | 7,564,355     |   |                  | $      | 3,974,845 |   |

| 5. | COMMITMENTS AND CONTINGENCIES |
|----|-------------------------------|

----

Index

| 6. | STOCK BASED COMPENSATION |
|----|--------------------------|

----

Index

|                                                   |   | For the Six Months Ended June 30, 2009 |   |
|--------------------------------------------------------|--------|----------------------------------------|--------|
|                                                   |   |                                   |   |   |   |   |   |   |   |   |
|                                                   |   | Shares                                 |   |   | Weighted Average Exercise Price |   | Weighted Average Remaining Contractual Term |   | Aggregate Intrinsic Value (in thousands) |   |
|                                                   |   |                                   |   |   |   |   |   |   |   |   |
| Incentive:                                             |   |                                   |   |   |   |   |   |   |   |   |
| Options outstanding at January 1, 2009                 |   |                                   | 74,878 |   |   | $ | 10.36 |   |   |   |   |   |
| Options granted                                        |   |                                   | -      |   |   |   | - |   |   |   |   |   |
| Options exercised                                      |   |                                   | -      |   |   |   | - |   |   |   |   |   |
| Options cancelled                                      |   |                                   | (522   | ) |   |   | 13.15 |   |   |   |   |   |
| Options outstanding at June 30, 2009                   |   |                                   | 74,356 |   |   |   | 10.34 |   | 5.84 years |   | $ | 61,157 | (1) |
| Options vested or expected to vest after June 30, 2009 |   |                                   | 51,538 |   |   |   | 9.09 |   | 4.17 years |   |   | 42,559 | (1) |
| Options exercisable at June 30, 2009                   |   |                                   | 43,926 |   |   |   | 8.40 |   | 4.01 years |   |   | 61,157 | (1) |
|                                                   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
|                                                   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Nonstatutory:                                          |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Options outstanding at January 1, 2009                 |   |                                   | 99,132 |   |   | $ | 8.68 |   |   |   |   |   |   |
| Options granted                                        |   |                                   | -      |   |   |   | - |   |   |   |   |   |   |
| Options exercised                                      |   |                                   | -      |   |   |   | - |   |   |   |   |   |   |
| Options cancelled                                      |   |                                   | -      |   |   |   | - |   |   |   |   |   |   |
| Options outstanding at June 30, 2009                   |   |                                   | 99,132 |   |   |   | 8.68 |   | 2.71 years |   | $ | 158,891 | (1) |
| Options vested or expected to vest after June 30, 2009 |   |                                   | 96,815 |   |   |   | 8.48 |   | 2.71 years |   |   | 158,891 | (1) |
| Options exercisable at June 30, 2009                   |   |                                   | 96,815 |   |   |   | 8.48 |   | 3.12 years |   |   | 158,891 | (1) |

----

Index

| 7. | EARNINGS PER SHARE COMPUTATION |
|----|--------------------------------|

|                                                         |   | For the Three Months |      |   | For the Six Months  |   |
|--------------------------------------------------------------|--------|----------------------|-----------|--------|---------------------|--------|
|                                                         |   | Ended June 30,  |      |   | Ended June 30, |   |
|                                                         |   | 2009                 |      |   | 2008                |   |   | 2009 |   |   | 2008 |   |
| Net Income:                                                  |   |                 |      |   |                |   |   |   |   |   |   |   |
| Net income                                                   |   | $                    | 532,049   |   |                | $      | 535,710 |   |   | $ | 878,899 |   |   | $ | 953,393 |   |
| Dividends accrued and discounts accreted on preferred shares |   |                 | (69,513   | )      |                |   | - |   |   |   | (161,485 | ) |   |   | - |   |
| Net income allocated to common shareholders                  |   | $                    | 462,536   |   |                | $      | 535,710 |   |   | $ | 717,414 |   |   | $ | 953,393 |   |
| Earnings Per Share:                                          |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share                                     |   | $                    | 0.18      |   |                | $      | 0.21 |   |   | $ | 0.28 |   |   | $ | 0.37 |   |
| Diluted earnings per share                                   |   | $                    | 0.18      |   |                | $      | 0.21 |   |   | $ | 0.28 |   |   | $ | 0.36 |   |
| Weighted Average Number of Shares Outstanding:               |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Basic shares                                                 |   |                 | 2,597,149 |   |                |   | 2,583,700 |   |   |   | 2,597,149 |   |   |   | 2,583,700 |   |
| Diluted shares                                               |   |                 | 2,617,527 |   |                |   | 2,609,273 |   |   |   | 2,605,758 |   |   |   | 2,616,200 |   |

| 8. | COMPREHENSIVE INCOME |
|----|----------------------|

|                                                                            |   | For the Three Months |    |   | For the Six Months |   |
|---------------------------------------------------------------------------------|--------|----------------------|---------|--------|--------------------|--------|
|                                                                            |   | Ended                |    |   | Ended              |   |
|                                                                            |   | June 30,        |    |   | June 30,      |   |   | June 30, |   |   | June 30, |   |
|                                                                            |   | 2009                 |    |   | 2008               |   |   | 2009 |   |   | 2008 |   |
|                                                                            |   |                 |    |   |               |   |   |   |   |   |   |   |
| Net income                                                                      |   | $                    | 532,049 |   |               | $      | 535,710 |   |   | $ | 878,899 |   |   | $ | 953,393 |   |
| Other comprehensive (loss):                                                     |   |                 |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding loss on available-for-sale investment securities, net of tax |   |                 | (74,848 | )      |               |   | (682,523 | ) |   |   | (13,722 | ) |   |   | (192,024 | ) |
| Total other comprehensive income (loss)                                         |   | $                    | 457,201 |   |               | $      | (146,813 | ) |   | $ | 865,177 |   |   | $ | 761,369 |   |

