| x      | ANNUAL      REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
|--------|-------------------------------------------------------|
|   | THE      SECURITIES EXCHANGE ACT OF1934               |

|  ̈ | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(D) OF |
|--------|-----------------------------------------------------------|
|   | THE      SECURITIES EXCHANGE ACT OF1934                   |

| MISSISSIPPI                                                        |   | 64-0636653                                   |
|--------------------------------------------------------------------|--------|----------------------------------------------|
| (State      or other jurisdiction of                               |   | (I.R.S.      Employer Identification Number) |
| Incorporation      or organization)                                |   |                                         |
|                                                               |   |                                         |
| 134 West Washington Street,  Kosciusko,      Mississippi |   | 39090                                        |
| (Address      of principal executive offices)                      |   | (Zip      Code)                              |

| Common Stock, $5 par value |   | The NASDAQ Stock Market  LLC                    |
|----------------------------|--------|-------------------------------------------------|
| (Title      of Each Class) |   | (Name      of Each Exchange on WhichRegistered) |

| None                       |   | None                                            |
|----------------------------|--------|-------------------------------------------------|
| (Title      of Each Class) |   | (Name      of Each Exchange on WhichRegistered) |

| Common stock, $5 par value |   | 9,063,346 Shares                           |
|----------------------------|--------|--------------------------------------------|
| Title      of Class        |   | Shares      Outstanding at January 31,2009 |

----

|          |                                                                                                                         |   | Page   |
|---------------|------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| PART      I   |                                                                                                                         |   |   |
|          |                                                                                                                         |   |   |
| Item      1   | Business                                                                                                                     |   | 3      |
| Item      1A  | Risk      Factors                                                                                                            |   | 11     |
| Item      1B  | Unresolved      Staff Comments                                                                                               |   | 13     |
| Item      2   | Properties                                                                                                                   |   | 13     |
| Item      3   | Legal      Proceedings                                                                                                       |   | 13     |
| Item      4   | Submission      of Matters to a Vote of Security Holders                                                                     |   | 13     |
|          |                                                                                                                         |   |   |
| PART      II  |                                                                                                                         |   |   |
|          |                                                                                                                         |   |   |
| Item      5   | Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities |   | 14     |
| Item      6   | Selected      Financial Data                                                                                                 |   | 16     |
| Item      7   | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                        |   | 17     |
| Item      7A  | Quantitative      and Qualitative Disclosures About Market Risk                                                              |   | 33     |
| Item      8   | Financial      Statements and Supplementary Data                                                                             |   | 34     |
| Item      9   | Changes      in and Disagreements With Accountants on Accounting and Financial      Disclosure                               |   | 77     |
| Item      9A  | Controls      and Procedures                                                                                                 |   | 77     |
| Item      9B  | Other      Information                                                                                                       |   | 77     |
|          |                                                                                                                         |   |   |
| PART      III |                                                                                                                         |   |   |
|          |                                                                                                                         |   |   |
| Item      10  | Directors,      Executive Officers and Corporate Governance                                                                  |   | 78     |
| Item      11  | Executive      Compensation                                                                                                  |   | 78     |
| Item      12  | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                     |   | 78     |
| Item      13  | Certain      Relationships and Related Transactions and Director      Independence                                           |   | 78     |
| Item      14  | Principal      Accountant Fees and Services                                                                                  |   | 78     |
|          |                                                                                                                         |   |   |
| PART      IV  |                                                                                                                         |   |   |
|          |                                                                                                                         |   |   |
| Item      15  | Exhibits                                                                                                                     |   | 79     |

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|   | · | In      February 2008 closed a drive-through branch in Ridgeland,      Mississippi |
|--------|--------|------------------------------------------------------------------------------------|

|   | · | In      December 2008 completed construction of a main branch facility in Brandon,      Mississippi and closed the two branches that it  replaced |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Return      on assets for 2008 was .03% while the return on equity was .37%. Return on      assets for 2007 was .92% while the return on equity was    10.78% |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Debit      card revenues grew by 19.64%, composing 18.98% of deposit      revenues |
|--------|--------|------------------------------------------------------------------------------------|

|   | · | Mortgage      banking revenues decreased by 19.38% in 2008 after increasing by 14.78% in      2007 |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | · | Mortgage      originations were $62.4 million in 2008 as compared to $73.2 million in      2007 |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   | · | Property,      casualty, life and health insurance commissions increased from $3.92      million to $3.95 million |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|

|   | · | Loans      held for investment decreased by 3.51% in 2008 due to the general economic      slowdown as loan demand decreased and problem loans    increased |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Net      charge offs, as a percentage of average loans, were .75% for 2008 compared      to .28% for 2007 |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

|   | · | Nonaccrual      loans as a percentage of loans increased to 1.74% at the end of 2008 from      .53% at the end of 2007 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------|

|   | · | 90      day past due accruing loans as a percentage of loans increased to .48% at      the end of 2008 from .09% at the end of2007 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Foreclosed      real estate balances were $11.06 million at the end of 2008 as compared to      $6.23 million at the end of 2007 |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | Expenses      related to foreclosed properties were $537 thousand in 2008 while losses      incurred on foreclosed properties through sales and write-downs were      $1.376 million as compared to expenses of $274 thousand and losses of $278      thousand in 2007 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Assets      decreased by 3.44% during 2008 as no growth opportunities were      available |
|--------|--------|-------------------------------------------------------------------------------------------|

|   | · | Deposits      remained flat in 2008, with noninterest-bearing deposits and certificates      of deposit decreasing, while Summit checking accounts and money-market      deposits grew substantially |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      Company’s total risk-based capital ratio improved from 10.8% at the end of      2007 to 11.2% at the end of 2008 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      Company received approval from the U.S. Department of the Treasury to      participate in its Capital Purchase Program in December 2008. Management      expects the transaction to close during the first quarter of 2009 and to      receive approximately $30 million in funding in exchange for preferred      stock and warrants to purchase commonstock. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | To      have a revised credit policy fully implemented across the company during      2009 |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | Continue      to strengthen credit monitoring systems to provide proactive credit      solutions |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | · | Continue      to work on sales of real estate owned as well as to work with customers to      dispose of real estate collateral |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | · | Build      the capital strength and funding flexibility of the      organization |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | Continue      to build core deposits around strong products like Summit Checking that      provide a base upon which a portfolio of financial services can be      provided |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Begin      to diversify the loan portfolio into consumer and commercial loans that      are not real estate dependent |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | · | Continue      to increase the volumes and improve the products and services delivered      through the insurance agencies and focus on branch referrals to enhance      agency business |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Continue      to build the retail investment brokerage  business |
|--------|--------|------------------------------------------------------------------|

|   | · | Use      cost-saving initiatives to reduce expenses in current      operations |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | Promote      low-cost delivery channels such as debit cards and electronic banking that      are convenient to customers |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | Continue      developing customer-friendly technologies such as deposit image capture      for commercial customers, emailing of statements, enhanced internet      banking capabilities and mobilebanking |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Encourage      customer use of more efficient technologies over labor-intensive processes      by tying rates and benefits of deposit products to the use of internet and      technology-based applications |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

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| (Dollars      in thousands)              |   | 2008    |      |   | 2007     |   |   | 2006   |   |
|------------------------------------------|--------|---------|-----------|--------|----------|--------|--------|--------|--------|
|                                     |   | Average |      |   |     |   |   | Yield/ |   |   | Average |   |   |   |   |   | Yield/ |   |   | Average |   |   |   |   |   | Yield/ |   |
|                                     |   | Balance |      |   | Interest |   |   | Cost   |   |   | Balance |   |   | Interest |   |   | Cost |   |   | Balance |   |   | Interest |   |   | Cost |   |
| Interest-bearing      bank balances      |   | $       | 6,954     |   |     | $      | 133    |   |   |   | 1.91 | % |   | $ | 4,693 |   |   | $ | 225 |   |   |   | 4.79 | % |   | $ | 6,538 |   |   | $ | 247 |   |   |   | 3.78 | % |
| Federal      funds sold                  |   |    | 9,810     |   |     |   | 182    |   |   |   | 1.86 |   |   |   | 3,388 |   |   |   | 144 |   |   |   | 4.25 |   |   |   | 12,248 |   |   |   | 543 |   |   |   | 4.43 |   |
| Taxable      investments                 |   |    | 176,284   |   |     |   | 9,023  |   |   |   | 5.12 |   |   |   | 197,167 |   |   |   | 9,514 |   |   |   | 4.83 |   |   |   | 188,148 |   |   |   | 8,695 |   |   |   | 4.62 |   |
| Tax-exempt      investments              |   |    | 55,990    |   |     |   | 3,451  |   |   |   | 6.16 |   |   |   | 45,875 |   |   |   | 2,867 |   |   |   | 6.25 |   |   |   | 49,430 |   |   |   | 3,091 |   |   |   | 6.25 |   |
| Loans                                    |   |    | 1,206,798 |   |     |   | 81,972 |   |   |   | 6.79 |   |   |   | 1,156,436 |   |   |   | 90,403 |   |   |   | 7.82 |   |   |   | 1,065,366 |   |   |   | 80,196 |   |   |   | 7.53 |   |
| Total      earning assets                |   |    | 1,455,836 |   |     |   | 94,761 |   |   |   | 6.51 |   |   |   | 1,407,559 |   |   |   | 103,153 |   |   |   | 7.33 |   |   |   | 1,321,730 |   |   |   | 92,772 |   |   |   | 7.02 |   |
| Nonearning      assets                   |   |    | 165,867   |   |     |   |   |   |   |   |   |   |   |   | 166,071 |   |   |   |   |   |   |   |   |   |   |   | 160,283 |   |   |   |   |   |   |   |   |   |
| Total      average assets                |   | $       | 1,621,703 |   |     |   |   |   |   |   |   |   |   | $ | 1,573,630 |   |   |   |   |   |   |   |   |   |   | $ | 1,482,013 |   |   |   |   |   |   |   |   |   |
|                                     |   |    |      |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW      & MMDA                      |   |    | 388,588   |   |     |   | 7,336  |   |   |   | 1.89 |   |   |   | 324,649 |   |   |   | 6,124 |   |   |   | 1.89 |   |   |   | 342,049 |   |   |   | 5,811 |   |   |   | 1.70 |   |
| Savings      deposits                    |   |    | 115,027   |   |     |   | 2,645  |   |   |   | 2.30 |   |   |   | 101,367 |   |   |   | 2,816 |   |   |   | 2.78 |   |   |   | 94,653 |   |   |   | 2,122 |   |   |   | 2.24 |   |
| Certificates      of deposit             |   |    | 587,695   |   |     |   | 22,274 |   |   |   | 3.79 |   |   |   | 599,393 |   |   |   | 27,692 |   |   |   | 4.62 |   |   |   | 532,041 |   |   |   | 21,710 |   |   |   | 4.08 |   |
| Short-term      borrowings               |   |    | 13,860    |   |     |   | 327    |   |   |   | 2.36 |   |   |   | 12,445 |   |   |   | 609 |   |   |   | 4.89 |   |   |   | 8,787 |   |   |   | 417 |   |   |   | 4.75 |   |
| Other      borrowings                    |   |    | 186,978   |   |     |   | 8,710  |   |   |   | 4.66 |   |   |   | 208,738 |   |   |   | 10,635 |   |   |   | 5.09 |   |   |   | 186,310 |   |   |   | 9,096 |   |   |   | 4.88 |   |
| Total      interest-bearing liabilities  |   |    | 1,292,148 |   |     |   | 41,292 |   |   |   | 3.20 |   |   |   | 1,246,592 |   |   |   | 47,876 |   |   |   | 3.84 |   |   |   | 1,163,840 |   |   |   | 39,156 |   |   |   | 3.36 |   |
| Noninterest-bearing      deposits        |   |    | 179,237   |   |     |   |   |   |   |   |   |   |   |   | 182,598 |   |   |   |   |   |   |   |   |   |   |   | 184,638 |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing      liabilities     |   |    | 8,312     |   |     |   |   |   |   |   |   |   |   |   | 10,357 |   |   |   |   |   |   |   |   |   |   |   | 11,247 |   |   |   |   |   |   |   |   |   |
| Capital                                  |   |    | 142,006   |   |     |   |   |   |   |   |   |   |   |   | 134,083 |   |   |   |   |   |   |   |   |   |   |   | 122,288 |   |   |   |   |   |   |   |   |   |
| Total      avg. liabilities & equity |   | $       | 1,621,703 |   |     |   |   |   |   |   |   |   |   | $ | 1,573,630 |   |   |   |   |   |   |   |   |   |   | $ | 1,482,013 |   |   |   |   |   |   |   |   |   |
| Net      interest margin                 |   |    |      |   |     |   | 53,469 |   |   |   | 3.67 |   |   |   |   |   |   |   | 55,277 |   |   |   | 3.93 |   |   |   |   |   |   |   | 53,616 |   |   |   | 4.06 |   |
| Less      tax equivalent adjustment      |   |    |      |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investments                              |   |    |      |   |     |   | 1,287  |   |   |   | 0.09 |   |   |   |   |   |   |   | 1,069 |   |   |   | 0.08 |   |   |   |   |   |   |   | 1,153 |   |   |   | 0.09 |   |
| Loans                                    |   |    |      |   |     |   | 186    |   |   |   | 0.01 |   |   |   |   |   |   |   | 168 |   |   |   | 0.01 |   |   |   |   |   |   |   | 114 |   |   |   | 0.01 |   |
| Reported      book net interest margin   |   |    |      |   |     | $      | 51,996 |   |   |   | 3.57 | % |   |   |   |   |   | $ | 54,040 |   |   |   | 3.84 | % |   |   |   |   |   | $ | 52,349 |   |   |   | 3.96 | % |

----

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|                                                         |   | 2008      Compared To 2007      |   |   | 2007      Compared To 2006      |   |
|--------------------------------------------------------------|--------|---------------------------------|--------|--------|---------------------------------|--------|
| (Dollars      in thousands)                                  |   | Increase      (Decrease) Due To |   |   | Increase      (Decrease) Due To |   |
|                                                         |   |                            |   |   | Yield/                          |   |   |   |   |   |   |   |   | Yield/ |   |   |   |   |
|                                                         |   | Volume                          |   |   | Cost                            |   |   | Net |   |   | Volume |   |   | Cost |   |   | Net |   |
| Interest      earned on:                                     |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      bank balances                          |   | $                               | 76     |   |                            | $      | (168 | ) |   | $ | (92 | ) |   | $ | (79 | ) |   | $ | 57 |   |   | $ | (22 | ) |
| Federal      funds sold                                      |   |                            | 196    |   |                            |   | (158 | ) |   |   | 38 |   |   |   | (385 | ) |   |   | (14 | ) |   |   | (399 | ) |
| Taxable      investments                                     |   |                            | (1,038 | )      |                            |   | 547 |   |   |   | (491 | ) |   |   | 426 |   |   |   | 393 |   |   |   | 819 |   |
| Tax-exempt      investments                                  |   |                            | 628    |   |                            |   | (44 | ) |   |   | 584 |   |   |   | (224 | ) |   |   | - |   |   |   | (224 | ) |
| Loans                                                        |   |                            | 3,679  |   |                            |   | (12,110 | ) |   |   | (8,431 | ) |   |   | 6,987 |   |   |   | 3,220 |   |   |   | 10,207 |   |
| Total      earning assets                                    |   |                            | 3,340  |   |                            |   | (11,732 | ) |   |   | (8,392 | ) |   |   | 6,155 |   |   |   | 4,226 |   |   |   | 10,381 |   |
|                                                         |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      paid on:                                       |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW      & MMDA                                          |   |                            | 1,212  |   |                            |   | - |   |   |   | 1,212 |   |   |   | (312 | ) |   |   | 625 |   |   |   | 313 |   |
| Savings      deposits                                        |   |                            | 347    |   |                            |   | (518 | ) |   |   | (171 | ) |   |   | 169 |   |   |   | 525 |   |   |   | 694 |   |
| Certificates      of deposit                                 |   |                            | (491   | )      |                            |   | (4,927 | ) |   |   | (5,418 | ) |   |   | 2,930 |   |   |   | 3,052 |   |   |   | 5,982 |   |
| Short-term      borrowings                                   |   |                            | 51     |   |                            |   | (333 | ) |   |   | (282 | ) |   |   | 176 |   |   |   | 16 |   |   |   | 192 |   |
| Other      borrowings                                        |   |                            | (1,062 | )      |                            |   | (863 | ) |   |   | (1,925 | ) |   |   | 1,119 |   |   |   | 420 |   |   |   | 1,539 |   |
| Total      interest-bearing liabilities                      |   |                            | 1,603  |   |                            |   | (8,187 | ) |   |   | (6,584 | ) |   |   | 2,981 |   |   |   | 5,739 |   |   |   | 8,720 |   |
| Change      in net interest income on a tax-equivalent basis |   | $                               | 1,737  |   |                            | $      | (3,545 | ) |   | $ | (1,808 | ) |   | $ | 3,174 |   |   | $ | (1,513 | ) |   | $ | 1,661 |   |

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|                                                  |   | Carrying Value ofSecurities |    |
|-------------------------------------------------------|--------|-----------------------------|---------|
|                                                  |   | December      31            |    |
| (Dollars      in thousands)                           |   | 2008                        |    |   | 2007 |   |   | 2006 |   |
| Securities Available For    Sale                      |   |                        |    |   |   |   |   |   |   |
| U.S.      Treasury                                    |   | $                           | 543     |   |   | $ | 3,534 |   |   | $ | 3,964 |   |
| U.S.      Government sponsored entities               |   |                        | 8,397   |   |   |   | 70,168 |   |   |   | 110,720 |   |
| Mortgage-backed      securities                       |   |                        | 145,362 |   |   |   | 102,114 |   |   |   | 85,931 |   |
| Obligations      of states and political subdivisions |   |                        | 64,829  |   |   |   | 52,518 |   |   |   | 50,943 |   |
| Other      securities                                 |   |                        | 8,014   |   |   |   | 8,804 |   |   |   | 10,270 |   |
|                                                  |   |                        |    |   |   |   |   |   |   |   |   |   |
| Total      securities available for sale              |   | $                           | 227,145 |   |   | $ | 237,138 |   |   | $ | 261,828 |   |

|                                                  |   | Amortized Cost ofSecurities |    |
|-------------------------------------------------------|--------|-----------------------------|---------|
|                                                  |   | December      31            |    |
|                                                  |   | 2008                        |    |   | 2007 |   |   | 2006 |   |
| Securities Available For    Sale                      |   |                        |    |   |   |   |   |   |   |
| U.S.      Treasury                                    |   | $                           | 509     |   |   | $ | 3,512 |   |   | $ | 4,004 |   |
| U.S.      Government sponsored entities               |   |                        | 8,089   |   |   |   | 69,954 |   |   |   | 111,458 |   |
| Mortgage-backed      securities                       |   |                        | 141,688 |   |   |   | 101,653 |   |   |   | 86,525 |   |
| Obligations      of states and political subdivisions |   |                        | 64,357  |   |   |   | 52,329 |   |   |   | 50,938 |   |
| Other      securities                                 |   |                        | 9,239   |   |   |   | 9,127 |   |   |   | 10,313 |   |
|                                                  |   |                        |    |   |   |   |   |   |   |   |   |   |
| Total      securities available for sale              |   | $                           | 223,882 |   |   | $ | 236,575 |   |   | $ | 263,238 |   |

----

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|                                                       |   |   |   |   |   |   |   | After      One  |   |   |   |   |   |            |   |   |   |   |   |           |   |   |   |   |   |   |   |   |   |   |
|------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|-----------------|--------|--------|--------|--------|--------|-----------------|--------|--------|--------|--------|--------|----------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                       |   | Within |   |   |   |   |   | But      Within |   |   |   |   |   | After      Five |   |   |   |   |   |           |   |   |   |   |   |   |   |   |   |   |
| (Dollars      in thousands)                                |   | One    |   |   |   |   |   | Five            |   |   |   |   |   | But      Within |   |   |   |   |   | Over           |   |   |   |   |   |   |   |   |   |   |
|                                                       |   | Year   |   |   | Yield  |   |   | Years           |   |   | Yield  |   |   | Ten      Years  |   |   | Yield  |   |   | Ten      Years |   |   | Yield  |   |   | Total  |   |   | Yield  |   |
| Securities      Available For Sale                         |   |   |   |   |   |   |   |            |   |   |   |   |   |            |   |   |   |   |   |           |   |   |   |   |   |   |   |   |   |   |
| U.S.      Treasury                                         |   | $      | -      |   |   |   | -      | %               |   | $      | 543    |   |   |            | 4.60   | %      |   | $      | -      |           |   |   | -      | %      |   | $      | -      |   |   |   | - | % |   | $ | 543 |   |   |   | 4.60 | % |
| U.S.      Government sponsored entities                    |   |   | 4,873  |   |   |   | 5.06   |            |   |   | 3,524  |   |   |            | 3.98   |   |   |   | -      |           |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | 8,397 |   |   |   | 4.61 |   |
| Mortgage-backed      securities                            |   |   | 19,138 |   |   |   | 5.02   |            |   |   | 58,485 |   |   |            | 5.12   |   |   |   | 40,941 |           |   |   | 5.31   |   |   |   | 26,798 |   |   |   | 5.35 |   |   |   | 145,362 |   |   |   | 5.20 |   |
| Obligations      of states and political      subdivisions |   |   | 15,907 |   |   |   | 6.93   |            |   |   | 23,568 |   |   |            | 5.99   |   |   |   | 24,183 |           |   |   | 6.31   |   |   |   | 1,171  |   |   |   | 8.76 |   |   |   | 64,829 |   |   |   | 6.39 |   |
| Other      debt securities                                 |   |   | 1,405  |   |   |   | 4.06   |            |   |   | 2,123  |   |   |            | 5.18   |   |   |   | -      |           |   |   | -      |   |   |   | 3,969  |   |   |   | 4.89 |   |   |   | 7,497 |   |   |   | 4.82 |   |
| Total      debt securities available for    sale           |   | $      | 41,323 |   |   |   | 5.73   | %               |   | $      | 88,243 |   |   |            | 5.30   | %      |   | $      | 65,124 |           |   |   | 5.68   | %      |   | $      | 31,938 |   |   |   | 5.42 | % |   |   | 226,628 |   |   |   | 5.51 | % |
| Equity      securities                                     |   |   |   |   |   |   |   |            |   |   |   |   |   |            |   |   |   |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 517 |   |   |   |   |   |
|                                                       |   |   |   |   |   |   |   |            |   |   |   |   |   |            |   |   |   |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 227,145 |   |   |   |   |   |

----

----

----

|                                        |   | 2008   |      |   | 2007      |   |   | 2006   |   |   | 2005      |   |   | 2004   |   |
|---------------------------------------------|--------|--------|-----------|--------|-----------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|
| (Dollars      in                            |   |   |      |   | %      Of |   |   |   |   |   | %      Of |   |   |   |   |   | %      Of |   |   |   |   |   | %      Of |   |   |   |   |   | %      Of |   |
| thousands)                                  |   | Amount |      |   | Total     |   |   | Amount |   |   | Total     |   |   | Amount |   |   | Total |   |   | Amount |   |   | Total |   |   | Amount |   |   | Total |   |
| Held      For Investment                    |   |   |      |   |      |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial,      financial and agricultural |   | $      | 127,704   |   |      |   | 10.85  | %      |   | $      | 169,447   |   |   |   | 13.90  | % |   | $ | 150,905 |   |   |   | 13.88 | % |   | $ | 151,598 |   |   |   | 16.25 | % |   | $ | 128,735 |   |   |   | 15.46 | % |
| Non-residential      real estate            |   |   | 745,699   |   |      |   | 63.39  |   |   |   | 731,595   |   |   |   | 59.99  |   |   |   | 621,841 |   |   |   | 57.19 |   |   |   | 509,986 |   |   |   | 54.65 |   |   |   | 416,177 |   |   |   | 49.99 |   |
| Residential      real estate                |   |   | 255,488   |   |      |   | 21.71  |   |   |   | 269,601   |   |   |   | 22.11  |   |   |   | 262,046 |   |   |   | 24.10 |   |   |   | 227,166 |   |   |   | 24.35 |   |   |   | 237,746 |   |   |   | 28.56 |   |
| Consumer      loans                         |   |   | 37,908    |   |      |   | 3.22   |   |   |   | 40,860    |   |   |   | 3.35   |   |   |   | 45,872 |   |   |   | 4.22 |   |   |   | 41,458 |   |   |   | 4.44 |   |   |   | 46,677 |   |   |   | 5.61 |   |
| Other      loans                            |   |   | 9,796     |   |      |   | 0.83   |   |   |   | 7,932     |   |   |   | 0.65   |   |   |   | 6,350 |   |   |   | 0.59 |   |   |   | 2,872 |   |   |   | 0.31 |   |   |   | 3,151 |   |   |   | 0.38 |   |
| Lease      financing                        |   |   | -         |   |      |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | 269 |   |   |   | 0.02 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total      loans                            |   | $      | 1,176,595 |   |      |   | 100.00 | %      |   | $      | 1,219,435 |   |   |   | 100.00 | % |   | $ | 1,087,283 |   |   |   | 100.00 | % |   | $ | 933,080 |   |   |   | 100.00 | % |   | $ | 832,486 |   |   |   | 100.00 | % |
|                                        |   |   |      |   |      |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans      held for sale                    |   | $      | 7,698     |   |      |   |   |   |   | $      | 5,571     |   |   |   |   |   |   | $ | 7,263 |   |   |   |   |   |   | $ | 5,704 |   |   |   |   |   |   | $ | 12,236 |   |   |   |   |   |

----

----

| Maturity distribution of loans at December 31,      2008 |   | Within        |    |   | One      to Five |   |    | After      Five |   |   |    |   |
|----------------------------------------------------------|--------|---------------|---------|--------|------------------|--------|---------|-----------------|--------|--------|---------|--------|
| (Dollars      in thousands)                              |   | One      Year |    |   | Years            |   |    | Years           |   |   | Total   |   |
|                                                     |   |          |    |   |             |   |    |            |   |   |    |   |
| Commercial,      financial and agricultural              |   | $             | 73,684  |   |             | $      | 51,953  |            |   | $      | 2,067   |   |   | $ | 127,704 |   |
| Non-residential      real estate                         |   |          | 287,183 |   |             |   | 403,128 |            |   |   | 55,388  |   |   |   | 745,699 |   |
| Residential      real estate                             |   |          | 59,388  |   |             |   | 110,788 |            |   |   | 85,312  |   |   |   | 255,488 |   |
| Consumer      loans                                      |   |          | 12,536  |   |             |   | 25,147  |            |   |   | 225     |   |   |   | 37,908 |   |
| Other      loans                                         |   |          | 951     |   |             |   | 4,922   |            |   |   | 3,923   |   |   |   | 9,796 |   |
| Total      loans                                         |   | $             | 433,742 |   |             | $      | 595,938 |            |   | $      | 146,915 |   |   | $ | 1,176,595 |   |

|                                                |   | One      to Five |    |   | After      Five |   |    |   |   |
|-----------------------------------------------------|--------|------------------|---------|--------|-----------------|--------|---------|--------|--------|
| Rate sensitivity of loans at December 31,      2008 |   | Years            |    |   | Years           |   |    | Total  |   |
|                                                |   |             |    |   |            |   |    |   |   |
| Fixed      rate loans                               |   | $                | 572,029 |   |            | $      | 107,266 |   |   | $ | 679,295 |   |
| Floating      rate loans                            |   |             | 23,909  |   |            |   | 39,649  |   |   |   | 63,558 |   |
| Total                                               |   | $                | 595,938 |   |            | $      | 146,915 |   |   | $ | 742,853 |   |

----

----

| (Dollars      in thousands)                                                                                       |   | 2008   |   |   | 2007   |   |   | 2006   |   |   | 2005   |   |   | 2004   |   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonaccrual      loans                                                                                             |   | $      | 20,564 |   |   | $      | 6,524  |   |   | $      | 3,557  |   |   | $      | 1,403  |   |   | $ | 3,302 |   |
| Other      real estate owned                                                                                      |   |   | 11,061 |   |   |   | 6,232  |   |   |   | 3,135  |   |   |   | 3,042  |   |   |   | 3,314 |   |
| Total      nonperforming assets                                                                                   |   | $      | 31,625 |   |   | $      | 12,756 |   |   | $      | 6,692  |   |   | $      | 4,445  |   |   | $ | 6,616 |   |
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accruing      loans past due 90 days or more                                                                      |   |   | 5,686  |   |   |   | 1,093  |   |   |   | 376    |   |   |   | 510    |   |   |   | 645 |   |
| Restructured      loans (accruing)                                                                                |   |   | 3,664  |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income that would have been recorded on nonaccrual loans if they had been      current and accruing |   | $      | 907    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      that was recorded in the financial statements for loans that were on      nonaccrual status         |   | $      | 3      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

----

----

| (Dollars      in thousands)                 |   | 2008   |   |   | 2007   |   |   | 2006   |   |   | 2005   |   |   | 2004   |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at beginning of year           |   | $      | 14,217 |   |   | $      | 14,950 |   |   | $      | 12,449 |   |   | $      | 11,619 |   |   | $ | 10,891 |   |
| Adjustment      for purchase acquisition    |   |   | -      |   |   |   | -      |   |   |   | 2,234  |   |   |   | -      |   |   |   | - |   |
| Charge      offs:                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial,      financial and agricultural |   |   | (993   | )      |   |   | (762   | )      |   |   | (767   | )      |   |   | (1,141 | ) |   |   | (3,832 | ) |
| Real      estate – nonresidential     |   |   | (5,235 | )      |   |   | (1,223 | )      |   |   | (282   | )      |   |   | (182   | ) |   |   | (312 | ) |
| Real      estate – residential        |   |   | (1,968 | )      |   |   | (1,581 | )      |   |   | (1,512 | )      |   |   | (464   | ) |   |   | (289 | ) |
| Consumer                                    |   |   | (1,510 | )      |   |   | (1,178 | )      |   |   | (1,264 | )      |   |   | (1,286 | ) |   |   | (1,193 | ) |
| Total                                       |   |   | (9,706 | )      |   |   | (4,744 | )      |   |   | (3,825 | )      |   |   | (3,073 | ) |   |   | (5,626 | ) |
| Recoveries:                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial,      financial and agricultural |   |   | 75     |   |   |   | 373    |   |   |   | 256    |   |   |   | 101    |   |   |   | 190 |   |
| Real      estate – nonresidential     |   |   | 135    |   |   |   | 666    |   |   |   | 228    |   |   |   | 49     |   |   |   | 24 |   |
| Real      estate – residential        |   |   | 67     |   |   |   | 25     |   |   |   | 102    |   |   |   | 152    |   |   |   | 445 |   |
| Consumer                                    |   |   | 396    |   |   |   | 427    |   |   |   | 474    |   |   |   | 455    |   |   |   | 344 |   |
| Total                                       |   |   | 673    |   |   |   | 1,491  |   |   |   | 1,060  |   |   |   | 757    |   |   |   | 1,003 |   |
| Net      charge-offs                        |   |   | (9,033 | )      |   |   | (3,253 | )      |   |   | (2,765 | )      |   |   | (2,316 | ) |   |   | (4,623 | ) |
| Provision      for loan losses              |   |   | 19,734 |   |   |   | 2,520  |   |   |   | 3,032  |   |   |   | 3,146  |   |   |   | 5,351 |   |
| Balance      at end of year                 |   | $      | 24,918 |   |   | $      | 14,217 |   |   | $      | 14,950 |   |   | $      | 12,449 |   |   | $ | 11,619 |   |
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      Charge-Offs To Average Loans       |   |   | 0.75   | %      |   |   | 0.28   | %      |   |   | 0.26   | %      |   |   | 0.26   | % |   |   | 0.58 | % |

----

----

|                                        |   | December      31 |   |
|---------------------------------------------|--------|------------------|--------|
| (Dollars      in thousands)                 |   | 2008             |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                        |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial,      financial and agricultural |   | $                | 6,815  |   |   | $ | 6,953 |   |   | $ | 7,540 |   |   | $ | 5,642 |   |   | $ | 5,224 |   |
| Non-residential      real estate            |   |             | 13,129 |   |   |   | 3,094 |   |   |   | 3,095 |   |   |   | 695 |   |   |   | 574 |   |
| Residential      real estate                |   |             | 1,634  |   |   |   | 1,936 |   |   |   | 1,865 |   |   |   | 1,351 |   |   |   | 1,241 |   |
| Consumer      loans                         |   |             | 3,340  |   |   |   | 2,234 |   |   |   | 2,450 |   |   |   | 4,761 |   |   |   | 4,580 |   |
|    Total      loans          |   | $                | 24,918 |   |   | $ | 14,217 |   |   | $ | 14,950 |   |   | $ | 12,449 |   |   | $ | 11,619 |   |

|                                        |   | December      31 |   |
|---------------------------------------------|--------|------------------|--------|
| Allowance As A Percentage Of Loan      Type |   | 2008             |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                        |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial,      financial and agricultural |   |             | 4.96   | % |   |   | 3.92 | % |   |   | 4.79 | % |   |   | 3.65 | % |   |   | 3.96 | % |
| Non-residential      real estate            |   |             | 1.76   |   |   |   | 0.42 |   |   |   | 0.50 |   |   |   | 0.14 |   |   |   | 0.14 |   |
| Residential      real estate                |   |             | 0.64   |   |   |   | 0.72 |   |   |   | 0.71 |   |   |   | 0.59 |   |   |   | 0.52 |   |
| Consumer      loans                         |   |             | 8.81   |   |   |   | 5.47 |   |   |   | 5.34 |   |   |   | 11.48 |   |   |   | 9.81 |   |
|    Total      loans          |   |             | 2.12   | % |   |   | 1.17 | % |   |   | 1.37 | % |   |   | 1.33 | % |   |   | 1.40 | % |

| Net Charge-Offs As A Percent Of Year      End |   | December      31 |   |
|-----------------------------------------------|--------|------------------|--------|
| Loans Outstanding, By Type                    |   | 2008             |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                          |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial,      financial and agricultural   |   |             | 0.67   | % |   |   | 0.22 | % |   |   | 0.32 | % |   |   | 0.67 | % |   |   | 2.76 | % |
| Non-residential      real estate              |   |             | 0.68   |   |   |   | 0.08 |   |   |   | 0.01 |   |   |   | 0.03 |   |   |   | 0.07 |   |
| Residential      real estate                  |   |             | 0.74   |   |   |   | 0.58 |   |   |   | 0.54 |   |   |   | 0.14 |   |   |   | (0.07 | ) |
| Consumer      loans                           |   |             | 2.94   |   |   |   | 1.84 |   |   |   | 1.72 |   |   |   | 2.00 |   |   |   | 1.82 |   |
|    Total      loans            |   |             | 0.77   | % |   |   | 0.27 | % |   |   | 0.25 | % |   |   | 0.25 | % |   |   | 0.56 | % |

----

----

| Three      months or less                  |   | $      | 84,154  |   |
|--------------------------------------------|--------|--------|---------|--------|
| Over      three months through six months  |   |   | 32,046  |   |
| Over      six months through twelve months |   |   | 90,430  |   |
| Over      one year                         |   |   | 70,133  |   |
|                                       |   |   |    |   |
| Total                                      |   | $      | 276,763 |   |

----

----

----

|                                |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                |   |   |   |   |   |   |   |   |   |
| Return      on average assets       |   |   | 0.03   | %      |   |   | 0.92   | %      |   |   | 0.94 | % |
| Return      on average equity       |   |   | 0.37   |   |   |   | 10.78  |   |   |   | 11.39 |   |
| Dividend      payout ratio          |   |   | 866.67 |   |   |   | 32.50  |   |   |   | 33.77 |   |
| Average      equity to assets ratio |   |   | 8.76   |   |   |   | 8.52   |   |   |   | 8.25 |   |

----

----

| (Dollars      in thousands)                                 |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|-------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                        |   |   |   |   |   |   |   |   |   |
| Securities sold under agreements to      repurchase         |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding      at end of period                           |   | $      | 9,728  |   |   | $      | 9,676  |   |   | $ | 6,712 |   |
| Maximum      outstanding at any month-end during the period |   |   | 20,879 |   |   |   | 9,676  |   |   |   | 10,062 |   |
| Average      outstanding during the period                  |   |   | 12,876 |   |   |   | 6,154  |   |   |   | 6,205 |   |
| Interest      paid                                          |   |   | 301    |   |   |   | 273    |   |   |   | 280 |   |
| Weighted      average rate during each period               |   |   | 2.34   | %      |   |   | 4.44   | %      |   |   | 4.51 | % |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds purchased                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding      at end of period                           |   | $      | -      |   |   | $      | -      |   |   | $ | 12,900 |   |
| Maximum      outstanding at any month-end during the period |   |   | 325    |   |   |   | 20,000 |   |   |   | 25,000 |   |
| Average      outstanding during the period                  |   |   | 984    |   |   |   | 6,291  |   |   |   | 2,582 |   |
| Interest      paid                                          |   |   | 26     |   |   |   | 336    |   |   |   | 137 |   |
| Weighted      average rate during each period               |   |   | 2.62   | %      |   |   | 5.34   | %      |   |   | 5.31 | % |

|   | · | The      economy slowed significantly during 2008 as a freeze-up in the credit      markets and the continuing effects of sub-prime mortgage losses made a      dramatic impact on consumer spending, housing sales and prices,      manufacturing activity, unemployment and interest rates. The direct      effect of this on the Company was a decrease in the ability of customers      in the construction and development industry to continue to move      properties onto the market to provide cash flows for loan payments. These      cash flow difficulties resulted in increased net loan losses and a      significant increase in the allowance for loan      losses. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | With      85% of the loan portfolio made up of real estate secured loans, the      Company has a significant concentration risk. As the real      estate related sectors of the economy continue to slow down, the      Company will be under increased pressure to allocate resources to working      out problem loans and foreclosed properties. These workout situations      could take longer and even become worse as the supply of properties on the      market exceeds the demand. This supply/demand imbalance could also result      in further losses. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      freezing of credit markets also resulted in a loss of demand in the      marketplace for certain asset-backed securities. This lack of liquidity,      resulting in very few, and in some cases no transactions negatively      affected the market for collateralized debt obligations. The      Company has certain collateralized debt obligations that are secured      by trust preferred securities that have market value losses even while      the underlying collateral securities are being paid. Moody’s has also      downgraded these securities to below investment grade status.      With further deterioration the Company could be faced with      other-than-temporary impairments that would require direct write-offs      against earnings. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A      continued slowing of the economy and rising unemployment may affect the      ability of the Company’s customers to make timely loan payments, or      may cause customers to use up deposit balances, thereby causing a strain      on the Company’sliquidity. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      slowdown in housing sales and continued pressure on housing prices has      reduced mortgage originations. This has resulted in lower mortgage      revenues. However, the Federal Reserve has made successful efforts to      reduce mortgage rates, which may improve      mortgage originations. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | The      Federal Reserve Board’s Federal Open Market Committee has been using      interest rate policy to try to stimulate the economy. The Federal      Reserve has also used targeted lending programs to commercial and      investment banks to provide liquidity to financial markets and has begun      to acquire securities as a means of providing targeted market liquidity.      General interest rates are at historical lows. However, the amount of      liquidity provided by the Federal Reserve, coupled by stimulation programs      that may be passed by Congress, could result in a severe inflationary      scenario in the future ifunchecked. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A      much steeper than anticipated increase in interest rates or a steep      decline in those rates over a short period of time could cause      the Company’s net interest margins to decrease, thereby decreasing      net interest revenues. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Mortgage      originations, and therefore mortgage revenues, would be hurt by steeply      rising interest rates. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|

|   | · | A      poor stock market could reduce brokerage transactions, therefore reducing      investment brokerage revenues. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|

|   | · | An      unanticipated increase in inflation could cause the Company’s operating      costs related to salaries, technology, supplies and property taxes to      increase. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Unfavorable      judgments in ongoing litigation may result in additional      expenses. |
|--------|--------|------------------------------------------------------------------------------------------|

|   | · | Natural      disasters could interrupt the ability of the Company to conduct business      and could restrict our customers’ ability to generate cash flows, causing      loan losses and losses of revenues. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Unanticipated      catastrophic events could result in unusual loss claims that would reduce      or eliminate the profit sharing revenues of the insurance agencies. Such      claims may also affect the availability of insurance products for certain      classes of customers, thereby reducing commission      revenues available to theagencies. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Unforeseen      new competition from outside the traditional financial services industry      could constrain the Company’s ability to price its products      profitably. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Investments      in the portfolio of the Company’s pension plan may not provide adequate      returns to fund plan termination obligations, thus causing higher annual      plan expenses and requiring additional contributions by the Company.      Consistent with most managed funds, the Company’s pension plan      portfolio sustained losses during 2008. Therefore, the Company may need to      increase contributions until a market recovery  occurs. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      Company’s stock is listed and traded on the NASDAQ Global Select Market.      The Company depends on the liquidity of the NASDAQ Global Select Market to      raise equity capital. If the market should fail to operate, the Company      may be severely constrained in raisingcapital. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      Company has analyst coverage, and therefore, downgrades in the Company’s      prospects by an analyst may cause the Company’s stock price to fall and      prevent the Company from being able to access the markets for additional      capital. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | The      Company is subject to the regulations of the Securities Exchange      Commission (SEC), the Federal Reserve Board, the Federal Deposit Insurance      Corporation, the Mississippi Department of Banking and Consumer Finance,      and the Mississippi Department of Insurance. New regulations      issued by these agencies may adversely affect the Company’s ability to      carry on its business activities. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |

|   | · | The      Company is subject to Federal and state laws and regulations such as      labor, tax and environmental laws and regulations. Changes in these laws      and regulations may adversely affect the Company’s operations or result in      unanticipated penalties or othercosts. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      Company is subject to the accounting rules and regulations of the SEC and      the Financial Accounting Standards Board. The      Company    may become subject to accounting rules that      adversely affect the reported financial position or results of operations      of the Company, or that require extraordinary efforts and additional      costs to implement. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      Company considers acquisitions of other banks and other types of related      businesses as opportunities arise. The Company must raise capital      for any future acquisitions. If the Company’s stock price is unattractive,      then the Company may not be able to enter into a share exchange      or will have to do so at a disadvantageous exchange ratio. This could      cause undesirable dilution to the existing shareholders.      If the      Company finances acquisitions with cash, then the acquired company will      need to produce sufficient cash flows to repay the debt incurred.      Otherwise, the Company could experience financial distress or may be      unable to meet its regulatory capital ratio      requirements. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|   | · | Acquisitions      also may result in customer and employee turnover, thus increasing the      cost of operating the new businesses. Legal contingencies, related to the      acquired companies, beyond those that the Company is aware of could arise,      causing unexpected costs. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      Company has been approved for up to $40 million in funding under the      Capital Purchase Program. The Company expects to raise      $30   million in funding in exchange for preferred stock      and common stock warrants during the first quarter of 2009. Participation      in this program will constrain the Company’s ability to raise      dividends and repurchase equity securities and will also place certain      constraints on executive compensation arrangements. The increased      funding will allow the Company to take advantage of any improvements in      the business environment to expand its footprint, add new product      lines or engage in balance sheet management  strategies. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|     |   | First  |   |   | Second |   |   | Third  |   |   | Fourth |   |
|----------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| 2008:    |   |   |   |   |   |   |   |   |   |   |   |   |
| High     |   | $      | 16.03  |   |   | $      | 16.00  |   |   | $      | 12.96  |   |   | $ | 12.00 |   |
| Low      |   |   | 13.50  |   |   |   | 12.50  |   |   |   | 7.93   |   |   |   | 7.40 |   |
| Close    |   |   | 14.50  |   |   |   | 12.55  |   |   |   | 11.58  |   |   |   | 8.46 |   |
| Dividend |   |   | .13    |   |   |   | .13    |   |   |   | .13    |   |   |   | .13 | * |
|     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2007:    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| High     |   | $      | 19.99  |   |   | $      | 19.81  |   |   | $      | 19.00  |   |   | $ | 17.91 |   |
| Low      |   |   | 18.07  |   |   |   | 17.85  |   |   |   | 17.10  |   |   |   | 15.28 |   |
| Close    |   |   | 18.40  |   |   |   | 18.63  |   |   |   | 17.55  |   |   |   | 15.80 |   |
| Dividend |   |   | .13    |   |   |   | .13    |   |   |   | .13    |   |   |   | .13 |   |

|                           |   | 2008   |   |   | 2007   |   |   | 2006   |   |   | 2005   |   |   | 2004   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Price/earnings      ratio      |   |   | 141.00 | x      |   |   | 9.88   | x      |   |   | 12.72  | x      |   |   | 12.04  | x |   |   | 14.28 | x |
| Price/book      value ratio    |   |   | 0.56   | x      |   |   | 1.02   | x      |   |   | 1.38   | x      |   |   | 1.29   | x |   |   | 1.36 | x |
| Book      value/share          |   | $      | 15.00  |   |   | $      | 15.45  |   |   | $      | 14.15  |   |   | $      | 13.06  |   |   | $ | 12.48 |   |
| Dividend      payout ratio     |   |   | 866.67 | %      |   |   | 32.50  | %      |   |   | 33.77  | %      |   |   | 36.79  | % |   |   | 42.19 | % |
| Historical      dividend yield |   |   | 3.29   | %      |   |   | 2.65   | %      |   |   | 3.08   | %      |   |   | 3.04   | % |   |   | 2.64 | % |