----

Index

| 9. | INCOME TAXES |
|----|--------------|

| 10. | STOCK REPURCHASE |
|-----|------------------|

----

Index

| 11. | PREFERRED STOCK |
|-----|-----------------|

----

Index

| 12. | FAIR VALUE MEASUREMENT |
|-----|------------------------|

|                                     |   |               |       |   | Fair Value Measurements                              |   |
|------------------------------------------|--------|--------------------|------------|--------|------------------------------------------------------|--------|
|                                     |   |               |       |   | at June 30, 2009, Using                         |   |
| (in thousands)                           |   | Fair Value         |       |   | Quoted Prices in Active Markets for Identical Assets |   |   | Other Observable Inputs |   |   | Significant Unobservable Inputs |   |
|                                     |   | June 30, 2009 |       |   | (Level 1)                                            |   |   | (Level 2) |   |   | (Level 3) |   |
| Assets:                                  |   |               |       |   |                                                 |   |   |   |   |   |   |   |
| Available-for-sale investment securities |   | $                  | 49,885,000 |   |                                                 |   | — |   |   | $ | 49,885,000 |   |   |   | — |   |

----

Index

|           |   |          |       |   | Fair Value Measurements                              |   |
|----------------|--------|---------------|------------|--------|------------------------------------------------------|--------|
|           |   |          |       |   | at June 30, 2009, Using                              |   |
| (in thousands) |   | Fair Value    |       |   | Quoted Prices in Active Markets for Identical Assets |   |   | Other Observable Inputs |   |   | Significant Unobservable Inputs |   |
|           |   | June 30, 2009 |       |   | (Level 1)                                            |   |   | (Level 2) |   |   | (Level 3) |   |
| Assets:        |   |          |       |   |                                                 |   |   |   |   |   |   |   |
|           |   |          |       |   |                                                 |   |   |   |   |   |   |   |
| Impaired loans |   | $             | 10,853,000 |   |                                                 |   | — |   |   | $ | 984,000 |   |   | $ | 9,869,000 |   |

----

Index

|                    |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |    |   | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   | Balance |   |
|-------------------------|--------|--------------------------------------------------------------------|---------|--------|----------------------------------------------|--------|--------|------------------------------------------|--------|---------|--------|
|                    |   |                                                               |    |   |                                         |   |   |                                     |   |    |   |
| Assets at June 30, 2009 |   |                                                               |    |   |                                         |   |   |                                     |   |    |   |
| Other real estate owned |   | $                                                                  | 809,600 |   |                                         | $      | -      |                                     |   | $       | -      |   |   | $ | 809,600 |   |

----

Index

|                                               |   | June 30, 2009 |        |   | December 31, 2008 |   |
|----------------------------------------------------|--------|--------------------|-------------|--------|------------------------|--------|
|                                               |   | CarryingAmount     |        |   | FairValue              |   |   | CarryingAmount |   |   | FairValue |   |
|                                               |   |               |        |   |                   |   |   |   |   |   |   |   |
| Financial assets:                                  |   |               |        |   |                   |   |   |   |   |   |   |   |
| Cash and cash equivalents                          |   | $                  | 13,163,808  |   |                   | $      | 13,163,808 |   |   | $ | 8,755,867 |   |   | $ | 8,755,867 |   |
| Federal funds sold                                 |   |               | -           |   |                   |   | - |   |   |   | 13,390,000 |   |   |   | 13,390,000 |   |
| Available-for-sale investment securities           |   |               | 49,885,000  |   |                   |   | 49,885,000 |   |   |   | 42,018,000 |   |   |   | 42,018,000 |   |
| Loans, net                                         |   |               | 226,696,838 |   |                   |   | 216,364,070 |   |   |   | 226,696,838 |   |   |   | 220,628,940 |   |
| Cash surrender value of life insurance policies    |   |               | 6,218,531   |   |                   |   | 6,218,531 |   |   |   | 6,421,863 |   |   |   | 6,421,863 |   |
| Accrued interest receivable                        |   |               | 5,343,398   |   |                   |   | 5,343,398 |   |   |   | 3,737,365 |   |   |   | 3,737,365 |   |
| FHLB stock                                         |   |               | 1,119,000   |   |                   |   | 1,119,000 |   |   |   | 1,104,200 |   |   |   | 1,104,200 |   |
|                                               |   |               |        |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                             |   |               |        |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                           |   |               | 257,323,433 |   |                   |   | 257,928,771 |   |   |   | 257,323,433 |   |   |   | 256,576,304 |   |
| Short-term debt                                    |   |               | 5,450,000   |   |                   |   | 5,450,000 |   |   |   | 8,000,000 |   |   |   | 8,000,000 |   |
| Long-term debt                                     |   |               | 3,774,537   |   |                   |   | 3,487,925 |   |   |   | 5,184,346 |   |   |   | 4,976,558 |   |
| Junior subordinated deferrable interest debentures |   |               | 3,093,000   |   |                   |   | 2,474,000 |   |   |   | 3,093,000 |   |   |   | 866,000 |   |
| Accrued interest payable                           |   |               | 159,887     |   |                   |   | 159,887 |   |   |   | 296,779 |   |   |   | 296,779 |   |
|                                               |   |               |        |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Off-balance-sheet financial Instruments:           |   |               |        |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Commitments to extend credit                       |   |               | 35,745,717  |   |                   |   | 35,745,717 |   |   |   | 47,408,997 |   |   |   | 47,408,977 |   |
| Standby letters of credit                          |   |               | 122,700     |   |                   |   | 122,700 |   |   |   | 337,330 |   |   |   | 337,330 |   |