----

|                                                            |   |                                      |   |                       |    |   |                   |   |   |                           |   |
|-----------------------------------------------------------------|--------|-------------------------------------------|--------|----------------------------|---------|--------|------------------------|--------|--------|--------------------------------|--------|
|                                                            |   |                                      |   | Number      of             |    |   |                   |   |   |                           |   |
|                                                            |   |                                      |   | Securities to be |    |   |                   |   |   |                           |   |
|                                                            |   |                                      |   | Issued      Upon           |    |   | Weighted-Average       |   |   |                           |   |
|                                                            |   |                                      |   | Exercise      of           |    |   | Exercise      Price of |   |   |                           |   |
|                                                            |   |                                      |   | Outstanding                |    |   | Outstanding            |   |   | Number of Securities |   |
|                                                            |   |                                      |   | Options,      Warrants     |    |   | Options, Warrants |   |   | Remaining      Available       |   |
|                                                            |   | Plan      Name                            |   | and      Rights            |    |   | and      Rights        |   |   | for      Future Issuance       |   |
|                                                            |   |                                      |   |                       |    |   |                   |   |   |                           |   |
| Equity      compensation plans                                  |   | 1999 Stock Option Plan     |   |                       | 123,500 |   |                   | $      | 16.04  |                           |   |   | - |   |
| approved      by security holders                               |   | 2005 Equity Incentive Plan |   |                       | 12,000  |   |                   |   | 16.00  |                           |   |   | 264,500 |   |
|                                                            |   |                                      |   |                       |    |   |                   |   |   |                           |   |   |   |   |
| Equity      compensation plans not approved by security holders |   | None                                      |   |                       | -       |   |                   |   | -      |                           |   |   | - |   |
|                                                            |   |                                      |   |                       |    |   |                   |   |   |                           |   |   |   |   |
| Total                                                           |   |                                      |   |                       | 135,500 |   |                   | $      | 16.04  |                           |   |   | 264,500 |   |

|                           |   |   | 12/03  |   |   |   | 12/04  |   |   |   | 12/05  |   |   |   | 12/06  |   |   |   | 12/07  |   |   |   | 12/08  |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| First      M&F Corporation |   |   | 100.00 |   |   |   | 92.07  |   |   |   | 94.46  |   |   |   | 112.94 |   |   |   | 93.82  |   |   |   | 52.68  |   |
| NASDAQ      Composite          |   |   | 100.00 |   |   |   | 110.08 |   |   |   | 112.88 |   |   |   | 126.51 |   |   |   | 138.13 |   |   |   | 80.47  |   |
| NASDAQ      Bank               |   |   | 100.00 |   |   |   | 111.11 |   |   |   | 108.64 |   |   |   | 123.74 |   |   |   | 97.71  |   |   |   | 74.73  |   |

----

| (Thousands,      except per share data)      |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |
|----------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|
|                                         |   | 2008   |      |   | 2007   |   |      | 2006   |   |   | 2005      |   |   | 2004   |      |
|                                         |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |
| EARNINGS                                     |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |
|                                         |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |
| Interest      income                         |   | $      | 93,288    |   |   | $      | 101,916   |   |   | $      | 91,505    |   |   | $      | 67,534    |   |   | $ | 58,232 |   |
| Interest      expense                        |   |   | 41,292    |   |   |   | 47,876    |   |   |   | 39,156    |   |   |   | 23,184    |   |   |   | 17,050 |   |
| Net      interest income                     |   |   | 51,996    |   |   |   | 54,040    |   |   |   | 52,349    |   |   |   | 44,350    |   |   |   | 41,182 |   |
| Provision      for loan losses               |   |   | 19,734    |   |   |   | 2,520     |   |   |   | 3,032     |   |   |   | 3,146     |   |   |   | 5,351 |   |
| Noninterest      income                      |   |   | 21,131    |   |   |   | 21,320    |   |   |   | 20,148    |   |   |   | 17,047    |   |   |   | 15,252 |   |
| Noninterest      expense                     |   |   | 54,284    |   |   |   | 51,373    |   |   |   | 48,926    |   |   |   | 39,649    |   |   |   | 37,020 |   |
| Income      taxes                            |   |   | (1,429    | )      |   |   | 6,988     |   |   |   | 6,604     |   |   |   | 6,004     |   |   |   | 4,075 |   |
| Noncontrolling      interests                |   |   | 12        |   |   |   | 21        |   |   |   | 10        |   |   |   | 6         |   |   |   | (787 | ) |
| Net      income                              |   | $      | 526       |   |   | $      | 14,458    |   |   | $      | 13,925    |   |   | $      | 12,592    |   |   | $ | 10,775 |   |
| Net      interest income, taxable equivalent |   | $      | 53,469    |   |   | $      | 55,277    |   |   | $      | 53,616    |   |   | $      | 45,632    |   |   | $ | 42,586 |   |
| Cash      dividends paid                     |   | $      | 4,772     |   |   | $      | 4,772     |   |   | $      | 4,751     |   |   | $      | 4,648     |   |   | $ | 4,535 |   |
|                                         |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| PER      COMMON SHARE                        |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
|                                         |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| Net      income (basic)                      |   | $      | 0.06      |   |   | $      | 1.60      |   |   | $      | 1.54      |   |   | $      | 1.40      |   |   | $ | 1.19 |   |
| Cash      dividends paid                     |   |   | .52       |   |   |   | .52       |   |   |   | .52       |   |   |   | .52       |   |   |   | .50 |   |
| Book      value                              |   |   | 15.00     |   |   |   | 15.45     |   |   |   | 14.15     |   |   |   | 13.06     |   |   |   | 12.48 |   |
| Closing      stock price                     |   |   | 8.46      |   |   |   | 15.80     |   |   |   | 19.59     |   |   |   | 16.86     |   |   |   | 16.93 |   |
|                                         |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| SELECTED      AVERAGE BALANCES               |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
|                                         |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| Assets                                       |   | $      | 1,621,703 |   |   | $      | 1,573,630 |   |   | $      | 1,482,013 |   |   | $      | 1,209,054 |   |   | $ | 1,110,189 |   |
| Earning      assets, amortized cost          |   |   | 1,455,836 |   |   |   | 1,407,559 |   |   |   | 1,321,730 |   |   |   | 1,093,782 |   |   |   | 1,005,927 |   |
| Loans      held for investment               |   |   | 1,200,628 |   |   |   | 1,148,275 |   |   |   | 1,056,899 |   |   |   | 884,232   |   |   |   | 794,010 |   |
| Investments,      amortized cost             |   |   | 232,274   |   |   |   | 243,042   |   |   |   | 237,578   |   |   |   | 190,067   |   |   |   | 184,605 |   |
| Total      deposits                          |   |   | 1,270,547 |   |   |   | 1,208,007 |   |   |   | 1,153,381 |   |   |   | 949,228   |   |   |   | 850,140 |   |
| Equity                                       |   |   | 142,006   |   |   |   | 134,083   |   |   |   | 122,288   |   |   |   | 115,723   |   |   |   | 111,995 |   |
|                                         |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| SELECTED      YEAR-END BALANCES              |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
|                                         |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| Assets                                       |   | $      | 1,596,865 |   |   | $      | 1,653,751 |   |   | $      | 1,540,275 |   |   | $      | 1,267,118 |   |   | $ | 1,142,712 |   |
| Earning      assets, carrying value          |   |   | 1,427,344 |   |   |   | 1,467,624 |   |   |   | 1,360,064 |   |   |   | 1,128,101 |   |   |   | 1,027,056 |   |
| Loans      held for investment               |   |   | 1,176,595 |   |   |   | 1,219,435 |   |   |   | 1,087,283 |   |   |   | 933,080   |   |   |   | 832,486 |   |
| Investments,      carrying value             |   |   | 227,145   |   |   |   | 237,138   |   |   |   | 261,828   |   |   |   | 185,071   |   |   |   | 175,654 |   |
| Total      deposits                          |   |   | 1,261,387 |   |   |   | 1,262,455 |   |   |   | 1,185,982 |   |   |   | 973,671   |   |   |   | 877,264 |   |
| Equity                                       |   |   | 135,950   |   |   |   | 140,080   |   |   |   | 128,047   |   |   |   | 117,377   |   |   |   | 112,468 |   |
|                                         |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| SELECTED      RATIOS                         |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
|                                         |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| Return      on average assets                |   |   | 0.03      | %      |   |   | 0.92      | %      |   |   | 0.94      | %      |   |   | 1.04      | % |   |   | 0.97 | % |
| Return      on average equity                |   |   | 0.37      |   |   |   | 10.78     |   |   |   | 11.39     |   |   |   | 10.88     |   |   |   | 9.62 |   |
| Average      equity to average assets        |   |   | 8.76      |   |   |   | 8.52      |   |   |   | 8.25      |   |   |   | 9.57      |   |   |   | 10.09 |   |
| Dividend      payout ratio                   |   |   | 866.67    |   |   |   | 32.50     |   |   |   | 33.77     |   |   |   | 36.79     |   |   |   | 42.19 |   |
| Price      to earnings (x)                   |   |   | 141.00    | x      |   |   | 9.88      | x      |   |   | 12.72     | x      |   |   | 12.04     | x |   |   | 14.28 | x |
| Price      to book (x)                       |   |   | 0.56      |   |   |   | 1.02      |   |   |   | 1.38      |   |   |   | 1.29      |   |   |   | 1.36 |   |

----

----

|                                                    |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|---------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                    |   |   |   |   |   |   |   |   |   |
| Net      interest margin                                |   |   | 3.67   | %      |   |   | 3.93   | %      |   |   | 4.06 | % |
| Efficiency      ratio                                   |   |   | 72.77  |   |   |   | 67.07  |   |   |   | 66.33 |   |
| Return      on assets                                   |   |   | 0.03   |   |   |   | 0.92   |   |   |   | 0.94 |   |
| Return      on equity                                   |   |   | 0.37   |   |   |   | 10.78  |   |   |   | 11.39 |   |
| Noninterest      income to avg. assets                  |   |   | 1.30   |   |   |   | 1.35   |   |   |   | 1.36 |   |
| Noninterest      income to revenues (1)                 |   |   | 28.33  |   |   |   | 27.83  |   |   |   | 27.31 |   |
| Noninterest      expense to avg. assets                 |   |   | 3.35   |   |   |   | 3.26   |   |   |   | 3.30 |   |
| Salaries      and benefits to total noninterest expense |   |   | 53.34  |   |   |   | 57.13  |   |   |   | 56.39 |   |
| Contribution      margin (2)                            |   |   | 61.19  |   |   |   | 61.68  |   |   |   | 62.60 |   |
| Nonaccrual      loans to loans                          |   |   | 1.74   |   |   |   | 0.53   |   |   |   | 0.32 |   |
| 90      day past due loans to loans                     |   |   | 0.48   |   |   |   | 0.09   |   |   |   | 0.03 |   |
| Net      charge-offs as a percent of average loans      |   |   | 0.75   |   |   |   | 0.28   |   |   |   | 0.26 |   |

|  | (1)  | Revenues      equal tax-equivalent net interest income before loan loss expense, plus      noninterestincome. |
|--|-----------|---------------------------------------------------------------------------------------------------------------|

|   | (2) |  Contribution      margin equals revenues minus salaries & benefits, divided by      revenues. |
|--------|-----|---------------------------------------------------------------------------------------------------------|

| (Dollars in      thousands)                         |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|-----------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                |   |   |   |   |   |   |   |   |   |
| Mortgage      originations                          |   | $      | 62,445 |   |   | $      | 73,202 |   |   | $ | 69,258 |   |
| Commissions      from annuity sales                 |   |   | 104    |   |   |   | 125    |   |   |   | 153 |   |
| Trust      and retail investment revenues           |   |   | 585    |   |   |   | 598    |   |   |   | 616 |   |
| Revenues      per FTE employee                      |   |   | 134    |   |   |   | 136    |   |   |   | 134 |   |
| Agency      commissions per agency FTE employee (1) |   |   | 104    |   |   |   | 97     |   |   |   | 87 |   |

----

|                                   |   | 2005      to 2006              |   |   | 2006      to 2007              |   |   | 2007      to 2008              |   |
|----------------------------------------|--------|--------------------------------|--------|--------|--------------------------------|--------|--------|--------------------------------|--------|
|                                   |   | Net      Change (Basis Points) |   |   | Net      Change (Basis Points) |   |   | Net      Change (Basis Points) |   |
| Loan      yields                       |   |                           | 87     |   |                           |   | 29     |                           |   |   | (103 | ) |
| Earning      asset yields              |   |                           | 73     |   |                           |   | 31     |                           |   |   | (82 | ) |
| Deposit      costs                     |   |                           | 87     |   |                           |   | 51     |                           |   |   | (61 | ) |
| Net      interest margin               |   |                           | (11    | )      |                           |   | (13    | )                              |   |   | (26 | ) |
| 3-month      Treasury (a)              |   |                           | 190    |   |                           |   | 84     |                           |   |   | (209 | ) |
| Prime      rate (b)                    |   |                           | 200    |   |                           |   | 107    |                           |   |   | (150 | ) |
| FHLB      borrowing costs (c)          |   |                           | 174    |   |                           |   | 59     |                           |   |   | (156 | ) |
|                                   |   |                           |   |   |                           |   |   |                           |   |   |   |   |
| Loan      yields to 3-month Treasury   |   |                           | 45.79  | %      |                           |   | 34.52  | %                              |   |   | 49.28 | % |
| Loan      yields to Prime rate         |   |                           | 43.50  | %      |                           |   | 27.10  | %                              |   |   | 68.67 | % |
| Loan      yields to FHLB costs         |   |                           | 50.00  | %      |                           |   | 49.15  | %                              |   |   | 66.03 | % |
| Deposit      costs to 3-month Treasury |   |                           | 45.79  | %      |                           |   | 60.71  | %                              |   |   | 29.19 | % |

----

| (Dollars      in thousands)              |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Service      charge revenues             |   | $      | 1,415  |   |   | $      | 1,413  |   |   | $ | 1,497 |   |
| Debit/ATM      card revenues             |   |   | 2,219  |   |   |   | 1,855  |   |   |   | 1,534 |   |
| Overdraft      fee revenues              |   |   | 8,058  |   |   |   | 7,697  |   |   |   | 7,367 |   |
| Service      charges on deposit accounts |   | $      | 11,692 |   |   | $      | 10,962 |   |   | $ | 10,398 |   |

----

| (Dollars      in thousands)                           |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|-------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Agency      profit-sharing revenues                   |   | $      | 392    |   |   | $      | 302    |   |   | $ | 114 |   |
| Loan      fees                                        |   |   | 494    |   |   |   | 519    |   |   |   | 445 |   |
| Gains      on student loan sales                      |   |   | 218    |   |   |   | 300    |   |   |   | 308 |   |
| Gains      on sale of nonmarketable equity securities |   |   | -      |   |   |   | -      |   |   |   | 342 |   |
| Insurance      claim for legal settlements            |   |   | -      |   |   |   | 370    |   |   |   | - |   |
| Timber      sale revenues                             |   |   | -      |   |   |   | -      |   |   |   | 117 |   |
| All      other income                                 |   |   | 1,802  |   |   |   | 2,104  |   |   |   | 2,009 |   |
| Other      income                                     |   | $      | 2,906  |   |   | $      | 3,595  |   |   | $ | 3,335 |   |

----

|                                                    |   | Before Additional      |   |   | Additional Loan Loss |   |    |                                        |   |
|---------------------------------------------------------|--------|-----------------------------|--------|--------|--------------------------------|--------|---------|---------------------------------------------|--------|
| (Dollars in thousands)                        |   | Loan Loss Accrual |   |   | Accrual Effect            |   |    | Earnings (Loss) as Disclosed |   |
| Net      income (loss)  before tax            |   | $                           | 13,859 |   |                           | $      | (14,750 | )                                           |   | $ | (891 | ) |
| Income      taxes                                       |   |                        | 4,073  |   |                           |   | (5,502  | )                                           |   |   | (1,429 | ) |
| Net      income (loss) before noncontrolling interests  |   | $                           | 9,786  |   |                           | $      | (9,248  | )                                           |   | $ | 538 |   |
|                                                    |   |                        |   |   |                           |   |    |                                        |   |   |   |   |
| Effective      tax rate before noncontrolling interests |   |                        | 29.39  | %      |                           |   | 37.30   | %                                           |   |   | 160.38 | % |

----

|                             |   | 2008    |   |   | 4th Qtr 08 |   |
|----------------------------------|--------|---------|--------|--------|----------------------|--------|
|                        |   | First   |   |   | Second               |   |   | Third |   |   | Fourth |   |   | Vs |   |
| (Dollars in thousands) |   | Quarter |   |   | Quarter              |   |   | Quarter |   |   | Quarter |   |   | 4th Qtr 07 |   |
|                             |   |    |   |   |                 |   |   |   |   |   |   |   |   |   |   |
| Interest      income             |   | $       | 25,281 |   |                 | $      | 23,405 |   |   | $ | 22,479 |   |   | $ | 22,123 |   |   |   | (16.25 | )% |
| Interest      expense            |   |    | 12,154 |   |                 |   | 10,305 |   |   |   | 9,459 |   |   |   | 9,374 |   |   |   | (26.12 | ) |
| Net      interest income         |   |    | 13,127 |   |                 |   | 13,100 |   |   |   | 13,020 |   |   |   | 12,749 |   |   |   | (7.11 | ) |
| Provision      for loan losses   |   |    | 780    |   |                 |   | 6,080 |   |   |   | 2,190 |   |   |   | 10,684 |   |   |   | 1,595.87 |   |
| Noninterest      income          |   |    | 5,512  |   |                 |   | 5,270 |   |   |   | 5,517 |   |   |   | 4,832 |   |   |   | (7.24 | ) |
| Noninterest      expense         |   |    | 13,354 |   |                 |   | 13,460 |   |   |   | 13,229 |   |   |   | 14,241 |   |   |   | 9.34 |   |
| Income      taxes                |   |    | 1,364  |   |                 |   | (707 | ) |   |   | 904 |   |   |   | (2,990 | ) |   |   | (274.24 | ) |
| Noncontrolling      interest     |   |    | 2      |   |                 |   | 3 |   |   |   | 4 |   |   |   | 3 |   |   |   | 50.00 |   |
| Net      income                  |   | $       | 3,139  |   |                 | $      | (466 | ) |   | $ | 2,210 |   |   | $ | (4,357 | ) |   |   | (222.35 | )% |
| Per      common share:           |   |    |   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (basic)          |   | $       | .35    |   |                 | $      | (.05 | ) |   | $ | .24 |   |   | $ | (.48 | ) |   |   | (220.00 | )% |
| Net      income (diluted)        |   | $       | .34    |   |                 | $      | (.05 | ) |   | $ | .24 |   |   | $ | (.48 | ) |   |   | (353.85 | )% |
| Cash      dividends              |   |    | .13    |   |                 |   | .13 |   |   |   | .13 |   |   |   | .13 |   |   |   | - |   |

|                             |   | 2007    |   |   | 4th Qtr 07 |   |
|----------------------------------|--------|---------|--------|--------|----------------------|--------|
|                        |   | First   |   |   | Second               |   |   | Third |   |   | Fourth |   |   | Vs |   |
| (Dollars in thousands) |   | Quarter |   |   | Quarter              |   |   | Quarter |   |   | Quarter |   |   | 4th Qtr 06 |   |
|                             |   |    |   |   |                 |   |   |   |   |   |   |   |   |   |   |
| Interest      income             |   | $       | 24,332 |   |                 | $      | 25,125 |   |   | $ | 26,045 |   |   | $ | 26,414 |   |   |   | 8.10 | % |
| Interest      expense            |   |    | 11,325 |   |                 |   | 11,603 |   |   |   | 12,259 |   |   |   | 12,689 |   |   |   | 14.19 |   |
| Net      interest income         |   |    | 13,007 |   |                 |   | 13,522 |   |   |   | 13,786 |   |   |   | 13,725 |   |   |   | 3.03 |   |
| Provision      for loan losses   |   |    | 630    |   |                 |   | 630 |   |   |   | 630 |   |   |   | 630 |   |   |   | 420.66 |   |
| Noninterest      income          |   |    | 5,557  |   |                 |   | 4,861 |   |   |   | 5,425 |   |   |   | 5,209 |   |   |   | (.55 | ) |
| Noninterest      expense         |   |    | 12,682 |   |                 |   | 12,509 |   |   |   | 12,889 |   |   |   | 13,025 |   |   |   | .94 |   |
| Income      taxes                |   |    | 1,691  |   |                 |   | 1,702 |   |   |   | 1,879 |   |   |   | 1,716 |   |   |   | (4.45 | ) |
| Noncontrolling      interest     |   |    | 7      |   |                 |   | 7 |   |   |   | 5 |   |   |   | 2 |   |   |   | - |   |
| Net      income                  |   | $       | 3,554  |   |                 | $      | 3,535 |   |   | $ | 3,808 |   |   | $ | 3,561 |   |   |   | (4.76 | )% |
| Per      common share:           |   |    |   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (basic)          |   | $       | .39    |   |                 | $      | .39 |   |   | $ | .42 |   |   | $ | .40 |   |   |   | (2.44 | )% |
| Net      income (diluted)        |   | $       | .39    |   |                 | $      | .39 |   |   | $ | .42 |   |   | $ | .39 |   |   |   | (4.88 | )% |
| Cash      dividends              |   |    | .13    |   |                 |   | .13 |   |   |   | .13 |   |   |   | .13 |   |   |   | - |   |

| (Dollars      in thousands)                 |   | 2008   |     |   | 2007   |   |    | 2006   |   |
|---------------------------------------------|--------|--------|----------|--------|--------|--------|---------|--------|--------|
|                                        |   |   |     |   |   |   |    |   |   |
| Net      increase (decrease) in loans       |   | $      | (42,840  | )      |   | $      | 132,152 |   |   | $ | 43,977 |   |
| Net      increase (decrease) in deposits    |   |   | (1,068   | )      |   |   | 76,473  |   |   |   | 46,901 |   |
| Ratio      of loan growth to deposit growth |   |   | 4,011.24 | %      |   |   | 172.81  | %      |   |   | 93.77 | % |
|                                        |   |   |     |   |   |   |    |   |   |   |   |   |

----

----

| (Dollars in thousands)      |   | December 31, 2008 |      |   | December 31, 2007 |   |      | December 31, 2006 |   |
|---------------------------------------|--------|-----------------------------|-----------|--------|-----------------------------|--------|-----------|-----------------------------|--------|
|                                  |   |                        |      |   |                        |   |      |                        |   |
| Noninterest-bearing      demand       |   | $                           | 178,689   |   |                        | $      | 191,206   |                        |   | $ | 180,273 |   |
| NOW      deposits                     |   |                        | 217,334   |   |                        |   | 190,067   |                        |   |   | 199,666 |   |
| Money      market deposits            |   |                        | 182,364   |   |                        |   | 156,364   |                        |   |   | 128,694 |   |
| Savings      deposits                 |   |                        | 114,281   |   |                        |   | 105,924   |                        |   |   | 94,815 |   |
| Certificates      of deposit          |   |                        | 549,224   |   |                        |   | 590,831   |                        |   |   | 547,513 |   |
| Brokered      certificates of deposit |   |                        | 19,495    |   |                        |   | 28,063    |                        |   |   | 35,021 |   |
| Total                                 |   | $                           | 1,261,387 |   |                        | $      | 1,262,455 |                        |   | $ | 1,185,982 |   |

| (Dollars in thousands)      |   | December 31, 2008 |    |   | December 31, 2007 |   |    | December 31, 2006 |   |
|---------------------------------------|--------|-----------------------------|---------|--------|-----------------------------|--------|---------|-----------------------------|--------|
|                                  |   |                        |    |   |                        |   |    |                        |   |
| Noninterest-bearing      demand       |   | $                           | 6,965   |   |                        | $      | 6,990   |                        |   | $ | 4,733 |   |
| NOW      deposits                     |   |                        | 48,019  |   |                        |   | 66,157  |                        |   |   | 73,899 |   |
| Money      market deposits            |   |                        | 23,411  |   |                        |   | 15,336  |                        |   |   | 17,953 |   |
| Savings      deposits                 |   |                        | 469     |   |                        |   | 290     |                        |   |   | 393 |   |
| Certificates      of deposit          |   |                        | 93,265  |   |                        |   | 89,842  |                        |   |   | 65,936 |   |
| Brokered      certificates of deposit |   |                        | 2,465   |   |                        |   | 1,580   |                        |   |   | 1,779 |   |
| Total                                 |   | $                           | 174,594 |   |                        | $      | 180,195 |                        |   | $ | 164,693 |   |

----

----

| (Dollars in thousands)                  |   | 2008   |    |   | 2007   |   |    | Net Change |   |
|---------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|-----------------|--------|
| Balances      outstanding                         |   | $      | 255,655 |   |   | $      | 298,879 |            |   | $ | (43,224 | ) |
| Nonaccrual      balances                          |   |   | 13,724  |   |   |   | 3,400   |            |   |   | 10,324 |   |
| Balances      90-days past due and still accruing |   |   | 3,227   |   |   |   | 379     |            |   |   | 2,848 |   |
| Net      charge-offs incurred                     |   |   | 3,999   |   |   |   | 179     |            |   |   | 3,820 |   |
|                                              |   |   |    |   |   |   |    |            |   |   |   |   |
| Nonaccrual      balances to total balances        |   |   | 5.37    | %      |   |   | 1.14    | %               |   |   | 4.23 | % |

| (Dollars in thousands)                  |   | 2008   |    |   | 2007   |   |    | Net Change |   |
|---------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|-----------------|--------|
| Balances      outstanding                         |   | $      | 406,886 |   |   | $      | 324,674 |            |   | $ | 82,212 |   |
| Nonaccrual      balances                          |   |   | 2,575   |   |   |   | 943     |            |   |   | 1,632 |   |
| Balances      90-days past due and still accruing |   |   | 553     |   |   |   | 29      |            |   |   | 524 |   |
| Net      charge-offs incurred                     |   |   | 883     |   |   |   | 375     |            |   |   | 508 |   |
|                                              |   |   |    |   |   |   |    |            |   |   |   |   |
| Nonaccrual      balances to total balances        |   |   | .63     | %      |   |   | .29     | %               |   |   | .34 | % |

----

|                                                      |   | December 31 |   |
|-----------------------------------------------------------|--------|------------------|--------|
| (Dollars in thousands)                          |   | 2008             |   |   | 2007 |   |   | 2006 |   |
|                                                      |   |             |   |   |   |   |   |   |   |
| Nonaccrual      loans                                     |   | $                | 20,564 |   |   | $ | 6,524 |   |   | $ | 3,557 |   |
| Other      real estate                                    |   |             | 11,061 |   |   |   | 6,232 |   |   |   | 3,135 |   |
|                                                      |   |             |   |   |   |   |   |   |   |   |   |   |
| Total      nonperforming assets                           |   | $                | 31,625 |   |   | $ | 12,756 |   |   | $ | 6,692 |   |
|                                                      |   |             |   |   |   |   |   |   |   |   |   |   |
| Past      due 90 days or more and still accruing interest |   |             | 5,686  |   |   |   | 1,093 |   |   |   | 376 |   |
| Restructured      loans (accruing)                        |   |             | 3,664  |   |   |   | - |   |   |   | - |   |
|                                                      |   |             |   |   |   |   |   |   |   |   |   |   |
| Ratios:                                                   |   |             |   |   |   |   |   |   |   |   |   |   |
| Nonaccrual      loans to loans                            |   |             | 1.74   | % |   |   | 0.53 | % |   |   | 0.32 | % |
| 90      day past due loans to loans                       |   |             | 0.48   | % |   |   | 0.09 | % |   |   | 0.03 | % |
| Nonperforming      assets to loans and other real estate  |   |             | 2.65   | % |   |   | 1.04 | % |   |   | 0.61 | % |
| Nonperforming      assets to assets                       |   |             | 1.98   | % |   |   | 0.77 | % |   |   | 0.43 | % |

----

----

----

| (Dollars in thousands)    |   | Payments Due by Period |    |
|-------------------------------------|--------|---------------------------------------|---------|
|                           |   |                                  |    |   | Less |   |   |   |   |   |   |   |   | More |   |
|                           |   |                                  |    |   | Than 1 |   |   | 1 - 3 |   |   | 3 – 5 |   |   | Than 5 |   |
| Contractual      Obligations        |   | Total                                 |    |   | Year |   |   | Years |   |   | Years |   |   | Years |   |
|                                |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-Term      Debt                 |   | $                                     | 151,547 |   |   | $ | 50,278 |   |   | $ | 77,470 |   |   | $ | 22,267 |   |   | $ | 1,532 |   |
| Junior      Subordinated Debentures |   |                                  | 30,928  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 30,928 |   |
| Capital      Lease Obligations      |   |                                  | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Operating      Leases               |   |                                  | 3,983   |   |   |   | 1,273 |   |   |   | 1,109 |   |   |   | 639 |   |   |   | 962 |   |
| Purchase      Obligations           |   |                                  | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other      Long-Term Liabilities    |   |                                  | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                               |   | $                                     | 186,458 |   |   | $ | 51,551 |   |   | $ | 78,579 |   |   | $ | 22,906 |   |   | $ | 33,422 |   |

----

----

|                                        |   |             |    |   |           |   |    |                   |   |   |     |   |
|---------------------------------------------|--------|------------------|---------|--------|----------------|--------|---------|------------------------|--------|--------|----------|--------|
| Rate Sensitivity Gap Report  |   |
| As of December 31, 2008 |   |
| (Dollars in thousands)            |   | 0-12 months |    |   | 1-5 years |   |    | Over 5 years |   |   | Total    |   |
|                                        |   |             |    |   |           |   |    |                   |   |   |     |   |
| Short-term      funds                       |   | $                | 15,906  |   |           | $      | -       |                   |   | $      | -        |   |   | $ | 15,906 |   |
| Investments                                 |   |             | 105,633 |   |           |   | 80,742  |                   |   |   | 40,770   |   |   |   | 227,145 |   |
| Loans                                       |   |             | 673,101 |   |           |   | 466,178 |                   |   |   | 45,014   |   |   |   | 1,184,293 |   |
| Total      earning assets                   |   |             | 794,640 |   |           |   | 546,920 |                   |   |   | 85,784   |   |   |   | 1,427,344 |   |
|                                        |   |             |    |   |           |   |    |                   |   |   |     |   |   |   |   |   |
| NOW,      MMDA & savings deposits       |   |             | 287,353 |   |           |   | 29,764  |                   |   |   | 196,862  |   |   |   | 513,979 |   |
| Time      deposits                          |   |             | 400,989 |   |           |   | 167,006 |                   |   |   | 724      |   |   |   | 568,719 |   |
| Short-term      borrowings                  |   |             | 9,728   |   |           |   | -       |                   |   |   | -        |   |   |   | 9,728 |   |
| Other      borrowings                       |   |             | 49,220  |   |           |   | 101,129 |                   |   |   | 32,126   |   |   |   | 182,475 |   |
| Total      int. bearing liabilities         |   |             | 747,290 |   |           |   | 297,899 |                   |   |   | 229,712  |   |   |   | 1,274,901 |   |
|                                        |   |             |    |   |           |   |    |                   |   |   |     |   |   |   |   |   |
| Rate      sensitive gap                     |   | $                | 47,350  |   |           | $      | 249,021 |                   |   | $      | (143,928 | )      |   |   |   |   |
|                                        |   |             |    |   |           |   |    |                   |   |   |     |   |   |   |   |   |
| Cumulative      gap                         |   | $                | 47,350  |   |           | $      | 296,371 |                   |   | $      | 152,443  |   |   |   |   |   |
| Cumulative      % of assets                 |   |             | 2.97    | %      |           |   | 18.56   | %                      |   |   | 9.55     | %      |   |   |   |   |

----

| /s/      Hugh S. Potts, Jr.               | /s/      John G. Copeland            |
|-------------------------------------------|--------------------------------------|
| Hugh      S. Potts, Jr.                   | John      G. Copeland                |
| Chairman      and Chief Executive Officer | EVP      and Chief Financial Officer |

----

----

----

----

|                                                    |   | 2008   |      |   | 2007   |   |
|---------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Assets                                                  |   |   |      |   |   |   |
|                                                    |   |   |      |   |   |   |
| Cash      and due from banks                            |   | $      | 47,738    |   |   | $      | 54,240 |   |
| Interest-bearing      bank balances                     |   |   | 6,556     |   |   |   | 3,480 |   |
| Federal      funds sold                                 |   |   | 9,350     |   |   |   | 2,000 |   |
| Securities      available for sale, amortized           |   |   |      |   |   |   |   |   |
| cost      of $223,882 and $236,575                      |   |   | 227,145   |   |   |   | 237,138 |   |
| Loans      held for sale                                |   |   | 7,698     |   |   |   | 5,571 |   |
|                                                    |   |   |      |   |   |   |   |   |
| Loans,      net of unearned income                      |   |   | 1,176,595 |   |   |   | 1,219,435 |   |
| Allowance      for loan losses                          |   |   | (24,918   | )      |   |   | (14,217 | ) |
|                                                    |   |   |      |   |   |   |   |   |
| Net      loans                                          |   |   | 1,151,677 |   |   |   | 1,205,218 |   |
|                                                    |   |   |      |   |   |   |   |   |
| Bank      premises and equipment                        |   |   | 44,642    |   |   |   | 45,545 |   |
| Accrued      interest receivable                        |   |   | 9,832     |   |   |   | 12,434 |   |
| Other      real estate                                  |   |   | 11,061    |   |   |   | 6,232 |   |
| Goodwill                                                |   |   | 32,572    |   |   |   | 32,572 |   |
| Other      intangible assets                            |   |   | 7,127     |   |   |   | 7,612 |   |
| Other      assets                                       |   |   | 41,467    |   |   |   | 41,709 |   |
|                                                    |   |   |      |   |   |   |   |   |
|                                                    |   | $      | 1,596,865 |   |   | $      | 1,653,751 |   |
| Liabilities      and Stockholders’ Equity         |   |   |      |   |   |   |   |   |
|                                                    |   |   |      |   |   |   |   |   |
| Liabilities:                                            |   |   |      |   |   |   |   |   |
| Noninterest-bearing      deposits                       |   | $      | 178,689   |   |   | $      | 191,206 |   |
| Interest-bearing      deposits                          |   |   | 1,082,698 |   |   |   | 1,071,249 |   |
| Total      deposits                                     |   |   | 1,261,387 |   |   |   | 1,262,455 |   |
| Short-term      borrowings                              |   |   | 9,728     |   |   |   | 9,676 |   |
| Other      borrowings                                   |   |   | 151,547   |   |   |   | 201,312 |   |
| Junior      subordinated debt                           |   |   | 30,928    |   |   |   | 30,928 |   |
| Accrued      interest payable                           |   |   | 3,537     |   |   |   | 5,151 |   |
| Other      liabilities                                  |   |   | 3,770     |   |   |   | 4,131 |   |
| Total      liabilities                                  |   |   | 1,460,897 |   |   |   | 1,513,653 |   |
|                                                    |   |   |      |   |   |   |   |   |
| Noncontrolling      joint venture interest              |   |   | 18        |   |   |   | 18 |   |
|                                                    |   |   |      |   |   |   |   |   |
| Stockholders’      equity:                        |   |   |      |   |   |   |   |   |
| Preferred      stock:                                   |   |   |      |   |   |   |   |   |
| Class      A; 1,000,000 shares authorized               |   |   | -         |   |   |   | - |   |
| Class      B; 1,000,000 shares authorized               |   |   | -         |   |   |   | - |   |
| Common      stock of $5.00 par value; 15,000,000 shares |   |   |      |   |   |   |   |   |
| authorized:      9,063,346 and 9,067,580 shares issued  |   |   | 45,317    |   |   |   | 45,338 |   |
| Additional      paid-in capital                         |   |   | 30,447    |   |   |   | 30,475 |   |
| Nonvested      restricted stock awards                  |   |   | 780       |   |   |   | 643 |   |
| Retained      earnings                                  |   |   | 60,133    |   |   |   | 64,395 |   |
| Accumulated      other comprehensive income (loss)      |   |   | (727      | )      |   |   | (771 | ) |
| Total      stockholders’ equity                   |   |   | 135,950   |   |   |   | 140,080 |   |
|                                                    |   |   |      |   |   |   |   |   |
|                                                    |   | $      | 1,596,865 |   |   | $      | 1,653,751 |   |

----

|                                                      |   | 2008   |   |   | 2007   |   |    | 2006   |   |
|-----------------------------------------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
| Interest      income:                                     |   |   |   |   |   |   |    |   |   |
| Interest      and fees on loans                           |   | $      | 81,487 |   |   | $      | 89,796  |   |   | $ | 79,654 |   |
| Interest      on loans held for sale                      |   |   | 299    |   |   |   | 439     |   |   |   | 428 |   |
| Taxable      investments                                  |   |   | 9,023  |   |   |   | 9,514   |   |   |   | 8,695 |   |
| Tax-exempt      investments                               |   |   | 2,164  |   |   |   | 1,798   |   |   |   | 1,938 |   |
| Federal      funds sold                                   |   |   | 182    |   |   |   | 144     |   |   |   | 543 |   |
| Interest-bearing      bank balances                       |   |   | 133    |   |   |   | 225     |   |   |   | 247 |   |
| Total      interest income                                |   |   | 93,288 |   |   |   | 101,916 |   |   |   | 91,505 |   |
|                                                      |   |   |   |   |   |   |    |   |   |   |   |   |
| Interest      expense:                                    |   |   |   |   |   |   |    |   |   |   |   |   |
| Deposits                                                  |   |   | 32,255 |   |   |   | 36,632  |   |   |   | 29,643 |   |
| Short-term      borrowings                                |   |   | 327    |   |   |   | 609     |   |   |   | 417 |   |
| Other      borrowings                                     |   |   | 6,717  |   |   |   | 8,644   |   |   |   | 7,348 |   |
| Junior      subordinated debt                             |   |   | 1,993  |   |   |   | 1,991   |   |   |   | 1,748 |   |
| Total      interest expense                               |   |   | 41,292 |   |   |   | 47,876  |   |   |   | 39,156 |   |
|                                                      |   |   |   |   |   |   |    |   |   |   |   |   |
| Net      interest income                                  |   |   | 51,996 |   |   |   | 54,040  |   |   |   | 52,349 |   |
| Provision      for loan losses                            |   |   | 19,734 |   |   |   | 2,520   |   |   |   | 3,032 |   |
| Net      interest income after                            |   |   |   |   |   |   |    |   |   |   |   |   |
| provision      for loan losses                            |   |   | 32,262 |   |   |   | 51,520  |   |   |   | 49,317 |   |
|                                                      |   |   |   |   |   |   |    |   |   |   |   |   |
| Noninterest      income:                                  |   |   |   |   |   |   |    |   |   |   |   |   |
| Service      charges on deposit accounts                  |   |   | 11,692 |   |   |   | 10,962  |   |   |   | 10,398 |   |
| Mortgage      banking income                              |   |   | 1,202  |   |   |   | 1,491   |   |   |   | 1,299 |   |
| Agency      commission income                             |   |   | 4,125  |   |   |   | 4,148   |   |   |   | 3,920 |   |
| Trust      and brokerage income                           |   |   | 585    |   |   |   | 598     |   |   |   | 616 |   |
| Bank      owned life insurance income                     |   |   | 615    |   |   |   | 689     |   |   |   | 584 |   |
| Loss      on extinguishment of debt                       |   |   | -      |   |   |   | (126    | )      |   |   | - |   |
| Securities      gains (losses), net                       |   |   | 6      |   |   |   | (37     | )      |   |   | (4 | ) |
| Other      income                                         |   |   | 2,906  |   |   |   | 3,595   |   |   |   | 3,335 |   |
| Total      noninterest income                             |   |   | 21,131 |   |   |   | 21,320  |   |   |   | 20,148 |   |
|                                                      |   |   |   |   |   |   |    |   |   |   |   |   |
| Noninterest      expenses:                                |   |   |   |   |   |   |    |   |   |   |   |   |
| Salaries      and employee benefits                       |   |   | 28,954 |   |   |   | 29,348  |   |   |   | 27,590 |   |
| Net      occupancy expenses                               |   |   | 4,210  |   |   |   | 3,841   |   |   |   | 3,325 |   |
| Equipment      expenses                                   |   |   | 3,594  |   |   |   | 3,629   |   |   |   | 3,495 |   |
| Software      and processing expenses                     |   |   | 2,072  |   |   |   | 1,463   |   |   |   | 1,281 |   |
| Telecommunications      expenses                          |   |   | 1,162  |   |   |   | 1,091   |   |   |   | 1,049 |   |
| Marketing      and business development expenses          |   |   | 1,439  |   |   |   | 1,705   |   |   |   | 1,421 |   |
| Intangible      asset amortization                        |   |   | 485    |   |   |   | 547     |   |   |   | 330 |   |
| Other      expenses                                       |   |   | 12,368 |   |   |   | 9,749   |   |   |   | 10,435 |   |
| Total      noninterest expenses                           |   |   | 54,284 |   |   |   | 51,373  |   |   |   | 48,926 |   |
|                                                      |   |   |   |   |   |   |    |   |   |   |   |   |
| Income      (loss) before income taxes                    |   |   | (891   | )      |   |   | 21,467  |   |   |   | 20,539 |   |
| Income      taxes                                         |   |   | (1,429 | )      |   |   | 6,988   |   |   |   | 6,604 |   |
| Noncontrolling      interest in earnings of               |   |   |   |   |   |   |    |   |   |   |   |   |
| subsidiaries,      net of income taxes of $7, $13, and $6 |   |   | 12     |   |   |   | 21      |   |   |   | 10 |   |
|                                                      |   |   |   |   |   |   |    |   |   |   |   |   |
| Net      income                                           |   | $      | 526    |   |   | $      | 14,458  |   |   | $ | 13,925 |   |
|                                                      |   |   |   |   |   |   |    |   |   |   |   |   |
| Earnings      per share:                                  |   |   |   |   |   |   |    |   |   |   |   |   |
| Basic                                                     |   | $      | 0.06   |   |   | $      | 1.60    |   |   | $ | 1.54 |   |
| Diluted                                                   |   |   | 0.05   |   |   |   | 1.59    |   |   |   | 1.53 |   |