----

Index

ITEM 2 – MANAGEMENT’S 

----

Index

----

Index

|                                                         |   | Average balances and weighted average yields and costs |    |
|--------------------------------------------------------------|--------|--------------------------------------------------------|---------|
|                                                         |   | Six Months ended June 30,                              |    |
|                                                         |   | 2009                                                   |    |   | 2008 |   |
| (dollars in thousands)                                       |   | Average Balance                                        |    |   | Interest income/ Expense |   |   | Average yield/ Cost |   |   | Average Balance |   |   | Interest income/ Expense |   |   | Average yield/ Cost |   |
| ASSETS                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold                                           |   | $                                                      | 8,062   |   |   | $ | 10 |   |   |   | 0.25 | % |   | $ | 4,780 |   |   | $ | 48 |   |   |   | 2.02 | % |
| Available-for-sale investment securities:                    |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                      |   |                                                   | 25,119  |   |   |   | 624 |   |   |   | 5.01 | % |   |   | 29,530 |   |   |   | 717 |   |   |   | 4.88 | % |
| Exempt from Federal income taxes (1)                         |   |                                                   | 19,423  |   |   |   | 396 |   |   |   | 6.23 | % |   |   | 19,468 |   |   |   | 394 |   |   |   | 6.17 | % |
| Total securities (1)                                         |   |                                                   | 44,542  |   |   |   | 1,020 |   |   |   | 5.54 | % |   |   | 48,998 |   |   |   | 1,111 |   |   |   | 5.39 | % |
| Loans (2) (3)                                                |   |                                                   | 235,839 |   |   |   | 7,375 |   |   |   | 6.31 | % |   |   | 212,359 |   |   |   | 7,744 |   |   |   | 7.33 | % |
| Total interest-earning assets (1)                            |   |                                                   | 288,443 |   |   |   | 8,405 |   |   |   | 6.02 | % |   |   | 266,137 |   |   |   | 8,903 |   |   |   | 6.88 | % |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-earning assets, net of allowance for loan losses |   |                                                   | 22,946  |   |   |   |   |   |   |   |   |   |   |   | 20,389 |   |   |   |   |   |   |   |   |   |
| Total assets                                                 |   | $                                                      | 311,389 |   |   |   |   |   |   |   |   |   |   | $ | 286,526 |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                   |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                    |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other interest bearing                                       |   | $                                                      | 103,364 |   |   | $ | 684 |   |   |   | 1.33 | % |   | $ | 91,558 |   |   | $ | 891 |   |   |   | 1.96 | % |
| Time deposits less than $100,000                             |   |                                                   | 24,860  |   |   |   | 327 |   |   |   | 2.65 | % |   |   | 19,414 |   |   |   | 364 |   |   |   | 3.77 | % |
| Time deposits $100,000 or more                               |   |                                                   | 64,424  |   |   |   | 927 |   |   |   | 2.90 | % |   |   | 54,099 |   |   |   | 1,128 |   |   |   | 4.19 | % |
| Total interest-bearing deposits                              |   |                                                   | 192,648 |   |   |   | 1,938 |   |   |   | 2.03 | % |   |   | 165,071 |   |   |   | 2,383 |   |   |   | 2.90 | % |
| Short-term debt                                              |   |                                                   | 3,981   |   |   |   | 21 |   |   |   | 1.06 | % |   |   | 13,855 |   |   |   | 193 |   |   |   | 2.80 | % |
| Long-term debt                                               |   |                                                   | 4,691   |   |   |   | 123 |   |   |   | 5.29 | % |   |   | 7,203 |   |   |   | 164 |   |   |   | 4.58 | % |
| Junior subordinated deferrable interest debentures           |   |                                                   | 3,093   |   |   |   | 71 |   |   |   | 4.63 | % |   |   | 3,093 |   |   |   | 108 |   |   |   | 7.02 | % |
| Total interest-bearing liabilities                           |   |                                                   | 204,413 |   |   |   | 2,153 |   |   |   | 2.12 | % |   |   | 189,222 |   |   |   | 2,848 |   |   |   | 3.03 | % |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing deposits                                 |   |                                                   | 67,006  |   |   |   |   |   |   |   |   |   |   |   | 65,908 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                            |   |                                                   | 2,555   |   |   |   |   |   |   |   |   |   |   |   | 2,163 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                            |   |                                                   | 273,974 |   |   |   |   |   |   |   |   |   |   |   | 257,293 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                   |   |                                                   | 37,415  |   |   |   |   |   |   |   |   |   |   |   | 29,233 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity             |   | $                                                      | 311,389 |   |   |   |   |   |   |   |   |   |   | $ | 286,526 |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income and margin (1)                           |   |                                                   |    |   |   | $ | 6,252 |   |   |   | 4.51 | % |   |   |   |   |   | $ | 6,055 |   |   |   | 4.73 | % |