----

|                                                                       |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|----------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                       |   |   |   |   |   |   |   |   |   |
| Net      income                                                            |   | $      | 526    |   |   | $      | 14,458 |   |   | $ | 13,925 |   |
|                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      comprehensive income:                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized      gains (losses) on securities:                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized      gains (losses) on securities available for sale            |   |   |   |   |   |   |   |   |   |   |   |   |
| arising      during the period, net of tax of $1,009, $723,                |   |   |   |   |   |   |   |   |   |   |   |   |
| and      $90                                                               |   |   | 1,697  |   |   |   | 1,213  |   |   |   | (153 | ) |
| Reclassification      adjustment for (gains) losses on securities          |   |   |   |   |   |   |   |   |   |   |   |   |
| available      for sale included in net income, net of                     |   |   |   |   |   |   |   |   |   |   |   |   |
| tax      of $2, $13, and $1                                                |   |   | (4     | )      |   |   | 24     |   |   |   | 3 |   |
| Defined      benefit pension plans:                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      actuarial gains (losses) arising during the period, net of    tax |   |   |   |   |   |   |   |   |   |   |   |   |
| of      $1,113 and $203                                                    |   |   | (1,868 | )      |   |   | 341    |   |   |   | - |   |
| Amortization      of transition asset, net of tax of $3 and $3             |   |   | (6     | )      |   |   | (6     | )      |   |   | - |   |
| Amortization      of prior service cost, net of tax of $14 and $14         |   |   | (23    | )      |   |   | (23    | )      |   |   | - |   |
| Amortization      of actuarial loss, net of tax of $122 and $156           |   |   | 204    |   |   |   | 261    |   |   |   | - |   |
| Effects      of changing the pension plan measurement date pursuant        |   |   |   |   |   |   |   |   |   |   |   |   |
| to      FASB Statement No. 158 (charged to retained earnings):             |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization      of transition asset, net of tax of $1                    |   |   | (1     | )      |   |   | -      |   |   |   | - |   |
| Amortization      of prior service cost, net of tax of $3                  |   |   | (6     | )      |   |   | -      |   |   |   | - |   |
| Amortization      of actuarial loss, net of tax of $30                     |   |   | 51     |   |   |   | -      |   |   |   | - |   |
| Minimum      pension liability adjustment, net of tax                      |   |   |   |   |   |   |   |   |   |   |   |   |
| of      $0, $0, and $1,101                                                 |   |   | -      |   |   |   | -      |   |   |   | 1,849 |   |
|                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      comprehensive income (loss)                                     |   |   | 44     |   |   |   | 1,810  |   |   |   | (1,699 | ) |
|                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      comprehensive income                                            |   | $      | 570    |   |   | $      | 16,268 |   |   | $ | 15,624 |   |

----

|                                                                          |   |   |   |   |       |   |   | Nonvested  |   |   |     |   |   | Accumulated        |   |   |   |   |
|-------------------------------------------------------------------------------|--------|--------|--------|--------|------------|--------|--------|------------|--------|--------|----------|--------|--------|--------------------|--------|--------|--------|--------|
|                                                                          |   |   |   |   | Additional |   |   | Restricted |   |   |     |   |   | Other              |   |   |   |   |
|                                                                          |   | Common |   |   | Paid-in    |   |   | Stock      |   |   | Retained |   |   | Comprehensive      |   |   |   |   |
|                                                                          |   | Stock  |   |   | Capital    |   |   | Awards     |   |   | Earnings |   |   | Income      (Loss) |   |   | Total  |   |
|                                                                          |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |
| January      1, 2006                                                          |   | $      | 44,952 |   |       | $      | 29,391 |       |   | $      | 86       |   |   | $                  | 45,531 |   |   | $      | (2,583 | ) |   | $ | 117,377 |   |
| Net      income                                                               |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | 13,925 |   |   |   | - |   |   |   | 13,925 |   |
| Cash      dividends ($.52 per                                                 |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      share)                                          |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | (4,751 | )      |   |   | - |   |   |   | (4,751 | ) |
| 55,908      common shares issued                                              |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      in      exercise of stock options               |   |   | 279    |   |       |   | 510    |       |   |   | -        |   |   |               | -      |   |   |   | - |   |   |   | 789 |   |
| Share-based      compensation                                                 |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      recognized                                      |   |   | -      |   |       |   | 20     |       |   |   | 289      |   |   |               | 2      |   |   |   | - |   |   |   | 311 |   |
| Tax      benefits on stock option                                             |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      transactions                                    |   |   | -      |   |       |   | 394    |       |   |   | -        |   |   |               | -      |   |   |   | - |   |   |   | 394 |   |
| Net      change                                                               |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | -      |   |   |   | 1,699 |   |   |   | 1,699 |   |
| Adjustment      to initially apply FASB                                       |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|    Statement      No. 158, net of tax                          |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | -      |   |   |   | (1,697 | ) |   |   | (1,697 | ) |
|                                                                          |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
| December      31, 2006                                                        |   |   | 45,231 |   |       |   | 30,315 |       |   |   | 375      |   |   |               | 54,707 |   |   |   | (2,581 | ) |   |   | 128,047 |   |
|                                                                          |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                               |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | 14,458 |   |   |   | - |   |   |   | 14,458 |   |
| Cash      dividends ($.52 per                                                 |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      share)                                          |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | (4,772 | )      |   |   | - |   |   |   | (4,772 | ) |
| 19,854      common shares issued                                              |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      in      exercise of stock options               |   |   | 99     |   |       |   | 206    |       |   |   | -        |   |   |               | -      |   |   |   | - |   |   |   | 305 |   |
| Share-based      compensation                                                 |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      recognized                                      |   |   | -      |   |       |   | 19     |       |   |   | 298      |   |   |               | 2      |   |   |   | - |   |   |   | 319 |   |
| Tax      benefits on stock option                                             |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      transactions                                    |   |   | -      |   |       |   | 87     |       |   |   | -        |   |   |               | -      |   |   |   | - |   |   |   | 87 |   |
| Option      cancellation payments                                             |   |   | -      |   |       |   | (174   | )          |   |   | -        |   |   |               | -      |   |   |   | - |   |   |   | (174 | ) |
| 1,500      restricted share awards                                            |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|    vested                                                      |   |   | 8      |   |       |   | 22     |       |   |   | (30      | )      |   |               | -      |   |   |   | - |   |   |   | - |   |
| Net      change                                                               |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | -      |   |   |   | 1,810 |   |   |   | 1,810 |   |
|                                                                          |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
| December      31, 2007                                                        |   |   | 45,338 |   |       |   | 30,475 |       |   |   | 643      |   |   |               | 64,395 |   |   |   | (771 | ) |   |   | 140,080 |   |
|                                                                          |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                               |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | 526    |   |   |   | - |   |   |   | 526 |   |
| Cash      dividends ($.52 per                                                 |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      share)                                          |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | (4,772 | )      |   |   | - |   |   |   | (4,772 | ) |
| 7,500      common shares repurchased                                          |   |   | (38    | )      |       |   | (80    | )          |   |   | -        |   |   |               | -      |   |   |   | - |   |   |   | (118 | ) |
| Share-based      compensation                                                 |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      recognized                                      |   |   | -      |   |       |   | 9      |       |   |   | 197      |   |   |               | 3      |   |   |   | - |   |   |   | 209 |   |
| 3,266      restricted share awards                                            |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      vested                                          |   |   | 17     |   |       |   | 43     |       |   |   | (60      | )      |   |               | -      |   |   |   | - |   |   |   | - |   |
| Net      change                                                               |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | -      |   |   |   | - |   |   |   | - |   |
| Effects      of accounting change                                             |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      regarding      pension plan                     |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      measurement      date pursuant to               |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      FASB      Statement No. 158:                    |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|        Interest      cost, and             |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|        expected      return on plan assets |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|        for      October 1-December 31,     |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|        2008,      net of tax of $15        |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | 25     |   |   |   | - |   |   |   | 25 |   |
|        Amortization      of prior service  |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|        cost      and transition asset for  |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|        for      October 1-December 31,     |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|        2008,      net of tax of $26        |   |   | -      |   |       |   | -      |       |   |   | -        |   |   |               | (44    | )      |   |   | 44 |   |   |   | - |   |
|                                                                          |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
|                                                                          |   |   |   |   |       |   |   |       |   |   |     |   |   |               |   |   |   |   |   |   |   |   |   |   |
| December      31, 2008                                                        |   | $      | 45,317 |   |       | $      | 30,447 |       |   | $      | 780      |   |   | $                  | 60,133 |   |   | $      | (727 | ) |   | $ | 135,950 |   |

----

|                                                                                               |   | 2008   |     |   | 2007   |   |     | 2006   |   |
|----------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
|                                                                                               |   |   |     |   |   |   |     |   |   |
| Cash      flows from operating activities:                                                         |   |   |     |   |   |   |     |   |   |
| Net      income                                                                                    |   | $      | 526      |   |   | $      | 14,458   |   |   | $ | 13,925 |   |
| Adjustments      to reconcile net income                                                           |   |   |     |   |   |   |     |   |   |   |   |   |
|     to      net cash provided by operating activities:                         |   |   |     |   |   |   |     |   |   |   |   |   |
|     Share-based      compensation                                              |   |   | 209      |   |   |   | 319      |   |   |   | 311 |   |
|     Amortization      of pension costs                                         |   |   | 121      |   |   |   | 279      |   |   |   | 167 |   |
|     Depreciation      and amortization                                         |   |   | 3,373    |   |   |   | 3,271    |   |   |   | 2,942 |   |
|     Provision      for loan losses                                             |   |   | 19,734   |   |   |   | 2,520    |   |   |   | 3,032 |   |
|     Net      investment amortization (accretion)                               |   |   | (122     | )      |   |   | (343     | )      |   |   | (382 | ) |
|     Capitalized      dividends on FHLB stock                                   |   |   | (237     | )      |   |   | (382     | )      |   |   | (361 | ) |
|     Net      change in unearned fees/deferred costs on loans                   |   |   | (585     | )      |   |   | 116      |   |   |   | 92 |   |
|     Net      accretion of discount on time deposits                            |   |   | 38       |   |   |   | 68       |   |   |   | 139 |   |
|     Net      accretion of discount on debt                                     |   |   | 5        |   |   |   | -        |   |   |   | 16 |   |
|     Loss      on extinguishment of debt                                        |   |   | -        |   |   |   | 126      |   |   |   | - |   |
|     Loss      (gain) on securities available for sale                          |   |   | (6       | )      |   |   | 37       |   |   |   | 4 |   |
|     Gains      on loans held for sale                                          |   |   | (218     | )      |   |   | (300     | )      |   |   | (308 | ) |
|     Other      asset sale losses                                               |   |   | 1,281    |   |   |   | 224      |   |   |   | 17 |   |
|     Earnings      of noncontrolling interests                                  |   |   | 19       |   |   |   | 34       |   |   |   | 16 |   |
|     Deferred      income taxes                                                 |   |   | (3,670   | )      |   |   | 2,192    |   |   |   | 29 |   |
| (Increase)      decrease in:                                                                       |   |   |     |   |   |   |     |   |   |   |   |   |
|     Accrued      interest receivable                                           |   |   | 2,602    |   |   |   | 156      |   |   |   | (2,592 | ) |
|     Cash      surrender value of bank owned life insurance                     |   |   | (615     | )      |   |   | (689     | )      |   |   | (528 | ) |
|     Loans      held for sale                                                   |   |   | (1,897   | )      |   |   | 2,022    |   |   |   | (1,285 | ) |
|     Other      assets                                                          |   |   | 1,638    |   |   |   | (2,899   | )      |   |   | 1,064 |   |
| Increase      (decrease) in:                                                                       |   |   |     |   |   |   |     |   |   |   |   |   |
|     Accrued      interest payable                                              |   |   | (1,614   | )      |   |   | 367      |   |   |   | 1,321 |   |
|     Other      liabilities                                                     |   |   | (2,207   | )      |   |   | (1,594   | )      |   |   | (428 | ) |
|                                                                                               |   |   |     |   |   |   |     |   |   |   |   |   |
|        Net      cash provided by operating activities           |   |   | 18,375   |   |   |   | 19,982   |   |   |   | 17,191 |   |
|                                                                                               |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash      flows from investing activities:                                                         |   |   |     |   |   |   |     |   |   |   |   |   |
| Purchases      of securities available for sale                                                    |   |   | (89,503  | )      |   |   | (46,356  | )      |   |   | (72,952 | ) |
| Sales      of securities available for sale                                                        |   |   | 6,878    |   |   |   | 6,574    |   |   |   | 10,374 |   |
| Maturities      of securities available for sale                                                   |   |   | 95,446   |   |   |   | 66,751   |   |   |   | 38,857 |   |
| Investment      in First M&F Statutory Trust I                                                 |   |   | -        |   |   |   | -        |   |   |   | (928 | ) |
| Net      (increase) decrease in:                                                                   |   |   |     |   |   |   |     |   |   |   |   |   |
|     Interest-bearing      bank balances                                        |   |   | (3,076   | )      |   |   | 210      |   |   |   | 6,091 |   |
|     Federal      funds sold                                                    |   |   | (7,350   | )      |   |   | (2,000   | )      |   |   | 14,807 |   |
|     Loans                                                                      |   |   | 20,986   |   |   |   | (141,252 | )      |   |   | (49,776 | ) |
|     Bank      premises and equipment                                           |   |   | (1,867   | )      |   |   | (7,098   | )      |   |   | (5,957 | ) |
| Purchases      of bank owned life insurance                                                        |   |   | (78      | )      |   |   | (58      | )      |   |   | (189 | ) |
| Proceeds      from sales of other real estate and other                                            |   |   |     |   |   |   |     |   |   |   |   |   |
|     repossessed      assets                                                    |   |   | 7,038    |   |   |   | 2,673    |   |   |   | 3,506 |   |
| Net      (purchases) redemptions, of FHLB and FRB stock                                            |   |   | 2,382    |   |   |   | (1,288   | )      |   |   | 1,957 |   |
| Proceeds      from sale of nonmarketable equity securities                                         |   |   | -        |   |   |   | -        |   |   |   | 827 |   |
| Net      cash paid in acquisitions                                                                 |   |   | -        |   |   |   | (46      | )      |   |   | (30,851 | ) |
|                                                                                               |   |   |     |   |   |   |     |   |   |   |   |   |
|        Net      cash provided by (used in) investing activities |   |   | 30,856   |   |   |   | (121,890 | )      |   |   | (84,234 | ) |
|                                                                                               |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash      flows from financing activities:                                                         |   |   |     |   |   |   |     |   |   |   |   |   |
| Net      increase (decrease) in deposits                                                           |   |   | (1,106   | )      |   |   | 76,405   |   |   |   | 46,760 |   |
| Net      increase (decrease) in short-term borrowings                                              |   |   | 52       |   |   |   | (9,936   | )      |   |   | 1,550 |   |
| Proceeds      from other borrowings                                                                |   |   | 200,500  |   |   |   | 601,800  |   |   |   | 122,812 |   |
| Repayments      of other borrowings                                                                |   |   | (250,270 | )      |   |   | (567,325 | )      |   |   | (128,026 | ) |
| Proceeds      from issuance of junior subordinated debt                                            |   |   | -        |   |   |   | -        |   |   |   | 30,928 |   |
| Distributions      to, net of contributions of, noncontrolling interests                           |   |   | (19      | )      |   |   | (35      | )      |   |   | (18 | ) |
| Cash      dividends                                                                                |   |   | (4,772   | )      |   |   | (4,772   | )      |   |   | (4,751 | ) |
| Common      shares issued                                                                          |   |   | -        |   |   |   | 305      |   |   |   | 789 |   |
| Common      shares repurchased                                                                     |   |   | (118     | )      |   |   | -        |   |   |   | - |   |
| Payments      to cancel stock options                                                              |   |   | -        |   |   |   | (174     | )      |   |   | - |   |
| Tax      benefits on stock option transactions                                                     |   |   | -        |   |   |   | 87       |   |   |   | 394 |   |
|                                                                                               |   |   |     |   |   |   |     |   |   |   |   |   |
|        Net      cash provided by (used in) financing activities |   |   | (55,733  | )      |   |   | 96,355   |   |   |   | 70,438 |   |
|                                                                                               |   |   |     |   |   |   |     |   |   |   |   |   |
|        Net      increase (decrease) in cash and due from banks  |   |   | (6,502   | )      |   |   | (5,553   | )      |   |   | 3,395 |   |
|                                                                                               |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash      and due from banks at January 1                                                          |   |   | 54,240   |   |   |   | 59,793   |   |   |   | 56,398 |   |
|                                                                                               |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash      and due from banks at December 31                                                        |   | $      | 47,738   |   |   | $      | 54,240   |   |   | $ | 59,793 |   |

----

|                                                             |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                             |   |   |   |   |   |   |   |   |   |
| Total      interest paid                                         |   | $      | 42,870 |   |   | $      | 47,438 |   |   | $ | 37,666 |   |
| Total      income taxes paid                                     |   |   | 3,435  |   |   |   | 7,163  |   |   |   | 5,949 |   |
| Income      tax refunds received                                 |   |   | 23     |   |   |   | 400    |   |   |   | 10 |   |
| Total      payments to other banks to satisfy liens on ORE       |   |   | 300    |   |   |   | 575    |   |   |   | - |   |
| Transfers      of loans to foreclosed property                   |   |   | 13,031 |   |   |   | 5,615  |   |   |   | 2,656 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair      value of identifiable assets acquired                  |   | $      | -      |   |   | $      | 46     |   |   | $ | 212,923 |   |
| Goodwill      recorded on Columbiana Bancshares acquisition      |   |   | -      |   |   |   | -      |   |   |   | 13,913 |   |
| Goodwill      recorded on Crockett County Bancshares acquisition |   |   | -      |   |   |   | -      |   |   |   | 2,311 |   |
| Cash      paid for Columbiana Bancshares stock                   |   |   | -      |   |   |   | -      |   |   |   | (31,294 | ) |
| Cash      paid for Crockett County Bancshares stock              |   |   | -      |   |   |   | -      |   |   |   | (7,472 | ) |
| Cash      paid for Patrick insurance business                    |   |   | -      |   |   |   | (46    | )      |   |   | - |   |
| Liabilities      assumed in acquisitions                         |   | $      | -      |   |   | $      | -      |   |   | $ | 190,381 |   |

----

----

----

|  | ·  | FASB      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – An      Interpretation of FASB Statement No.109” |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·  | SFAS      No. 159, “The Fair Value Option for Financial Assets and Financial      Liabilities – Including an amendment of FASB Statement No.      115” |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·  | FSP      No. FIN 48-1, “Definition of Settlement in FASB      Interpretation No. 48” |
|--|--------------|--------------------------------------------------------------------------------------------------|

----

----

----

| (Dollars      in thousands)                                                 |   |   |    |   |   |   |
|-----------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                                                        |   |   |    |   |   |   |
| Cash      paid to Columbiana Bancshares shareholders                        |   |   |    |   | $      | 28,525 |   |
| Cash      paid to contingent obligation escrow on behalf of    shareholders |   |   |    |   |   | 2,500  |   |
| Direct      acquisition costs                                               |   |   |    |   |   | 269    |   |
|    Total      cost of acquisition                            |   |   |    |   |   | 31,294 |   |
|                                                                        |   |   |    |   |   |   |   |
| Assets      acquired at fair value:                                         |   |   |    |   |   |   |   |
|                                                                        |   |   |    |   |   |   |   |
| Cash      and due from banks                                                |   | $      | 8,394   |   |   |   |   |   |
| Short-term      interest-bearing funds                                      |   |   | 10,882  |   |   |   |   |   |
| Securities      available for sale                                          |   |   | 42,126  |   |   |   |   |   |
| Loans,      net                                                             |   |   | 98,413  |   |   |   |   |   |
| Premises      and equipment                                                 |   |   | 8,625   |   |   |   |   |   |
| Other      real estate                                                      |   |   | 1,209   |   |   |   |   |   |
| Bank      owned life insurance                                              |   |   | 3,991   |   |   |   |   |   |
| Core      deposit intangible asset                                          |   |   | 5,889   |   |   |   |   |   |
| Other      assets                                                           |   |   | 1,722   |   |   |   | 181,251 |   |
|                                                                        |   |   |    |   |   |   |   |   |
| Liabilities      assumed at fair value:                                     |   |   |    |   |   |   |   |   |
|                                                                        |   |   |    |   |   |   |   |   |
| Deposits                                                                    |   |   | 139,080 |   |   |   |   |   |
| Other      borrowings                                                       |   |   | 23,014  |   |   |   |   |   |
| Other      liabilities                                                      |   |   | 1,776   |   |   |   | 163,870 |   |
|                                                                        |   |   |    |   |   |   |   |   |
| Net      assets acquired                                                    |   |   |    |   |   |   | 17,381 |   |
| Goodwill                                                                    |   |   |    |   |   | $      | 13,913 |   |

----

| (Dollars      in thousands, except per share data)                                               |   |   |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                             |   | 2006   |   |
|                                                                                             |   |   |   |
| Interest      income                                                                             |   | $      | 93,162 |   |
| Interest      expense                                                                            |   |   | 40,004 |   |
|       Net      interest income                                     |   |   | 53,158 |   |
| Provision      for loan losses                                                                   |   |   | 3,661  |   |
|       Net      interest income after provision for loan losses     |   |   | 49,497 |   |
|                                                                                             |   |   |   |   |
| Noninterest      income                                                                          |   |   | 19,795 |   |
| Noninterest      expense                                                                         |   |   | 51,036 |   |
|                                                                                             |   |   |   |   |
|       Income      before income taxes and noncontrolling interests |   |   | 18,256 |   |
| Income      taxes                                                                                |   |   | 5,850  |   |
| Noncontrolling      interest in earnings of subsidiaries                                         |   |   | 10     |   |
|       Net      income                                              |   | $      | 12,396 |   |
|                                                                                             |   |   |   |   |
|                                                                                             |   |   |   |   |
|    Basic      earnings per share                                                  |   | $      | 1.37   |   |
|    Diluted      earnings per share                                                |   | $      | 1.37   |   |
|                                                                                             |   |   |   |   |
| Purchase      adjustment and core deposit amortization included                                  |   |   |   |   |
|    in      pro forma net income before tax                                        |   | $      | 308    |   |
| Estimated      financing costs included in pro forma                                             |   |   |   |   |
|    net      income before tax                                                     |   |   | 1,992  |   |
|                                                                                             |   |   |   |   |
| Significant      nonrecurring expense items of Columbiana Bancshares in      interim period:     |   |   |   |   |
| Provision      for loan losses                                                                   |   | $      | 629    |   |
|                                                                                             |   |   |   |   |
| Data      processing contract termination fee                                                    |   |   | 576    |   |
| Columbiana      investment banking fees                                                          |   |   | 249    |   |
| Accelerated      amortization of prepaid assets                                                  |   |   | 198    |   |
| Impairment      of affordable housing investment                                                 |   |   | 144    |   |
|    Noninterest      expense items                                                 |   | $      | 1,167  |   |
|                                                                                             |   |   |   |   |
| Columbiana      net loan charge-offs in interim period                                           |   | $      | 803    |   |

----

|                                                  |   | Amortized |    |   | Gross      Unrealized |   |   | Fair   |   |
|-------------------------------------------------------|--------|-----------|---------|--------|-----------------------|--------|--------|--------|--------|
| (Dollars in      thousands)                           |   | Cost      |    |   | Gains                 |   |   | Losses |   |   | Value |   |
| December      31, 2008:                               |   |      |    |   |                  |   |   |   |   |   |   |   |
| U.S.      Treasury securities                         |   | $         | 509     |   |                  | $      | 34     |   |   | $ | - |   |   | $ | 543 |   |
| U.S.      Government sponsored entities               |   |      | 8,089   |   |                  |   | 308    |   |   |   | - |   |   |   | 8,397 |   |
| Mortgage-backed      investments                      |   |      | 141,688 |   |                  |   | 3,772  |   |   |   | 98 |   |   |   | 145,362 |   |
| Obligations      of states and political subdivisions |   |      | 64,357  |   |                  |   | 841    |   |   |   | 369 |   |   |   | 64,829 |   |
| Other                                                 |   |      | 8,712   |   |                  |   | 1      |   |   |   | 1,216 |   |   |   | 7,497 |   |
| Equity      securities                                |   |      | 527     |   |                  |   | -      |   |   |   | 10 |   |   |   | 517 |   |
|                                                  |   |      |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   | $         | 223,882 |   |                  | $      | 4,956  |   |   | $ | 1,693 |   |   | $ | 227,145 |   |
|                                                  |   |      |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2007:                               |   |      |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| U.S.      Treasury securities                         |   | $         | 3,512   |   |                  | $      | 22     |   |   | $ | - |   |   | $ | 3,534 |   |
| U.S.      Government sponsored entities               |   |      | 69,954  |   |                  |   | 250    |   |   |   | 36 |   |   |   | 70,168 |   |
| Mortgage-backed      investments                      |   |      | 101,653 |   |                  |   | 776    |   |   |   | 315 |   |   |   | 102,114 |   |
| Obligations      of states and political subdivisions |   |      | 52,329  |   |                  |   | 363    |   |   |   | 174 |   |   |   | 52,518 |   |
| Other                                                 |   |      | 8,723   |   |                  |   | 27     |   |   |   | 371 |   |   |   | 8,379 |   |
| Equity      securities                                |   |      | 404     |   |                  |   | 21     |   |   |   | - |   |   |   | 425 |   |
|                                                  |   |      |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   | $         | 236,575 |   |                  | $      | 1,459  |   |   | $ | 896 |   |   | $ | 237,138 |   |

| (Dollars      in      thousands)                          |   | Less      Than 12 Months |   |   | 12      Months or More |   |   | Total  |   |
|-----------------------------------------------------------|--------|--------------------------|--------|--------|------------------------|--------|--------|--------|--------|
|                                                      |   | Fair                     |   |   | Unrealized             |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                                      |   | Value                    |   |   | Losses                 |   |   | Value  |   |   | Losses |   |   | Value |   |   | Losses |   |
| December      31, 2008:                                   |   |                     |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.      Government sponsored                            |   |                     |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      entities                    |   | $                        | -      |   |                   | $      | -      |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Mortgage-backed      investments                          |   |                     | 14,847 |   |                   |   | 89     |   |   |   | 1,802 |   |   |   | 9 |   |   |   | 16,649 |   |   |   | 98 |   |
| Obligations      of states and                            |   |                     |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      political      subdivisions |   |                     | 26,067 |   |                   |   | 249    |   |   |   | 2,275 |   |   |   | 120 |   |   |   | 28,342 |   |   |   | 369 |   |
| Other      and equity securities                          |   |                     | 3,541  |   |                   |   | 141    |   |   |   | 3,969 |   |   |   | 1,085 |   |   |   | 7,510 |   |   |   | 1,226 |   |
|                                                      |   |                     |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   | $                        | 44,455 |   |                   | $      | 479    |   |   | $ | 8,046 |   |   | $ | 1,214 |   |   | $ | 52,501 |   |   | $ | 1,693 |   |
|                                                      |   |                     |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2007:                                   |   |                     |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.      Government sponsored                            |   |                     |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      entities                    |   | $                        | 4,495  |   |                   | $      | 5      |   |   | $ | 26,691 |   |   | $ | 31 |   |   | $ | 31,186 |   |   | $ | 36 |   |
| Mortgage-backed      investments                          |   |                     | 1,284  |   |                   |   | 8      |   |   |   | 22,016 |   |   |   | 307 |   |   |   | 23,300 |   |   |   | 315 |   |
| Obligations      of states and                            |   |                     |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      political      subdivisions |   |                     | 6,085  |   |                   |   | 98     |   |   |   | 10,265 |   |   |   | 76 |   |   |   | 16,350 |   |   |   | 174 |   |
| Other      and equity securities                          |   |                     | 4,675  |   |                   |   | 351    |   |   |   | 1,965 |   |   |   | 20 |   |   |   | 6,640 |   |   |   | 371 |   |
|                                                      |   |                     |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   | $                        | 16,539 |   |                   | $      | 462    |   |   | $ | 60,937 |   |   | $ | 434 |   |   | $ | 77,476 |   |   | $ | 896 |   |

----

|                              |   | Amortized |    |   | Fair   |   |
|-----------------------------------|--------|-----------|---------|--------|--------|--------|
| (Dollars in      thousands)       |   | Cost      |    |   | Value  |   |
|                              |   |      |    |   |   |   |
| One      year or less             |   | $         | 21,962  |   |   | $      | 22,185 |   |
| After      one through five years |   |      | 29,372  |   |   |   | 29,758 |   |
| After      five through ten years |   |      | 24,122  |   |   |   | 24,183 |   |
| After      ten years              |   |      | 6,211   |   |   |   | 5,140 |   |
|                              |   |      | 81,667  |   |   |   | 81,266 |   |
| Mortgage-backed      investments  |   |      | 141,688 |   |   |   | 145,362 |   |
|                              |   |      |    |   |   |   |   |   |
|                              |   | $         | 223,355 |   |   | $      | 226,628 |   |

|                                              |   | 2008      |    |   | 2007   |   |
|---------------------------------------------------|--------|-----------|---------|--------|--------|--------|
|                                              |   | Amortized |    |   | Fair   |   |   | Amortized |   |   | Fair |   |
| (Dollars      in thousands)                       |   | Cost      |    |   | Value  |   |   | Cost |   |   | Value |   |
|                                              |   |      |    |   |   |   |   |   |   |   |   |   |
| Pledged      to secure public and tax deposits    |   | $         | 168,698 |   |   | $      | 171,506 |   |   | $ | 185,160 |   |   | $ | 185,505 |   |
| Pledged      for the Fed discount window          |   |      | -       |   |   |   | - |   |   |   | 999 |   |   |   | 998 |   |
| Pledged      for Trust account deposits           |   |      | 6,948   |   |   |   | 6,837 |   |   |   | 4,751 |   |   |   | 4,770 |   |
| Pledged      for FHLB borrowings                  |   |      | 8,756   |   |   |   | 8,894 |   |   |   | 15,922 |   |   |   | 16,091 |   |
| Pledged      for non-public repurchase agreements |   |      | 21,377  |   |   |   | 21,499 |   |   |   | 4,379 |   |   |   | 4,391 |   |
| Pledged      to an insurance commissioner         |   |      | 541     |   |   |   | 574 |   |   |   | 539 |   |   |   | 561 |   |
|                                              |   |      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities pledged                     |   | $         | 206,320 |   |   | $      | 209,310 |   |   | $ | 211,750 |   |   | $ | 212,316 |   |

| (Dollars      in thousands) |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|-----------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                        |   |   |   |   |   |   |   |   |   |
| Gross      realized gains   |   | $      | 32     |   |   | $      | 2      |   |   | $ | 10 |   |
| Gross      realized losses  |   |   | (26    | )      |   |   | (39    | )      |   |   | (14 | ) |
|                        |   |   |   |   |   |   |   |   |   |   |   |   |
|                        |   | $      | 6      |   |   | $      | (37    | )      |   | $ | (4 | ) |

----

| (Dollars in      thousands)                                           |   | 2008   |      |   | 2007   |   |
|-----------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Real      estate loans:                                               |   |   |      |   |   |   |
|      Residential                             |   | $      | 255,488   |   |   | $      | 269,601 |   |
|      Multifamily                             |   |   | 37,669    |   |   |   | 38,778 |   |
|      Construction      and land development  |   |   | 255,655   |   |   |   | 298,879 |   |
|      Farmland                                |   |   | 45,489    |   |   |   | 69,264 |   |
|      Nonfarm      nonresidential real estate |   |   | 406,886   |   |   |   | 324,674 |   |
| Commercial,      financial and agricultural                           |   |   | 127,704   |   |   |   | 169,447 |   |
| Consumer                                                              |   |   | 37,908    |   |   |   | 40,860 |   |
| Other                                                                 |   |   | 9,796     |   |   |   | 7,932 |   |
|                                                                  |   |   |      |   |   |   |   |   |
|                                                                  |   | $      | 1,176,595 |   |   | $      | 1,219,435 |   |

| (Dollars      in thousands)               |   | 2008   |    |   | 2007   |   |
|-------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                      |   |   |    |   |   |   |
| Loans      outstanding at January 1       |   | $      | 14,530  |   |   | $      | 8,542 |   |
| New      director and executive additions |   |   | -       |   |   |   | 157 |   |
| New      loans and advances               |   |   | 42,683  |   |   |   | 45,061 |   |
| Repayments                                |   |   | (47,846 | )      |   |   | (38,072 | ) |
| Loans      sold                           |   |   | -       |   |   |   | (360 | ) |
| Retirements                               |   |   | -       |   |   |   | (798 | ) |
|                                      |   |   |    |   |   |   |   |   |
| Loans      outstanding at December 31     |   | $      | 9,367   |   |   | $      | 14,530 |   |

| (Dollars in      thousands)                                   |   | 2008   |   |   | 2007   |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                          |   |   |   |   |   |   |
| Nonaccrual      loans                                         |   | $      | 20,564 |   |   | $      | 6,524 |   |
| Other      real estate owned                                  |   |   | 11,061 |   |   |   | 6,232 |   |
|                                                          |   |   |   |   |   |   |   |   |
|    Total      nonperforming assets             |   | $      | 31,625 |   |   | $      | 12,756 |   |
|                                                          |   |   |   |   |   |   |   |   |
| Accruing      loans past due 90 days or more                  |   | $      | 5,686  |   |   | $      | 1,093 |   |
| Loans      restructured and in compliance with modified terms |   | $      | 3,664  |   |   | $      | - |   |

----

| (Dollars in      thousands)              |   | 2008   |   |   | 2007   |   |
|------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                     |   |   |   |   |   |   |
| Impaired      loans with an allowance    |   | $      | 60,259 |   |   | $      | 6,101 |   |
| Impaired      loans without an allowance |   |   | 38,175 |   |   |   | 2,495 |   |
|                                     |   |   |   |   |   |   |   |   |
| Total      impaired loans                |   | $      | 98,434 |   |   | $      | 8,596 |   |
|                                     |   |   |   |   |   |   |   |   |
| Allowance      for impaired loans        |   | $      | 13,282 |   |   | $      | 1,701 |   |

| (Dollars      in thousands)                       |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                              |   |   |   |   |   |   |   |   |   |
| Average      balance of impaired loans            |   | $      | 91,337 |   |   | $      | 8,605  |   |   | $ | 9,095 |   |
| Interest      income recognized on impaired loans |   |   | 4,941  |   |   |   | 660    |   |   |   | 752 |   |

| (Dollars in      thousands)                                                      |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                             |   |   |   |   |   |   |   |   |   |
| Balance      at January 1                                                        |   | $      | 14,217 |   |   | $      | 14,950 |   |   | $ | 12,449 |   |
| Allowances      of acquired companies                                            |   |   | -      |   |   |   | -      |   |   |   | 2,234 |   |
|                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans      charged off                                                           |   |   | (9,706 | )      |   |   | (4,744 | )      |   |   | (3,825 | ) |
| Recoveries                                                                       |   |   | 673    |   |   |   | 1,491  |   |   |   | 1,060 |   |
|           Net      charge-offs |   |   | (9,033 | )      |   |   | (3,253 | )      |   |   | (2,765 | ) |
|                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision      for loan losses                                                   |   |   | 19,734 |   |   |   | 2,520  |   |   |   | 3,032 |   |
|                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31                                                      |   | $      | 24,918 |   |   | $      | 14,217 |   |   | $ | 14,950 |   |

----

| (Dollars      in thousands)                         |   | 2008   |   |   | 2007   |   |
|-----------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                |   |   |   |   |   |   |
| Land                                                |   | $      | 14,278 |   |   | $      | 14,426 |   |
| Buildings                                           |   |   | 36,951 |   |   |   | 35,538 |   |
| Furniture,      fixtures and equipment              |   |   | 23,759 |   |   |   | 23,078 |   |
| Leasehold      improvements                         |   |   | 751    |   |   |   | 445 |   |
| Construction      in progress                       |   |   | 368    |   |   |   | 827 |   |
|                                                |   |   | 76,107 |   |   |   | 74,314 |   |
| Less      accumulated depreciation and amortization |   |   | 31,465 |   |   |   | 28,769 |   |
|                                                |   |   |   |   |   |   |   |   |
|                                                |   | $      | 44,642 |   |   | $      | 45,545 |   |

| (Dollarsin      thousands)      |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                            |   |   |   |   |   |   |   |   |   |
| Buildings      and office space |   | $      | 815    |   |   | $      | 650    |   |   | $ | 480 |   |
| Computer      equipment         |   |   | 713    |   |   |   | 777    |   |   |   | 812 |   |
| Other      equipment and autos  |   |   | 317    |   |   |   | 324    |   |   |   | 265 |   |
|                            |   |   | 1,845  |   |   |   | 1,751  |   |   |   | 1,557 |   |
| Rental      income              |   |   | (56    | )      |   |   | (42    | )      |   |   | (32 | ) |
|                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      rent expense           |   | $      | 1,789  |   |   | $      | 1,709  |   |   | $ | 1,525 |   |

| (Dollarsin      thousands)        |   |   |   |
|-----------------------------------|--------|--------|--------|
| 2009                              |   | $      | 1,249  |   |
| 2010                              |   |   | 737    |   |
| 2011                              |   |   | 373    |   |
| 2012                              |   |   | 338    |   |
| 2013                              |   |   | 300    |   |
| After      2013                   |   |   | 962    |   |
|                              |   |   |   |   |
| Total      minimum lease payments |   | $      | 3,959  |   |

----

|                                    |   |     |   |   |     |   |   | Customer |   |   |       |   |   |    |   |
|-----------------------------------------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|------------|--------|--------|---------|--------|
|                                    |   |     |   |   | Core     |   |   | Renewal  |   |   | Noncompete |   |   | Banking |   |
| (Dollars      in thousands)             |   | Goodwill |   |   | Deposits |   |   | Lists    |   |   | Agreements |   |   | Charter |   |
|                                    |   |     |   |   |     |   |   |     |   |   |       |   |   |    |   |
| Balance      at January 1, 2007         |   | $        | 32,572 |   |     | $      | 6,784  |     |   | $      | 209        |   |   | $       | 95     |   |   | $ | 1,025 |   |
| Addition      due to agency acquisition |   |     | -      |   |     |   | -      |     |   |   | 46         |   |   |    | -      |   |   |   | - |   |
| Amortization      expense               |   |     | -      |   |     |   | (492   | )        |   |   | (27        | )      |   |    | (28    | ) |   |   | - |   |
|                                    |   |     |   |   |     |   |   |     |   |   |       |   |   |    |   |   |   |   |   |   |
| Balance      at December 31, 2007       |   | $        | 32,572 |   |     | $      | 6,292  |     |   | $      | 228        |   |   | $       | 67     |   |   | $ | 1,025 |   |
|                                    |   |     |   |   |     |   |   |     |   |   |       |   |   |    |   |   |   |   |   |   |
| Amortization      expense               |   |     | -      |   |     |   | (427   | )        |   |   | (30        | )      |   |    | (28    | ) |   |   | - |   |
|                                    |   |     |   |   |     |   |   |     |   |   |       |   |   |    |   |   |   |   |   |   |
| Balance      at December 31, 2008       |   | $        | 32,572 |   |     | $      | 5,865  |     |   | $      | 198        |   |   | $       | 39     |   |   | $ | 1,025 |   |
|                                    |   |     |   |   |     |   |   |     |   |   |       |   |   |    |   |   |   |   |   |   |
| Estimated amortization    expense       |   |     |   |   |     |   |   |     |   |   |       |   |   |    |   |   |   |   |   |   |
| 2009                                    |   |     |   |   |     | $      | 427    |     |   | $      | 30         |   |   | $       | 26     |   |   |   |   |   |
| 2010                                    |   |     |   |   |     |   | 427    |     |   |   | 30         |   |   |    | 13     |   |   |   |   |   |
| 2011                                    |   |     |   |   |     |   | 427    |     |   |   | 30         |   |   |    | -      |   |   |   |   |   |
| 2012                                    |   |     |   |   |     |   | 427    |     |   |   | 24         |   |   |    | -      |   |   |   |   |   |
| 2013                                    |   |     |   |   |     |   | 427    |     |   |   | 21         |   |   |    | -      |   |   |   |   |   |

|                        |   | Gross    |   |   |         |   |   | Net      |   |
|-----------------------------|--------|----------|--------|--------|--------------|--------|--------|----------|--------|
|                        |   | Carrying |   |   | Accumulated  |   |   | Carrying |   |
| (Dollars in      thousands) |   | Amount   |   |   | Amortization |   |   | Amount   |   |
|                        |   |     |   |   |         |   |   |     |   |
| December      31, 2008:     |   |     |   |   |         |   |   |     |   |
|                        |   |     |   |   |         |   |   |     |   |
| Customer      renewal lists |   | $        | 513    |   |         | $      | 315    |     |   | $ | 198 |   |
| Noncompete      agreements  |   |     | 413    |   |         |   | 374    |     |   |   | 39 |   |
| Core      deposits          |   |     | 7,060  |   |         |   | 1,195  |     |   |   | 5,865 |   |
|                        |   |     |   |   |         |   |   |     |   |   |   |   |
|                        |   | $        | 7,986  |   |         | $      | 1,884  |     |   | $ | 6,102 |   |

| December      31, 2007:     |   |   |   |   |   |   |   |   |   |
|-----------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                        |   |   |   |   |   |   |   |   |   |
| Customer      renewal lists |   | $      | 513    |   |   | $      | 285    |   |   | $ | 228 |   |
| Noncompete      agreements  |   |   | 413    |   |   |   | 346    |   |   |   | 67 |   |
| Core      deposits          |   |   | 7,060  |   |   |   | 768    |   |   |   | 6,292 |   |
|                        |   |   |   |   |   |   |   |   |   |   |   |   |
|                        |   | $      | 7,986  |   |   | $      | 1,399  |   |   | $ | 6,587 |   |

----

| (Dollars in      thousands)                            |   | 2008   |   |   | 2007   |   |
|--------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                   |   |   |   |   |   |   |
| Cash      surrender value of bank owned life insurance |   | $      | 20,522 |   |   | $      | 19,829 |   |
| Federal      Home Loan Bank stock                      |   |   | 7,532  |   |   |   | 9,677 |   |
| Deferred      income tax                               |   |   | 5,023  |   |   |   | 1,369 |   |
| Investment      in First M&F Statutory Trust I     |   |   | 928    |   |   |   | 928 |   |
| Other                                                  |   |   | 7,462  |   |   |   | 9,906 |   |
|                                                   |   |   |   |   |   |   |   |   |
|                                                   |   | $      | 41,467 |   |   | $      | 41,709 |   |

| (Dollars in      thousands)                                                                                           |   | 2008   |      |   | 2007   |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                                                                                  |   |   |      |   |   |   |
| Noninterest-bearing                                                                                                   |   | $      | 178,689   |   |   | $      | 191,206 |   |
|                                                                                                                  |   |   |      |   |   |   |   |   |
| Interest-bearing:                                                                                                     |   |   |      |   |   |   |   |   |
|      NOW      and money market deposits                                                      |   |   | 399,698   |   |   |   | 346,431 |   |
|      Savings      deposits                                                                   |   |   | 114,281   |   |   |   | 105,924 |   |
|      Certificates      of deposit of $100 thousand or more                                   |   |   | 276,763   |   |   |   | 289,533 |   |
|      Brokered      certificates of deposit                                                   |   |   | 19,495    |   |   |   | 28,063 |   |
|      Other      certificates of deposit                                                      |   |   | 272,461   |   |   |   | 301,298 |   |
|                Total      interest-bearing |   |   | 1,082,698 |   |   |   | 1,071,249 |   |
|                                                                                                                  |   |   |      |   |   |   |   |   |
|                Total      deposits         |   | $      | 1,261,387 |   |   | $      | 1,262,455 |   |

| (Dollarsin      thousands) |   |   |    |
|----------------------------|--------|--------|---------|
| 2009                       |   | $      | 401,659 |   |
| 2010                       |   |   | 121,071 |   |
| 2011                       |   |   | 28,983  |   |
| 2012                       |   |   | 13,152  |   |
| 2013                       |   |   | 3,854   |   |
| After      2013            |   |   | -       |   |
|                       |   |   |    |   |
|                       |   | $      | 568,719 |   |