| (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. No interest was received on nonaccrual loans for the periods presented.  Interest income reversed upon the transfer of loans to nonaccrual status totaled $137 and $27 for 2009 and 2008, respectively. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Interest income on loans includes amortized loan fees, net of costs, of $307 and $304 for 2009 and 2008, respectively. |
|-----|------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                               |   | Six months ended June 30, 2009 vs. June 30, 2008 due to change in: |   |
|----------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
|                                               |   | Average Volume                                                               |   |   | Average Rate (1) |   |   | Total |   |
|                                               |   |                                                                         |   |   |   |   |   |   |   |
| (In thousands)                                     |   |                                                                         |   |   |   |   |   |   |   |
| Increase (decrease) in interest income:            |   |                                                                         |   |   |   |   |   |   |   |
| Federal funds sold                                 |   | $                                                                            | 33     |   |   | $ | (71 | ) |   | $ | (38 | ) |
| Investment securities                              |   |                                                                         |   |   |   |   |   |   |   |   |   |   |
| Taxable                                            |   |                                                                         | (107   | ) |   |   | 14 |   |   |   | (93 | ) |
| Exempt from Federal income taxes                   |   |                                                                         | (1     | ) |   |   | 3 |   |   |   | 2 |   |
| Total securities                                   |   |                                                                         | (108   | ) |   |   | 17 |   |   |   | (91 | ) |
| Loans                                              |   |                                                                         | 854    |   |   |   | (1,223 | ) |   |   | (369 | ) |
| Total interest income                              |   | $                                                                            | 779    |   |   | $ | (1,277 | ) |   | $ | (498 | ) |
|                                               |   |                                                                         |   |   |   |   |   |   |   |   |   |   |
| (Decrease) increase in interest expense:           |   |                                                                         |   |   |   |   |   |   |   |   |   |   |
| Other interest bearing deposits                    |   |                                                                         | 115    |   |   |   | (322 | ) |   |   | (207 | ) |
| Time deposits less than $100,000                   |   |                                                                         | 102    |   |   |   | (139 | ) |   |   | (37 | ) |
| Time deposits $100,000 or more                     |   |                                                                         | 215    |   |   |   | (416 | ) |   |   | (201 | ) |
| Total interest-bearing deposits                    |   |                                                                         | 432    |   |   |   | (877 | ) |   |   | (445 | ) |
| Short-term debt                                    |   |                                                                         | (137   | ) |   |   | (35 | ) |   |   | (172 | ) |
| Long-term debt                                     |   |                                                                         | (57    | ) |   |   | 16 |   |   |   | (41 | ) |
| Junior subordinated deferrable interest debentures |   |                                                                         | -      |   |   |   | (37 | ) |   |   | (37 | ) |
| Total interest expense                             |   |                                                                         | 238    |   |   |   | (933 | ) |   |   | (695 | ) |
| (Increase) decrease in net interest income         |   | $                                                                            | 541    |   |   | $ | (344 | ) |   | $ | 197 |   |

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

----

Index

| Non-interest income                                         |   |
|-------------------------------------------------------------|--------|
|                                                        |   |
|                                                        |   | Six Months ended June 30, |   |   |   |   |
| (in thousands)                                              |   | 2009 |   |   | 2008 |   |   | Increase (Decrease) |   |
| Service charges                                             |   | $ | 369 |   |   | $ | 336 |   |   | $ | 33 |   |
| Gain on sale of available-for-sale investment securities    |   |   | 4 |   |   |   | 46 |   |   |   | (42 | ) |
| Mortgage loan brokerage fees                                |   |   | 27 |   |   |   | 34 |   |   |   | (7 | ) |
| Earnings on cash surrender value of life insurance policies |   |   | 142 |   |   |   | 133 |   |   |   | 9 |   |
| Gain from bank owned life insurance                         |   |   | 318 |   |   |   | - |   |   |   | 318 |   |
| Other                                                       |   |   | 104 |   |   |   | 132 |   |   |   | (28 | ) |
| Total non-interest income                                   |   | $ | 964 |   |   | $ | 681 |   |   | $ | 283 |   |

----

Index

| Non-interest expense                 |   |
|--------------------------------------|--------|
|                                 |   |
|                                 |   | Six Months ended June 30, |   |   |   |   |
| (in thousands)                       |   | 2009 |   |   | 2008 |   |   | Increase (Decrease) |   |
| Salaries and employee benefits       |   | $ | 2,463 |   |   | $ | 2,556 |   |   | $ | (93 | ) |
| Occupancy and equipment              |   |   | 782 |   |   |   | 599 |   |   |   | 183 |   |
| Other real estate owned              |   |   | 11 |   |   |   | - |   |   |   | 11 |   |
| Data processing                      |   |   | 275 |   |   |   | 260 |   |   |   | 15 |   |
| Operations                           |   |   | 242 |   |   |   | 255 |   |   |   | (13 | ) |
| Professional and legal               |   |   | 234 |   |   |   | 194 |   |   |   | 40 |   |
| Advertising and business development |   |   | 121 |   |   |   | 138 |   |   |   | (17 | ) |
| Telephone and postal                 |   |   | 106 |   |   |   | 109 |   |   |   | (3 | ) |
| Supplies                             |   |   | 75 |   |   |   | 93 |   |   |   | (18 | ) |
| Assessment and insurance             |   |   | 333 |   |   |   | 122 |   |   |   | 211 |   |
| Amortization expense                 |   |   | - |   |   |   | 8 |   |   |   | (8 | ) |
| Other expenses                       |   |   | 207 |   |   |   | 256 |   |   |   | (49 | ) |
| Total non-interest expense           |   | $ | 4,849 |   |   | $ | 4,590 |   |   | $ | 259 |   |

----

Index

| Average balances and weighted average yields and costs       |   |
|--------------------------------------------------------------|--------|
|                                                         |   |
|                                                         |   | Three Months ended June 30, |   |
|                                                         |   | 2009 |   |   | 2008 |   |
| (dollars in thousands)                                       |   | Average Balance |   |   | Interest income/ Expense |   |   | Average yield/ Cost |   |   | Average Balance |   |   | Interest income/ Expense |   |   | Average yield/ Cost |   |
| ASSETS                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold                                           |   | $ | 3,187 |   |   | $ | 1 |   |   |   | 0.16 | % |   | $ | 9,466 |   |   | $ | 48 |   |   |   | 2.04 | % |
| Available-for-sale investment securities:                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                      |   |   | 26,212 |   |   |   | 317 |   |   |   | 4.85 | % |   |   | 25,031 |   |   |   | 311 |   |   |   | 5.00 | % |
| Exempt from Federal income taxes (1)                         |   |   | 19,365 |   |   |   | 200 |   |   |   | 6.28 | % |   |   | 19,629 |   |   |   | 198 |   |   |   | 6.15 | % |
| Total securities (1)                                         |   |   | 45,577 |   |   |   | 517 |   |   |   | 5.46 | % |   |   | 44,660 |   |   |   | 509 |   |   |   | 5.50 | % |
| Loans (2) (3)                                                |   |   | 239,614 |   |   |   | 3,664 |   |   |   | 6.13 | % |   |   | 217,747 |   |   |   | 3,897 |   |   |   | 7.20 | % |
| Total interest-earning assets (1)                            |   |   | 288,378 |   |   |   | 4,182 |   |   |   | 5.96 | % |   |   | 271,873 |   |   |   | 4,454 |   |   |   | 6.74 | % |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-earning assets, net of allowance for loan losses |   |   | 24,506 |   |   |   |   |   |   |   |   |   |   |   | 20,813 |   |   |   |   |   |   |   |   |   |
| Total assets                                                 |   | $ | 312,884 |   |   |   |   |   |   |   |   |   |   | $ | 292,686 |   |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Interest bearing                                       |   | $ | 107,613 |   |   | $ | 328 |   |   |   | 1.22 | % |   | $ | 89,080 |   |   | $ | 370 |   |   |   | 1.67 | % |
| Time deposits less than $100,000                             |   |   | 24,351 |   |   |   | 150 |   |   |   | 2.47 | % |   |   | 20,805 |   |   |   | 184 |   |   |   | 3.56 | % |
| Time deposits $100,000 or more                               |   |   | 62,750 |   |   |   | 430 |   |   |   | 2.75 | % |   |   | 63,408 |   |   |   | 622 |   |   |   | 3.95 | % |
| Total interest-bearing deposits                              |   |   | 194,714 |   |   |   | 908 |   |   |   | 1.87 | % |   |   | 173,293 |   |   |   | 1,176 |   |   |   | 2.73 | % |
| Short-term debt                                              |   |   | 3,720 |   |   |   | 3 |   |   |   | 0.32 | % |   |   | 9,428 |   |   |   | 57 |   |   |   | 2.43 | % |
| Long-term debt                                               |   |   | 4,235 |   |   |   | 50 |   |   |   | 4.74 | % |   |   | 6,548 |   |   |   | 77 |   |   |   | 4.73 | % |
| Junior subordinated deferrable interest debentures           |   |   | 3,093 |   |   |   | 35 |   |   |   | 4.54 | % |   |   | 3,093 |   |   |   | 48 |   |   |   | 6.24 | % |
| Total interest-bearing liabilities                           |   |   | 205,762 |   |   |   | 996 |   |   |   | 1.94 | % |   |   | 192,362 |   |   |   | 1,358 |   |   |   | 2.84 | % |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest bearing deposits                                 |   |   | 65,160 |   |   |   |   |   |   |   |   |   |   |   | 68,759 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                            |   |   | 3,065 |   |   |   |   |   |   |   |   |   |   |   | 2,274 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                            |   |   | 273,987 |   |   |   |   |   |   |   |   |   |   |   | 263,395 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                   |   |   | 38,897 |   |   |   |   |   |   |   |   |   |   |   | 29,291 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity             |   | $ | 312,884 |   |   |   |   |   |   |   |   |   |   | $ | 292,686 |   |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income and margin (1)                           |   |   |   |   |   | $ | 3,186 |   |   |   | 4.58 | % |   |   |   |   |   | $ | 3,096 |   |   |   | 4.73 | % |