----

| (Dollars in      thousands)                                 |   |                     |   |   | Weighted          |   |
|-------------------------------------------------------------|--------|--------------------------|--------|--------|-------------------|--------|
|                                                        |   | Balance      Outstanding |   |   | Average      Rate |   |
|                                                        |   | Maximum                  |   |   | Average           |   |   | At |   |   | During |   |   | At |   |
|                                                        |   | Month      End           |   |   | Daily             |   |   | Year      End |   |   | Year |   |   | Year      End |   |
| 2008:                                                       |   |                     |   |   |              |   |   |   |   |   |   |   |   |   |   |
| Federal      funds purchased                                |   | $                        | 325    |   |              | $      | 984 |   |   | $ | - |   |   |   | 2.62 | % |   |   | - | % |
| Securities      sold under                                  |   |                     |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      agreements      to repurchase |   |                     | 20,879 |   |              |   | 12,876 |   |   |   | 9,728 |   |   |   | 2.34 | % |   |   | 1.76 | % |
|                                                        |   |                     |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   | $                        | 21,204 |   |              | $      | 13,860 |   |   | $ | 9,728 |   |   |   |   |   |   |   |   |   |
|                                                        |   |                     |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2007:                                                       |   |                     |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal      funds purchased                                |   | $                        | 20,000 |   |              | $      | 6,291 |   |   | $ | - |   |   |   | 5.34 | % |   |   | - | % |
| Securities      sold under                                  |   |                     |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      agreements      to repurchase |   |                     | 9,676  |   |              |   | 6,154 |   |   |   | 9,676 |   |   |   | 4.44 | % |   |   | 3.87 | % |
|                                                        |   |                     |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   | $                        | 29,676 |   |              | $      | 12,445 |   |   | $ | 9,676 |   |   |   |   |   |   |   |   |   |
|                                                        |   |                     |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2006:                                                       |   |                     |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal      funds purchased                                |   | $                        | 25,000 |   |              | $      | 2,582 |   |   | $ | 12,900 |   |   |   | 5.31 | % |   |   | 5.44 | % |
| Securities      sold under                                  |   |                     |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      agreements      to repurchase |   |                     | 10,062 |   |              |   | 6,205 |   |   |   | 6,712 |   |   |   | 4.51 | % |   |   | 4.47 | % |
|                                                        |   |                     |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   | $                        | 35,062 |   |              | $      | 8,787 |   |   | $ | 19,612 |   |   |   |   |   |   |   |   |   |

| (Dollars in      thousands)                                                                   |   | 2008   |    |   | 2007   |   |
|-----------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                                                                          |   |   |    |   |   |   |
| Company’s      line of credit with a correspondent bank in the amount                   |   |   |    |   |   |   |
| of      $15 million, maturing in May 2009; secured by approximately      29%                  |   |   |    |   |   |   |
| of      the Bank’s common stock; interest payable quarterly at..75%                     |   |   |    |   |   |   |
| below      the lender’s base rate                                                       |   | $      | 2,416   |   |   | $      | 1,917 |   |
|                                                                                          |   |   |    |   |   |   |   |   |
| Bank’s      advances from Federal Home Loan Banks, net of                               |   |   |    |   |   |   |   |   |
| unamortized      purchase accounting adjustments of $0 and $5                                 |   |   | 149,131 |   |   |   | 199,084 |   |
|                                                                                          |   |   |    |   |   |   |   |   |
| Other      mortgages to third parties on other real estate                                    |   |   | -       |   |   |   | 311 |   |
|                                                                                          |   |   |    |   |   |   |   |   |
|                                                                                          |   | $      | 151,547 |   |   | $      | 201,312 |   |
|                                                                                          |   |   |    |   |   |   |   |   |
| Company’s      junior subordinated debentures, interest payable quarterly at      6.44% |   |   |    |   |   |   |   |   |
| through      March 2011, and payable quarterly at 90-day LIBOR plus 1.33%      through        |   |   |    |   |   |   |   |   |
| March      2036; redeemable at par after March 2011                                           |   | $      | 30,928  |   |   | $      | 30,928 |   |

----

| (Dollars in      thousands)                                         |   | 2008   |       |   | 2007   |      |
|---------------------------------------------------------------------|--------|--------|------------|--------|--------|-----------|
|                                                                |   |   |       |   |   |      |
| Single      payment advances maturing within 12 months of year end: |   |   |       |   |   |      |
| Balance                                                             |   | $      | 40,000     |   |   | $         | 109,495 |   |
| Range      of rates                                                 |   |   | 3.69%-5.38 | %      |   |      | 4.28%-5.50 | % |
|                                                                |   |   |       |   |   |      |   |   |
| Single      payment advances maturing after 12 months of year end:  |   |   |       |   |   |      |   |   |
| Balance                                                             |   | $      | 67,500     |   |   | $         | 60,000 |   |
| Range      of rates                                                 |   |   | 2.72%-6.50 | %      |   |      | 4.24%-6.50 | % |
| Range      of maturities                                            |   | 2010   |       |   |   | 2009-2010 |   |
|                                                                |   |   |       |   |   |      |   |   |
| Amortizing      advances:                                           |   |   |       |   |   |      |   |   |
| Balance                                                             |   | $      | 41,631     |   |   | $         | 29,589 |   |
| Monthly      payment amount                                         |   |   | 655        |   |   |      | 650 |   |
| Range      of rates                                                 |   |   | 3.05%-8.48 | %      |   |      | 2.17%-8.48 | % |
| Range      of maturities                                            |   |   | 2009-2020  |   |   |      | 2008-2020 |   |

| (Dollars in      thousands) |   |   |    |
|-----------------------------|--------|--------|---------|
| 2009                        |   | $      | 47,862  |   |
| 2010                        |   |   | 72,610  |   |
| 2011                        |   |   | 4,860   |   |
| 2012                        |   |   | 4,676   |   |
| 2013                        |   |   | 17,591  |   |
| After      2013             |   |   | 1,532   |   |
|                        |   |   |    |   |
|                        |   | $      | 149,131 |   |

----

| (Dollars      in thousands)       |   | 2008   |    |   | 2007   |   |
|-----------------------------------|--------|--------|---------|--------|--------|--------|
|                              |   |   |    |   |   |   |
| Commitments      to extend credit |   | $      | 172,209 |   |   | $      | 230,280 |   |
| Standby      letters of credit    |   |   | 4,770   |   |   |   | 17,357 |   |

----

| (Dollarsin      thousands)                                |   | Gross  |   |   | Tax    |   |   | Net    |   |
|-----------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                      |   |   |   |   |   |   |   |   |   |
| December      31, 2008:                                   |   |   |   |   |   |   |   |   |   |
| Net      unrealized gain on securities available for sale |   | $      | 3,263  |   |   | $      | 1,217  |   |   | $ | 2,046 |   |
| Net      unamortized pension costs                        |   |   | (4,423 | )      |   |   | (1,650 | )      |   |   | (2,773 | ) |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   | $      | (1,160 | )      |   | $      | (433   | )      |   | $ | (727 | ) |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2007:                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      unrealized loss on securities available for sale |   | $      | 563    |   |   | $      | 210    |   |   | $ | 353 |   |
| Net      unamortized pension costs                        |   |   | (1,792 | )      |   |   | (668   | )      |   |   | (1,124 | ) |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   | $      | (1,229 | )      |   | $      | (458   | )      |   | $ | (771 | ) |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2006:                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      unrealized loss on securities available for sale |   | $      | (1,410 | )      |   | $      | (526   | )      |   | $ | (884 | ) |
| Minimum      pension liability                            |   |   | (2,707 | )      |   |   | (1,010 | )      |   |   | (1,697 | ) |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   | $      | (4,117 | )      |   | $      | (1,536 | )      |   | $ | (2,581 | ) |

----

| (Dollars in thousands, except      share data)         |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|--------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                   |   |   |   |   |   |   |   |   |   |
| Stock      option expense recognized, gross            |   |   | 19     |   |   |   | 20     |   |   |   | 20 |   |
| Adjustment      for actual vs expected forfeitures     |   |   | (10    | )      |   |   | -      |   |   |   | - |   |
| Stock      option expense recognized, net              |   |   | 9      |   |   |   | 20     |   |   |   | 20 |   |
|                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Restricted      stock award expenses recognized, gross |   |   | 321    |   |   |   | 332    |   |   |   | 291 |   |
| Adjustment      for actual vs expected forfeitures     |   |   | (121   | )      |   |   | (33    | )      |   |   | - |   |
| Restricted      stock award expenses recognized, net   |   |   | 200    |   |   |   | 299    |   |   |   | 291 |   |
|                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      stock-based compensation                    |   |   | 209    |   |   |   | 319    |   |   |   | 311 |   |
| Income      tax benefits                               |   |   | (78    | )      |   |   | (119   | )      |   |   | (116 | ) |
|                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      stock-based compensation recognized           |   |   | 131    |   |   |   | 200    |   |   |   | 195 |   |

----

|                   |   |        |    |   | Weighted |   |
|------------------------|--------|-------------|---------|--------|----------|--------|
|                   |   |        |    |   | Average  |   |
|                   |   | Outstanding |    |   | Exercise |   |
|                   |   | Options     |    |   | Price    |   |
|                   |   |        |    |   |     |   |
| January      1, 2006   |   |        | 239,370 |   |     | $      | 15.20 |   |
| Options      granted   |   |        | 3,000   |   |     |   | 19.06 |   |
| Options      exercised |   |        | (55,908 | )      |     |   | 14.12 |   |
| Options      forfeited |   |        | -       |   |     |   | - |   |
| December      31, 2006 |   |        | 186,462 |   |     |   | 15.59 |   |
| Options      granted   |   |        | 2,000   |   |     |   | 19.00 |   |
| Options      exercised |   |        | (19,854 | )      |     |   | 15.37 |   |
| Options      forfeited |   |        | (2,000  | )      |     |   | 16.25 |   |
| Options      cancelled |   |        | (38,108 | )      |     |   | 13.96 |   |
| December      31, 2007 |   |        | 128,500 |   |     |   | 16.16 |   |
| Options      granted   |   |        | 7,000   |   |     |   | 13.84 |   |
| Options      exercised |   |        | -       |   |     |   | - |   |
| Options      forfeited |   |        | -       |   |     |   | - |   |
| Options      cancelled |   |        | -       |   |     |   | - |   |
| December      31, 2008 |   |        | 135,500 |   |     | $      | 16.04 |   |

|                                                        |   |        |    |    | Weighted    |   |   | Weighted    |   |   |        |   |   | Weighted    |    |
|-------------------------------------------------------------|--------|-------------|---------|---------|-------------|--------|--------|-------------|--------|--------|-------------|--------|--------|-------------|---------|
|                                                        |   |        |    |    | Average     |   |   | Average     |   |   |        |   |   | Average     |    |
|                                                        |   |        |    |    | Remaining   |   |   | Exercise    |   |   |        |   |   | Exercise    |    |
|                                                        |   |        |    |    | Contractual |   |   | Price-      |   |   |        |   |   | Price-      |    |
| Exercise                                                    |   | Options     |    |    | Life        |   |   | Options     |   |   | Options     |   |   | Options     |    |
| Price      Range                                            |   | Outstanding |    |    | (Years)     |   |   | Outstanding |   |   | Exercisable |   |   | Exercisable |    |
|                                                        |   |        |    |    |        |   |   |        |   |   |        |   |   |        |    |
| $      10.00 - $ 10.13                                      |   |        | 5,000   |    |        |   | 1.93   |        |   | $      | 10.05       |   |   |        | 5,000   |   |   | $ | 10.05 |   |
|    12.63      -    16.25 |   |        | 108,500 |    |        |   | .98    |        |   |   | 15.91       |   |   |        | 101,500 |   |   |   | 16.06 |   |
|    17.00      -    19.06 |   |        | 22,000  |    |        |   | 5.97   |        |   |   | 18.00       |   |   |        | 12,000  |   |   |   | 17.98 |   |
|                                                        |   |        |    |    |        |   |   |        |   |   |        |   |   |        |    |   |   |   |   |   |
|                                                        |   |        | 135,500 |    |        |   | 1.83   |        |   | $      | 16.04       |   |   |        | 118,500 |   |   | $ | 16.00 |   |
|                                                        |   |        |    |    |        |   |   |        |   |   |        |   |   |        |    |   |   |   |   |   |
| Available      for additional grant at December 31, 2008    |   |        |    | 264,500 |        |   |   |        |   |

----

| Grant      Date    |   | Remaining      Granted Shares |   | Grant      Date Fair Value |   | Vesting      Date |   |
|--------------------|--------|-------------------------------|--------|----------------------------|--------|-------------------|--------|
| August      2005   |   |                          | 55,000 |                       | $      | 17.08             |   |           August      2012 |   |
| December      2005 |   |                          | 6,000  |                       |   | 16.86             |   |           May      2009 |   |
| December      2005 |   |                          | 6,000  |                       |   | 16.86             |   |           June      2011 |   |
| December      2005 |   |                          | 25,000 |                       |   | 16.86             |   |           December      2012 |   |
| December      2006 |   |                          | 1,000  |                       |   | 19.59             |   |           December      2009 |   |
| December      2007 |   |                          | 13,250 |                       |   | 15.48             |   |           December      2014 |   |

|                   |   |   |    |   | Grant      Date |   |
|------------------------|--------|--------|---------|--------|-----------------|--------|
|                   |   | Shares |    |   | Fair      Value |   |
| January      1, 2006   |   |   | 113,766 |   |            | $      | 17.00 |   |
| Granted      in 2006   |   |   | 4,000   |   |            |   | 19.59 |   |
| December      31, 2006 |   |   | 117,766 |   |            |   | 17.09 |   |
| Granted      in 2007   |   |   | 13,250  |   |            |   | 15.48 |   |
| Forfeited      in 2007 |   |   | (6,000  | )      |            |   | 17.08 |   |
| Vested      in 2007    |   |   | (1,500  | )      |            |   | 19.59 |   |
| December      31, 2007 |   |   | 123,516 |   |            |   | 16.89 |   |
| Granted      in 2008   |   |   | -       |   |            |   | - |   |
| Forfeited      in 2008 |   |   | (14,000 | )      |            |   | 17.08 |   |
| Vested      in 2008    |   |   | (3,266  | )      |            |   | 18.23 |   |
| December      31, 2008 |   |   | 106,250 |   |            | $      | 16.82 |   |

| (Dollarsin      thousands)                   |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                         |   |   |   |   |   |   |   |   |   |
| Postage      and shipping                    |   | $      | 931    |   |   | $      | 831    |   |   | $ | 676 |   |
| Stationery      and supplies                 |   |   | 868    |   |   |   | 1,002  |   |   |   | 1,002 |   |
| Accounting,      legal and professional fees |   |   | 1,704  |   |   |   | 922    |   |   |   | 1,427 |   |
| Insurance      expense                       |   |   | 802    |   |   |   | 806    |   |   |   | 709 |   |
| Foreclosed      property expenses            |   |   | 1,913  |   |   |   | 552    |   |   |   | 504 |   |
| Other                                        |   |   | 6,150  |   |   |   | 5,636  |   |   |   | 6,117 |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |
|                                         |   | $      | 12,368 |   |   | $      | 9,749  |   |   | $ | 10,435 |   |

----

| (Dollars      in thousands)                                 |   | Federal |   |   | State  |   |   | Total  |   |
|-------------------------------------------------------------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
| 2008:                                                       |   |    |   |   |   |   |   |   |   |
| Current                                                     |   | $       | 2,225  |   |   | $      | 253    |   |   | $ | 2,478 |   |
| Current      benefits from net operating loss carryforwards |   |    | (244   | )      |   |   | -      |   |   |   | (244 | ) |
| Current      taxes related to noncontrolling interests      |   |    | 6      |   |   |   | 1      |   |   |   | 7 |   |
| Deferred                                                    |   |    | (3,178 | )      |   |   | (492   | )      |   |   | (3,670 | ) |
|    Total                                     |   | $       | (1,191 | )      |   | $      | (238   | )      |   | $ | (1,429 | ) |
|                                                        |   |    |   |   |   |   |   |   |   |   |   |   |
| 2007:                                                       |   |    |   |   |   |   |   |   |   |   |   |   |
| Current                                                     |   | $       | 4,630  |   |   | $      | 502    |   |   | $ | 5,132 |   |
| Current      benefits from net operating loss carryforwards |   |    | (349   | )      |   |   | -      |   |   |   | (349 | ) |
| Current      taxes related to noncontrolling interests      |   |    | 11     |   |   |   | 2      |   |   |   | 13 |   |
| Deferred                                                    |   |    | 1,949  |   |   |   | 243    |   |   |   | 2,192 |   |
|    Total                                     |   | $       | 6,241  |   |   | $      | 747    |   |   | $ | 6,988 |   |
|                                                        |   |    |   |   |   |   |   |   |   |   |   |   |
| 2006:                                                       |   |    |   |   |   |   |   |   |   |   |   |   |
| Current                                                     |   | $       | 6,075  |   |   | $      | 494    |   |   | $ | 6,569 |   |
| Current      taxes related to noncontrolling interests      |   |    | 5      |   |   |   | 1      |   |   |   | 6 |   |
| Deferred                                                    |   |    | (155   | )      |   |   | 184    |   |   |   | 29 |   |
|    Total                                     |   | $       | 5,925  |   |   | $      | 679    |   |   | $ | 6,604 |   |

| (Dollars      in thousands)                                      |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                             |   |   |   |   |   |   |   |   |   |
| Amount      computed using the Federal statutory                 |   |   |   |   |   |   |   |   |   |
|      rates      on income before taxes  |   | $      | (303   | )      |   | $      | 7,299  |   |   | $ | 6,978 |   |
| Increase      (decrease) resulting from:                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax      exempt income, net of                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|      disallowed      interest deduction |   |   | (739   | )      |   |   | (605   | )      |   |   | (635 | ) |
| State      income tax expense,                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|      net      of Federal effect         |   |   | (157   | )      |   |   | 492    |   |   |   | 447 |   |
| Life      insurance income                                       |   |   | (209   | )      |   |   | (234   | )      |   |   | (198 | ) |
| Other,      net                                                  |   |   | (21    | )      |   |   | 36     |   |   |   | 12 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   | $      | (1,429 | )      |   | $      | 6,988  |   |   | $ | 6,604 |   |

| (Dollars      in thousands)                                                                                                   |   | 2008   |   |   | 2007   |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                                                                                          |   |   |   |   |   |   |
| Allowance      for loan losses                                                                                                |   | $      | 9,267  |   |   | $      | 5,219 |   |
| Loan      fees                                                                                                                |   |   | 448    |   |   |   | 613 |   |
| Purchase      accounting adjustments, investments and loans                                                                   |   |   | 406    |   |   |   | 486 |   |
| Nonperforming      assets                                                                                                     |   |   | 1,128  |   |   |   | 528 |   |
| Accrued      expenses                                                                                                         |   |   | 236    |   |   |   | 239 |   |
| Share-based      compensation                                                                                                 |   |   | 312    |   |   |   | 257 |   |
| Employee      benefit plans                                                                                                   |   |   | 154    |   |   |   | 161 |   |
| Net      pension liability and unamortized pension costs                                                                      |   |   | 299    |   |   |   | - |   |
| Other                                                                                                                         |   |   | 94     |   |   |   | 165 |   |
|                Total      deferred tax assets      |   |   | 12,344 |   |   |   | 7,668 |   |
|                                                                                                                          |   |   |   |   |   |   |   |   |
| Fixed      assets and depreciation                                                                                            |   |   | (2,952 | )      |   |   | (2,221 | ) |
| Federal      Home Loan Bank stock dividends                                                                                   |   |   | (450   | )      |   |   | (632 | ) |
| Intangible      assets                                                                                                        |   |   | (2,182 | )      |   |   | (2,323 | ) |
| Purchase      accounting adjustments, deposits and borrowings                                                                 |   |   | (4     | )      |   |   | (12 | ) |
| Prepaid      expenses                                                                                                         |   |   | (491   | )      |   |   | (430 | ) |
| Net      pension asset and unamortized pension costs                                                                          |   |   | -      |   |   |   | (440 | ) |
| Unrealized      gain on securities available for sale                                                                         |   |   | (1,217 | )      |   |   | (210 | ) |
| Other                                                                                                                         |   |   | (25    | )      |   |   | (31 | ) |
|                Total      deferred tax liabilities |   |   | (7,321 | )      |   |   | (6,299 | ) |
|                                                                                                                          |   |   |   |   |   |   |   |   |
|                                                                                                                          |   | $      | 5,023  |   |   | $      | 1,369 |   |

----

| (Dollars      in thousands) |   | Amount |   | Expiration      Dates |
|-----------------------------|--------|--------|--------|-----------------------|
|                        |   |   |   |                  |
| Net      operating loss     |   | $      | 716    |                  | 2025 |
| Tax      credits            |   |   | 107    |                  | 2025      – 2026 |

| (Dollars      in thousands)                            |   | 2008   |   |   | 2007   |   |
|--------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                   |   |   |   |   |   |   |
| Change      in benefit obligation:                     |   |   |   |   |   |   |
| Projected      benefit obligation at beginning of year |   | $      | 8,236  |   |   | $      | 8,467 |   |
| Service      cost                                      |   |   | -      |   |   |   | - |   |
| Interest      cost                                     |   |   | 460    |   |   |   | 473 |   |
| Measurement      date transition effect                |   |   | 115    |   |   |   | - |   |
| Actuarial      gain                                    |   |   | (189   | )      |   |   | (251 | ) |
| Benefit      payments                                  |   |   | (590   | )      |   |   | (453 | ) |
| Projected      benefit obligation at end of year       |   |   | 8,032  |   |   |   | 8,236 |   |
|                                                   |   |   |   |   |   |   |   |   |
| Change      in plan assets:                            |   |   |   |   |   |   |   |   |
| Fair      value of plan assets at beginning of year    |   |   | 9,417  |   |   |   | 8,612 |   |
| Actual      return on plan assets                      |   |   | (2,364 | )      |   |   | 822 |   |
| Employer      contributions                            |   |   | 800    |   |   |   | 400 |   |
| Refund      of PBGC premiums                           |   |   | -      |   |   |   | 64 |   |
| Benefit      payments                                  |   |   | (590   | )      |   |   | (453 | ) |
| Expenses                                               |   |   | (32    | )      |   |   | (28 | ) |
| Fair      value of plan assets at end of year          |   |   | 7,231  |   |   |   | 9,417 |   |
|                                                   |   |   |   |   |   |   |   |   |
| Funded      status at measurement date                 |   | $      | (801   | )      |   | $      | 1,181 |   |

| (Dollars      in thousands)                                    |   | 2008   |   |   | 2007   |   |
|----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                           |   |   |   |   |   |   |
| Net      pension asset                                         |   | $      | -      |   |   | $      | 1,181 |   |
|                                                           |   |   |   |   |   |   |   |   |
| Net      pension liability                                     |   | $      | (801   | )      |   | $      | - |   |
|                                                           |   |   |   |   |   |   |   |   |
| Accumulated      other comprehensive                           |   |   |   |   |   |   |   |   |
|      income,      before income taxes |   | $      | 4,423  |   |   | $      | 1,792 |   |