| (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. No interest was received on nonaccrual loans for the periods presented.  Interest income reserved upon the transfer of loans to nonaccrual status totaled $20 and $2 for 2009 and 2008, respectively. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Interest income on loans includes amortized loan fees, net of costs, of $157 and $162 for 2009 and 2008, respectively. |
|-----|------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                               |   | Three months ended June 30, 2009 vs. June 30, 2008. |   |
|----------------------------------------------------|--------|---------------------------------------------------------------|--------|
|                                               |   | Increase (decrease) due to change in:                         |   |
|                                               |   | Average Volume                                                |   |   | Average Rate (1) |   |   | Total |   |
|                                               |   |                                                          |   |   |   |   |   |   |   |
| (In thousands)                                     |   |                                                          |   |   |   |   |   |   |   |
| Increase (decrease) in interest income:            |   |                                                          |   |   |   |   |   |   |   |
| Federal funds sold                                 |   | $                                                             | (32    | ) |   | $ | (15 | ) |   | $ | (47 | ) |
| Investment securities                              |   |                                                          |   |   |   |   |   |   |   |   |   |   |
| Taxable                                            |   |                                                          | 15     |   |   |   | (9 | ) |   |   | 6 |   |
| Exempt from Federal income taxes                   |   |                                                          | (4     | ) |   |   | 6 |   |   |   | 2 |   |
| Total securities                                   |   |                                                          | 11     |   |   |   | (3 | ) |   |   | 8 |   |
| Loans                                              |   |                                                          | 392    |   |   |   | (625 | ) |   |   | (233 | ) |
| Total interest income                              |   |                                                          | 371    |   |   |   | (643 | ) |   |   | (272 | ) |
|                                               |   |                                                          |   |   |   |   |   |   |   |   |   |   |
| (Decrease) increase in interest expense:           |   |                                                          |   |   |   |   |   |   |   |   |   |   |
| Other interest-bearing deposits                    |   |                                                          | 77     |   |   |   | (119 | ) |   |   | (42 | ) |
| Time deposits less than $100,000                   |   |                                                          | 31     |   |   |   | (65 | ) |   |   | (34 | ) |
| Time deposits $100,000 or more                     |   |                                                          | (6     | ) |   |   | (186 | ) |   |   | (192 | ) |
| Total interest-bearing deposits                    |   |                                                          | 102    |   |   |   | (370 | ) |   |   | (268 | ) |
| Short-term debt                                    |   |                                                          | (35    | ) |   |   | (19 | ) |   |   | (54 | ) |
| Long-term debt                                     |   |                                                          | (27    | ) |   |   | - |   |   |   | (27 | ) |
| Junior subordinated deferrable interest debentures |   |                                                          | -      |   |   |   | (13 | ) |   |   | (13 | ) |
| Total interest expense                             |   |                                                          | 40     |   |   |   | (402 | ) |   |   | (362 | ) |
| Decrease in net interest income                    |   | $                                                             | 331    |   |   | $ | (241 | ) |   | $ | 90 |   |

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

----

Index

| Non-interest income                                                                              |   |
|--------------------------------------------------------------------------------------------------|--------|
|                                                                                             |   |
|                                                                                             |   | Three Months ended June 30, |   |   |   |   |
| (in thousands)                                                                                   |   | 2009 |   |   | 2008 |   |   | Increase (Decrease) |   |
| Service charges                                                                                  |   | $ | 191 |   |   | $ | 166 |   |   | $ | 25 |   |
| Gain on sale of available-for-sale investment securities,      net |   |   | 4 |   |   |   | 46 |   |   |   | (42 | ) |
| Mortgage loan brokerage fees                                                                     |   |   | 14 |   |   |   | 26 |   |   |   | (12 | ) |
| Earnings on cash surrender value of life insurance policies                                      |   |   | 67 |   |   |   | 67 |   |   |   | - |   |
| Gain from bank owned life insurance                                                              |   |   | 318 |   |   |   | - |   |   |   | 318 |   |
| Other                                                                                            |   |   | 53 |   |   |   | 85 |   |   |   | (32 | ) |
| Total non-interest income                                                                        |   | $ | 647 |   |   | $ | 390 |   |   | $ | 257 |   |

----

Index

| Non-interest expense                 |   |
|--------------------------------------|--------|
|                                 |   |
|                                 |   | Three Months ended June 30, |   |   |   |   |
| (in thousands)                       |   | 2009 |   |   | 2008 |   |   | Increase (Decrease) |   |
| Salaries and employee benefits       |   | $ | 1,176 |   |   | $ | 1,273 |   |   | $ | (97 | ) |
| Occupancy and equipment              |   |   | 402 |   |   |   | 313 |   |   |   | 89 |   |
| Other real estate owned              |   |   | 11 |   |   |   | - |   |   |   | 11 |   |
| Data processing                      |   |   | 139 |   |   |   | 131 |   |   |   | 8 |   |
| Operations                           |   |   | 121 |   |   |   | 128 |   |   |   | (7 | ) |
| Professional and legal               |   |   | 117 |   |   |   | 66 |   |   |   | 51 |   |
| Advertising and business development |   |   | 65 |   |   |   | 84 |   |   |   | (19 | ) |
| Telephone and postal                 |   |   | 53 |   |   |   | 58 |   |   |   | (5 | ) |
| Supplies                             |   |   | 35 |   |   |   | 57 |   |   |   | (22 | ) |
| Assessment and insurance             |   |   | 126 |   |   |   | 60 |   |   |   | 66 |   |
| Other expenses                       |   |   | 85 |   |   |   | 145 |   |   |   | (60 | ) |
| Total non-interest expense           |   | $ | 2,330 |   |   | $ | 2,315 |   |   | $ | 15 |   |

----

Index

| Market value of securities available for sale |   |
|-----------------------------------------------|--------|
|                                          |   |
|                                          |   | June 30, 2009 |   |
| (in thousands)                                |   | AmortizedCost |   |   | UnrealizedGain |   |   | UnrealizedLoss |   |   | FairValue |   |
| U.S. Treasury securities                      |   | $ | 248 |   |   | $ | 24 |   |   | $ | - |   |   | $ | 272 |   |
| U.S. government agencies                      |   |   | 7,196 |   |   |   | 158 |   |   |   | - |   |   |   | 7,354 |   |
| Mortgage-backed securities                    |   |   | 22,613 |   |   |   | 527 |   |   |   | (20 | ) |   |   | 23,120 |   |
| Municipal securities                          |   |   | 19,688 |   |   |   | 89 |   |   |   | (638 | ) |   |   | 19,139 |   |
| Total                                         |   | $ | 49,745 |   |   | $ | 798 |   |   | $ | (658 | ) |   | $ | 49,885 |   |

|                       |   | December 31, 2008 |   |
|----------------------------|--------|-------------------|--------|
| (in thousands)             |   | AmortizedCost     |   |   | UnrealizedGain |   |   | UnrealizedLoss |   |   | FairValue |   |
| U.S. Treasury securities   |   | $                 | 247    |   |   | $ | 33 |   |   | $ | - |   |   | $ | 280 |   |
| U.S. government agencies   |   |              | 6,753  |   |   |   | 225 |   |   |   | - |   |   |   | 6,978 |   |
| Mortgage-backed securities |   |              | 15,102 |   |   |   | 554 |   |   |   | (2 | ) |   |   | 15,654 |   |
| Municipal securities       |   |              | 19,753 |   |   |   | 98 |   |   |   | (745 | ) |   |   | 19,106 |   |
| Total                      |   | $                 | 41,855 |   |   | $ | 910 |   |   | $ | (747 | ) |   | $ | 42,018 |   |

----

Index

| (dollars in  thousands) |   | June 30, 2009 |    |   | December 31, 2008 |   |
|-----------------------------------|--------|--------------------|---------|--------|------------------------|--------|
| Commercial                        |   | $                  | 60,039  |   |                   |   | 24 | % |   | $ | 58,325 |   |   |   | 25 | % |
| Real estate – mortgage (1)  |   |               | 148,556 |   |                   |   | 61 |   |   |   | 129,267 |   |   |   | 56 |   |
| Real estate – construction  |   |               | 29,503  |   |                   |   | 12 |   |   |   | 35,113 |   |   |   | 15 |   |
| Agricultural                      |   |               | 4,857   |   |                   |   | 2 |   |   |   | 4,011 |   |   |   | 2 |   |
| Consumer and other                |   |               | 2,770   |   |                   |   | 1 |   |   |   | 3,566 |   |   |   | 2 |   |
| Subtotal                          |   |               | 245,725 |   |                   |   | 100 | % |   |   | 230,282 |   |   |   | 100 | % |
| Deferred loan fees, net           |   |               | (443    | )      |                   |   |   |   |   |   | (341 | ) |   |   |   |   |
| Allowance for loan losses         |   |               | (4,471  | )      |                   |   |   |   |   |   | (3,244 | ) |   |   |   |   |
| Total loans, net                  |   | $                  | 240,811 |   |                   |   |   |   |   | $ | 226,697 |   |   |   |   |   |

----

Index

| Changes in allowance for loan losses                         |   |
|--------------------------------------------------------------|--------|
|                                                         |   |   |   |   |   |   |   |   |   |
|                                                         |   | Six Months ended |   |   | Six Months ended |   |   | Year ended |   |
|                                                         |   | June 30, 2009 |   |   | June 30, 2008 |   |   | December 31, 2008 |   |
| (dollars in thousands)                                       |   |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Balance, beginning                                           |   | $ | 3,244 |   |   | $ | 1,758 |   |   | $ | 1,758 |   |
| Provision for  loan losses                         |   |   | 1,400 |   |   |   | 800 |   |   |   | 1,600 |   |
| Charge-offs-real estate                                      |   |   | (173 | ) |   |   | - |   |   |   | (5 | ) |
| Charge-offs-commercial                                       |   |   | - |   |   |   | - |   |   |   | (125 | ) |
| Charge-offs-other                                            |   |   | - |   |   |   | (12 | ) |   |   | (12 | ) |
| Recoveries                                                   |   |   | - |   |   |   | 19 |   |   |   | 28 |   |
| Balance, ending                                              |   | $ | 4,471 |   |   | $ | 2,565 |   |   | $ | 3,244 |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Net charge-offs to (recoveries) to average loans outstanding |   |   | 0.07 | % |   |   | .00 | % |   |   | 0.05 | % |
| Average loans outstanding                                    |   | $ | 235,839 |   |   | $ | 212,686 |   |   | $ | 219,431 |   |
| Ending allowance to total loans outstanding                  |   |   | 1.82 | % |   |   | 1.17 | % |   |   | 1.41 | % |

----

Index

| Deposit Portfolio      |   |
|------------------------|--------|
|                   |   |
| (dollars in thousands) |   | June 30, 2009 |   |   | December 31, 2008 |   |
| Non-interest bearing   |   | $ | 66,025 |   |   |   | 25 | % |   | $ | 77,406 |   |   |   | 30 | % |
| Interest bearing       |   |   | 109,218 |   |   |   | 40 | % |   |   | 87,737 |   |   |   | 34 |   |
| Time deposits          |   |   | 95,593 |   |   |   | 35 | % |   |   | 92,180 |   |   |   | 36 |   |
| Total Deposits         |   | $ | 270,836 |   |   |   | 100 | % |   | $ | 257,323 |   |   |   | 100 | % |

----

Index

----

Index

| Capital and capital adequacy ratios                                |   |
|--------------------------------------------------------------------|--------|
|                                                               |   |   |   |
|                                                               |   | June 30, 2009 |   |   | December 31, 2008 |   |
| (dollars in thousands)                                             |   | Amount |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| Leverage Ratio                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Commerce Bancorp and Subsidiary                             |   | $ | 41,449 |   |   |   | 13.3 | % |   | $ | 33,044 |   |   |   | 10.9 | % |
| Minimum regulatory requirement                                     |   | $ | 12,515 |   |   |   | 4.0 | % |   | $ | 12,150 |   |   |   | 4.0 | % |
|                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Business Bank                                               |   | $ | 41,314 |   |   |   | 13.2 | % |   | $ | 32,751 |   |   |   | 10.8 | % |
| Minimum requirement for “Well-Capitalized” institution |   | $ | 15,644 |   |   |   | 5.0 | % |   | $ | 15,181 |   |   |   | 5.0 | % |
| Minimum regulatory requirement                                     |   | $ | 12,511 |   |   |   | 4.0 | % |   | $ | 12,145 |   |   |   | 4.0 | % |
|                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier 1 Risk-Based Capital Ratio                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Commerce Bancorp and Subsidiary                             |   | $ | 41,449 |   |   |   | 15.2 | % |   | $ | 33,044 |   |   |   | 12.7 | % |
| Minimum regulatory requirement                                     |   | $ | 10,901 |   |   |   | 4.0 | % |   | $ | 10,367 |   |   |   | 4.0 | % |
|                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Business Bank                                               |   | $ | 41,314 |   |   |   | 15.2 | % |   | $ | 32,751 |   |   |   | 12.6 | % |
| Minimum requirement for “Well-Capitalized” institution |   | $ | 19,006 |   |   |   | 6.0 | % |   | $ | 15,545 |   |   |   | 6.0 | % |
| Minimum regulatory requirement                                     |   | $ | 12,670 |   |   |   | 4.0 | % |   | $ | 10,363 |   |   |   | 4.0 | % |
|                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Risk-Based Capital Ratio                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Commerce Bancorp and Subsidiary                             |   | $ | 44,869 |   |   |   | 16.5 | % |   | $ | 36,284 |   |   |   | 14.0 | % |
| Minimum regulatory requirement                                     |   | $ | 21,802 |   |   |   | 8.0 | % |   | $ | 20,734 |   |   |   | 8.0 | % |
|                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valley Business Bank                                               |   | $ | 41,174 |   |   |   | 16.4 | % |   | $ | 35,990 |   |   |   | 13.9 | % |
| Minimum requirement for “Well-Capitalized” institution |   | $ | 31,676 |   |   |   | 10.0 | % |   | $ | 25,909 |   |   |   | 10.0 | % |
| Minimum regulatory requirement                                     |   | $ | 35,341 |   |   |   | 8.0 | % |   | $ | 20,728 |   |   |   | 8.0 | % |

----

Index

ITEM 3 – 

ITEM 4 – CONTROLS 

----

Index

I – OTHER INFORMATION

ITEM 1 

 1A 

ITEM 2 

 3 

----

Index

4 –

|   | 1. | Elected Directors of the Company to serve until the 2010 Annual Meeting of Shareholders and until their successors are elected and qualified. In the election for directors, no candidates were nominated for election as a director other than the nominees of the Board of Directors whose names were set forth in the Company’s proxy statement dated April 21, 2009. Set forth below is a tabulation of the votes cast inthe election of Directors with respect to each nominee for office: |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                   |   | Votes Cast For Election |      |   | Withheld |   |
|------------------------|--------|-------------------------|-----------|--------|----------|--------|
|                   |   |                    |      |   |     |   |
| David B. Day           |   |                    | 1,798,091 |   |     |   | 47,298 |   |
| Walter A. Dwelle       |   |                    | 1,798,091 |   |     |   | 47,298 |   |
| Thomas A. Gaebe        |   |                    | 1,798,091 |   |     |   | 47,298 |   |
| Donald A. Gilles       |   |                    | 1,710,349 |   |     |   | 135,040 |   |
| Philip R. Hammond, Jr. |   |                    | 1,798,091 |   |     |   | 47,298 |   |
| Russell F. Hurley      |   |                    | 1,798,091 |   |     |   | 47,298 |   |
| Fred P. LoBue, Jr.     |   |                    | 1,798,091 |   |     |   | 47,298 |   |
| Kenneth H. Macklin     |   |                    | 1,798,091 |   |     |   | 47,298 |   |
| Barry R. Smith         |   |                    | 1,773,670 |   |     |   | 71,719 |   |

|   | 2. | Ratified the appointment by the Board of Directors of Perry-Smith LLP, independent certified public accountants, to serve as the Company’s auditors for the fiscal year ending December 31, 2009. The votes tabulated were: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Votes For |      |   | Votes Against |   |
|--------|-----------|-----------|--------|---------------|--------|
|   |      | 1,809,648 |   |          |   | 28,918 |   |

5 –

 6 –

----

Index

SIGNATURES

|                  | VALLEY COMMERCE BANCORP |
|-----------------------|-------------------------|
|                  |                    |   |
|                  |                    |   |
|                  |                    |   |
| Date: August 14, 2009 | By:                | /s/ Donald A. Gilles |
|                  |                    |   |
|                  |                    | Donald A. Gilles |
|                  |                    |   |
|                  |                    | President and Chief Executive Officer |
|                  |                    |   |
|                  |                    |   |
| Date: August 14, 2009 | By:                     | /s/Roy O. Estridge |
|                  |                    |   |
|                  |                    | Roy O. Estridge, Chief Financial Officer |

----

Index

Exhib

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

----