----

| (Dollars      in thousands)         |   | 2008   |   |   | 2007   |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|
|                                |   |   |   |   |   |   |
| Projected      benefit obligation   |   | $      | 8,032  |   |   | $      | 8,236 |   |
| Accumulated      benefit obligation |   |   | 8,032  |   |   |   | 8,236 |   |
| Fair      value of plan assets      |   |   | 7,231  |   |   |   | 9,417 |   |

| (Dollars      in thousands)                 |   | 2008   |   |   | 2007   |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                        |   |   |   |   |   |   |
| Accrued      pension benefit cost           |   | $      | -      |   |   | $      | - |   |
| Unamortized      transition asset           |   |   | (7     | )      |   |   | (18 | ) |
| Unamortized      prior service credit       |   |   | (99    | )      |   |   | (145 | ) |
| Unamortized      actuarial loss             |   |   | 4,529  |   |   |   | 1,955 |   |
| Accumulated      other comprehensive income |   | $      | 4,423  |   |   | $      | 1,792 |   |

| (Dollars      in thousands)                                                                                                                      |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Net      Periodic Benefit Cost:                                                                                                                  |   |   |   |   |   |   |   |   |   |
|                                                                                                                                             |   |   |   |   |   |   |   |   |   |
| Service      cost                                                                                                                                |   | $      | -      |   |   | $      | -      |   |   | $ | - |   |
| Interest      cost                                                                                                                               |   |   | 460    |   |   |   | 473    |   |   |   | 456 |   |
| Expected      return on plan assets                                                                                                              |   |   | (619   | )      |   |   | (565   | )      |   |   | (509 | ) |
| Amortization      of transition asset                                                                                                            |   |   | (9     | )      |   |   | (9     | )      |   |   | (9 | ) |
| Amortization      of prior service credit                                                                                                        |   |   | (37    | )      |   |   | (37    | )      |   |   | (37 | ) |
| Recognized      actuarial loss                                                                                                                   |   |   | 326    |   |   |   | 417    |   |   |   | 266 |   |
|                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                Net      periodic benefit cost                         |   | $      | 121    |   |   | $      | 279    |   |   | $ | 167 |   |
|                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Measurement      Date Transition Amounts Recognized in                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|    Retained      Earnings:                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      cost                                                                                                                               |   |   | 115    |   |   |   |   |   |   |   |   |   |
| Expected      return on plan assets                                                                                                              |   |   | (155   | )      |   |   |   |   |   |   |   |   |
| Amortization      of transition asset                                                                                                            |   |   | (2     | )      |   |   |   |   |   |   |   |   |
| Amortization      of prior service credit                                                                                                        |   |   | (9     | )      |   |   |   |   |   |   |   |   |
| Recognized      actuarial loss                                                                                                                   |   |   | 81     |   |   |   |   |   |   |   |   |   |
|                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|               Net      measurement transition retained earnings adjustment |   | $      | 30     |   |   |   |   |   |   |   |   |   |
|                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      Changes in Plan Assets and Benefit Obligations                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
|    Recognized      in Other Comprehensive Income:                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      (gain) loss                                                                                                                             |   | $      | 2,981  |   |   | $      | (544   | )      |   |   |   |   |
| Amortization      of actuarial net loss                                                                                                          |   |   | (326   | )      |   |   | (417   | )      |   |   |   |   |
| Amortization      of transition asset                                                                                                            |   |   | 9      |   |   |   | 9      |   |   |   |   |   |
| Amortization      of prior service credit                                                                                                        |   |   | 37     |   |   |   | 37     |   |   |   |   |   |
| Measurement      date transition adjustment                                                                                                      |   |   | (70    | )      |   |   | -      |   |   |   |   |   |
|    Total      recognized in other comprehensive income                                                                            |   | $      | 2,631  |   |   | $      | (915   | )      |   |   |   |   |
|    Total      recognized in net periodic benefit cost, retained earnings                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
|       and      other comprehensive income                                                                          |   | $      | 2,782  |   |   | $      | (636   | )      |   |   |   |   |

----

| (Dollars      in thousands)                           |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|-------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                  |   |   |   |   |   |   |   |   |   |
| Net      pension cost                                 |   | $      | 121    |   |   | $      | 279    |   |   | $ | 167 |   |
| Payments      for expenses made on                    |   |   |   |   |   |   |   |   |   |   |   |   |
|      behalf      of the plan |   |   | 33     |   |   |   | 32     |   |   |   | 65 |   |
|  Payments      to (refunds of) PBGC premiums     |   |   | 9      |   |   |   | (64    | )      |   |   | - |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   | $      | 163    |   |   | $      | 247    |   |   | $ | 232 |   |

|                                                                           |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|--------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                           |   |   |   |   |   |   |   |   |   |
| Discount      rate for determining current year’s costs                  |   |   | 5.75   | %      |   |   | 5.75   | %      |   |   | 5.25 | % |
| Discount      rate for determining year end benefit obligation                 |   |   | 6.25   | %      |   |   | 5.75   | %      |   |   | 5.75 | % |
| Expected      return on plan assets for determining current year’s costs |   |   | 6.75   | %      |   |   | 6.75   | %      |   |   | 6.75 | % |
| Rate      of compensation increase (plan is frozen)                            |   |   | -      | %      |   |   | -      | %      |   |   | - | % |

|                                |   | 2008   |   |   | 2007   |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|
|                                |   |   |   |   |   |   |
| Interest-bearing      bank balances |   |   | 34     | %      |   |   | 3 | % |
| Debt      securities                |   |   | 19     | %      |   |   | 33 | % |
| Equity      securities              |   |   | 47     | %      |   |   | 64 | % |
|                                |   |   |   |   |   |   |   |   |
|                                |   |   | 100    | %      |   |   | 100 | % |

----

|         |   | Minimum |   |   | Maximum |   |   | Preferred |   |
|--------------|--------|---------|--------|--------|---------|--------|--------|-----------|--------|
|         |   |    |   |   |    |   |   |      |   |
| Equities     |   |    | 50     | %      |    |   | 70     | %         |   |   | 60 | % |
| Fixed-income |   |    | 30     | %      |    |   | 40     | %         |   |   | 35 | % |
| Cash         |   |    | 2      | %      |    |   | 8      | %         |   |   | 5 | % |

| (Dollars      in thousands) |   |                   |   |
|-----------------------------|--------|------------------------|--------|
| Year                        |   | Expected      payments |   |
|                        |   |                   |   |
| 2009                        |   | $                      | 521    |   |
| 2010                        |   |                   | 565    |   |
| 2011                        |   |                   | 566    |   |
| 2012                        |   |                   | 575    |   |
| 2013                        |   |                   | 614    |   |
| 2014      – 2018      |   |                   | 3,290  |   |

----

| (Dollars      in thousands, except share data)                 |   | 2008   |      |   | 2007   |   |      | 2006   |   |
|----------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
|                                                           |   |   |      |   |   |   |      |   |   |
| Basic      earnings per share:                                 |   |   |      |   |   |   |      |   |   |
|      Net      income                  |   | $      | 526       |   |   | $      | 14,458    |   |   | $ | 13,925 |   |
|                                                           |   |   |      |   |   |   |      |   |   |   |   |   |
| Weighted      average shares outstanding                       |   |   | 9,061,730 |   |   |   | 9,060,137 |   |   |   | 9,016,384 |   |
|                                                           |   |   |      |   |   |   |      |   |   |   |   |   |
|      Basic      earnings per share    |   | $      | 0.06      |   |   | $      | 1.60      |   |   | $ | 1.54 |   |
|                                                           |   |   |      |   |   |   |      |   |   |   |   |   |
| Diluted      earnings per share:                               |   |   |      |   |   |   |      |   |   |   |   |   |
|      Net      income                  |   | $      | 526       |   |   | $      | 14,458    |   |   | $ | 13,925 |   |
|                                                           |   |   |      |   |   |   |      |   |   |   |   |   |
| Weighted      average shares outstanding                       |   |   | 9,061,730 |   |   |   | 9,060,137 |   |   |   | 9,016,384 |   |
| Dilutive      effect of options and restricted stock grants    |   |   | 25,425    |   |   |   | 48,980    |   |   |   | 50,944 |   |
|                                                           |   |   |      |   |   |   |      |   |   |   |   |   |
| Adjusted      weighted average shares outstanding              |   |   | 9,087,155 |   |   |   | 9,109,117 |   |   |   | 9,067,328 |   |
|                                                           |   |   |      |   |   |   |      |   |   |   |   |   |
|      Diluted      earnings per share  |   | $      | 0.05      |   |   | $      | 1.59      |   |   | $ | 1.53 |   |
|                                                           |   |   |      |   |   |   |      |   |   |   |   |   |
| Stock      options not included in adjusted shares             |   |   |      |   |   |   |      |   |   |   |   |   |
|      due      to anti-dilutive effect |   |   | 47,501    |   |   |   | 1,677     |   |   |   | 1,704 |   |

----

|                                 |   |                   |    |   | Fair      Value Measurements at |   |
|--------------------------------------|--------|------------------------|---------|--------|---------------------------------|--------|
|                                 |   |                   |    |   | December      31, 2008, Using   |   |
|                                 |   |                   |    |   | Quoted                          |   |   |   |   |   |   |   |
|                                 |   |                   |    |   | Prices      In                  |   |   |   |   |   |   |   |
|                                 |   |                   |    |   | Active                          |   |   |   |   |   |   |   |
|                                 |   |                   |    |   | Markets                         |   |   | Significant |   |   |   |   |
|                                 |   | Assets/Liabilities     |    |   | For                             |   |   | Other |   |   | Significant |   |
|                                 |   | Measured      at Fair  |    |   | Identical                       |   |   | Observable |   |   | Unobservable |   |
|                                 |   | Value                  |    |   | Assets                          |   |   | Inputs |   |   | Inputs |   |
| (Dollars      in thousands)          |   | December      31, 2008 |    |   | (Level      1)                  |   |   | (Level      2) |   |   | (Level      3) |   |
|                                 |   |                   |    |   |                            |   |   |   |   |   |   |   |
| Securities      available for sale   |   | $                      | 227,145 |   |                            | $      | - |   |   | $ | 227,145 |   |   | $ | - |   |
|                                 |   |                   |    |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage      derivative assets      |   |                   | 45      |   |                            |   | - |   |   |   | 45 |   |   |   | - |   |
|                                 |   |                   |    |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage      derivative liabilities |   |                   | 27      |   |                            |   | - |   |   |   | 27 |   |   |   | - |   |

----

|                                  |   | 2008     |      |   | 2007   |   |
|---------------------------------------|--------|----------|-----------|--------|--------|--------|
| (Dollars      in thousands)           |   | Carrying |      |   | Fair   |   |   | Carrying |   |   | Fair |   |
|                                  |   | Amount   |      |   | Value  |   |   | Amount |   |   | Value |   |
| Financial      assets:                |   |     |      |   |   |   |   |   |   |   |   |   |
| Cash      and short-term investments  |   | $        | 63,644    |   |   | $      | 63,644 |   |   | $ | 59,720 |   |   | $ | 59,720 |   |
| Securities      available for sale    |   |     | 227,145   |   |   |   | 227,145 |   |   |   | 237,138 |   |   |   | 237,138 |   |
| Loans      held for sale              |   |     | 7,698     |   |   |   | 7,698 |   |   |   | 5,571 |   |   |   | 5,571 |   |
| Loans      held for investment        |   |     | 1,151,677 |   |   |   | 1,111,202 |   |   |   | 1,205,218 |   |   |   | 1,206,993 |   |
| Agency      accounts receivable       |   |     | 276       |   |   |   | 276 |   |   |   | 387 |   |   |   | 387 |   |
| Nonmarketable      equity investments |   |     | 7,610     |   |   |   | 7,610 |   |   |   | 9,755 |   |   |   | 9,755 |   |
| Investment      in unconsolidated VIE |   |     | 928       |   |   |   | 928 |   |   |   | 928 |   |   |   | 928 |   |
| Financial      liabilities:           |   |     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing      deposits     |   |     | 178,689   |   |   |   | 178,689 |   |   |   | 191,206 |   |   |   | 191,206 |   |
| NOW,      MMDA and savings deposits   |   |     | 513,979   |   |   |   | 513,979 |   |   |   | 452,355 |   |   |   | 452,355 |   |
| Certificates      of deposit          |   |     | 568,719   |   |   |   | 579,874 |   |   |   | 618,894 |   |   |   | 618,586 |   |
| Short-term      borrowings            |   |     | 9,728     |   |   |   | 9,728 |   |   |   | 9,676 |   |   |   | 9,676 |   |
| Other      borrowings                 |   |     | 151,547   |   |   |   | 153,295 |   |   |   | 201,312 |   |   |   | 198,427 |   |
| Junior      subordinated debt         |   |     | 30,928    |   |   |   | 36,617 |   |   |   | 30,928 |   |   |   | 31,617 |   |
| Agency      accounts payable          |   |     | 574       |   |   |   | 574 |   |   |   | 583 |   |   |   | 583 |   |
| Other      financial instruments:     |   |     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commitments      to extend credit     |   |     | 18        |   |   |   | 449 |   |   |   | (10 | ) |   |   | 644 |   |
| Letters      of credit                |   |     | 28        |   |   |   | 28 |   |   |   | 148 |   |   |   | 148 |   |

----

----

| (Dollars      in thousands)                    |   | Actual |    |   | Minimum      Capital |   |   | Well      Capitalized |   |
|------------------------------------------------|--------|--------|---------|--------|----------------------|--------|--------|-----------------------|--------|
|                                           |   | Amount |    |   | Ratio                |   |   | Amount                |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
|                                           |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| December      31, 2008:                        |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Total      capital (to risk weighted assets):  |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Company                                        |   | $      | 145,511 |   |                 |   | 11.2   | %                     |   | $ | 103,839 |   |   |   | 8.0 | % |   | $ | - |   |   |   | - |   |
| Bank                                           |   |   | 146,691 |   |                 |   | 11.3   | %                     |   |   | 103,692 |   |   |   | 8.0 | % |   |   | 129,615 |   |   |   | 10.0 | % |
|                                           |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier      I capital (to risk weighted assets): |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Company                                        |   |   | 129,179 |   |                 |   | 10.0   | %                     |   |   | 51,920 |   |   |   | 4.0 | % |   |   | - |   |   |   | - |   |
| Bank                                           |   |   | 130,382 |   |                 |   | 10.1   | %                     |   |   | 51,846 |   |   |   | 4.0 | % |   |   | 77,769 |   |   |   | 6.0 | % |
|                                           |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier      I capital (to average assets):       |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Company                                        |   |   | 129,179 |   |                 |   | 8.2    | %                     |   |   | 63,111 |   |   |   | 4.0 | % |   |   | - |   |   |   | - |   |
| Bank                                           |   |   | 130,382 |   |                 |   | 8.3    | %                     |   |   | 63,071 |   |   |   | 4.0 | % |   |   | 78,839 |   |   |   | 5.0 | % |
|                                           |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2007:                        |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      capital (to risk weighted assets):  |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Company                                        |   | $      | 147,258 |   |                 |   | 10.8   | %                     |   | $ | 109,095 |   |   |   | 8.0 | % |   | $ | - |   |   |   | - |   |
| Bank                                           |   |   | 146,679 |   |                 |   | 10.8   | %                     |   |   | 108,998 |   |   |   | 8.0 | % |   |   | 136,247 |   |   |   | 10.0 | % |
|                                           |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier      I capital (to risk weighted assets): |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Company                                        |   |   | 133,031 |   |                 |   | 9.8    | %                     |   |   | 54,547 |   |   |   | 4.0 | % |   |   | - |   |   |   | - |   |
| Bank                                           |   |   | 132,452 |   |                 |   | 9.7    | %                     |   |   | 54,499 |   |   |   | 4.0 | % |   |   | 81,748 |   |   |   | 6.0 | % |
|                                           |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier      I capital (to average assets):       |   |   |    |   |                 |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Company                                        |   |   | 133,031 |   |                 |   | 8.4    | %                     |   |   | 63,597 |   |   |   | 4.0 | % |   |   | - |   |   |   | - |   |
| Bank                                           |   |   | 132,452 |   |                 |   | 8.3    | %                     |   |   | 63,521 |   |   |   | 4.0 | % |   |   | 79,401 |   |   |   | 5.0 | % |

----

| (Dollars      in thousands)                     |   | 2008   |    |   | 2007   |   |
|-------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Assets                                          |   |   |    |   |   |   |
| Cash                                            |   | $      | 413     |   |   | $      | 309 |   |
| Investment      in banking subsidiary           |   |   | 167,153 |   |   |   | 169,501 |   |
| Investment      in statutory trust              |   |   | 928     |   |   |   | 928 |   |
| Other      assets                               |   |   | 894     |   |   |   | 2,279 |   |
|                                            |   |   |    |   |   |   |   |   |
|                                            |   | $      | 169,388 |   |   | $      | 173,017 |   |
| Liabilities      and Stockholders’ Equity |   |   |    |   |   |   |   |   |
|                                            |   |   |    |   |   |   |   |   |
| Note      payable                               |   | $      | 2,417   |   |   | $      | 1,917 |   |
| Junior      subordinated debt                   |   |   | 30,928  |   |   |   | 30,928 |   |
| Other      liabilities                          |   |   | 93      |   |   |   | 92 |   |
| Stockholders’      equity                 |   |   | 135,950 |   |   |   | 140,080 |   |
|                                            |   |   |    |   |   |   |   |   |
|                                            |   | $      | 169,388 |   |   | $      | 173,017 |   |

| (Dollars      in thousands)                                                                                                      |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Income:                                                                                                                          |   |   |   |   |   |   |   |   |   |
| Dividends      received from banking subsidiary                                                                                  |   | $      | 4,500  |   |   | $      | 14,500 |   |   | $ | 9,400 |   |
| Dividends      received from statutory trust                                                                                     |   |   | 60     |   |   |   | 60     |   |   |   | 50 |   |
| Equity      in undistributed earnings (loss) of banking subsidiary                                                               |   |   | (2,578 | )      |   |   | 1,432  |   |   |   | 6,059 |   |
| Other      income                                                                                                                |   |   | 2      |   |   |   | 2      |   |   |   | 201 |   |
|                Total      income                      |   |   | 1,984  |   |   |   | 15,994 |   |   |   | 15,710 |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      on other borrowings                                                                                                |   |   | 99     |   |   |   | 229    |   |   |   | 690 |   |
| Interest      on junior subordinated debentures                                                                                  |   |   | 1,993  |   |   |   | 1,991  |   |   |   | 1,748 |   |
| Other      expenses                                                                                                              |   |   | 194    |   |   |   | 190    |   |   |   | 257 |   |
|                Total      expenses                    |   |   | 2,286  |   |   |   | 2,410  |   |   |   | 2,695 |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                Income      (loss) before income taxes |   |   | (302   | )      |   |   | 13,584 |   |   |   | 13,015 |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      tax benefit                                                                                                          |   |   | 828    |   |   |   | 874    |   |   |   | 910 |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                                                  |   | $      | 526    |   |   | $      | 14,458 |   |   | $ | 13,925 |   |

----

| (Dollars      in thousands)                                                                                                                        |   | 2008   |   |   | 2007   |   |    | 2006   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
| Cash      flows from operating activities:                                                                                                         |   |   |   |   |   |   |    |   |   |
| Net      income                                                                                                                                    |   | $      | 526    |   |   | $      | 14,458  |   |   | $ | 13,925 |   |
| Adjustments      to reconcile net income to net                                                                                                    |   |   |   |   |   |   |    |   |   |   |   |   |
|      cash      provided by operating activities:                                                                          |   |   |   |   |   |   |    |   |   |   |   |   |
|      Equity      in undistributed (earnings) loss of banking subsidiary                                                   |   |   | 2,578  |   |   |   | (1,432  | )      |   |   | (6,059 | ) |
|      Other,      net                                                                                                      |   |   | 1,390  |   |   |   | (975    | )      |   |   | (1,682 | ) |
|                Net      cash provided by operating activities           |   |   | 4,494  |   |   |   | 12,051  |   |   |   | 6,184 |   |
|                                                                                                                                               |   |   |   |   |   |   |    |   |   |   |   |   |
| Cash      flows from investing activities:                                                                                                         |   |   |   |   |   |   |    |   |   |   |   |   |
| Investment      in First M&F Statutory Trust I                                                                                                 |   |   | -      |   |   |   | -       |   |   |   | (928 | ) |
| Proceeds      from sale of nonmarketable equity securities                                                                                         |   |   | -      |   |   |   | -       |   |   |   | 827 |   |
| Proceeds      from sale of land                                                                                                                    |   |   | -      |   |   |   | -       |   |   |   | 340 |   |
| Net      cash paid in acquisitions                                                                                                                 |   |   | -      |   |   |   | -       |   |   |   | (39,443 | ) |
|                Net      cash used in investing activities               |   |   | -      |   |   |   | -       |   |   |   | (39,204 | ) |
|                                                                                                                                               |   |   |   |   |   |   |    |   |   |   |   |   |
| Cash      flows from financing activities:                                                                                                         |   |   |   |   |   |   |    |   |   |   |   |   |
| Increase      (decrease) in note payable                                                                                                           |   |   | 500    |   |   |   | (8,500  | )      |   |   | 6,614 |   |
| Issuance      of junior subordinated debt                                                                                                          |   |   | -      |   |   |   | -       |   |   |   | 30,928 |   |
| Cash      dividends                                                                                                                                |   |   | (4,772 | )      |   |   | (4,772  | )      |   |   | (4,751 | ) |
| Common      shares issued                                                                                                                          |   |   | -      |   |   |   | 305     |   |   |   | 789 |   |
| Common      shares repurchased                                                                                                                     |   |   | (118   | )      |   |   | -       |   |   |   | - |   |
| Tax      benefits on stock option transactions                                                                                                     |   |   | -      |   |   |   | 87      |   |   |   | 394 |   |
| Cash      paid to cancel options                                                                                                                   |   |   | -      |   |   |   | (174    | )      |   |   | - |   |
|                Net      cash provided by (used in) financing activities |   |   | (4,390 | )      |   |   | (13,054 | )      |   |   | 33,974 |   |
|                                                                                                                                               |   |   |   |   |   |   |    |   |   |   |   |   |
|                Net      increase (decrease) in cash                     |   |   | 104    |   |   |   | (1,003  | )      |   |   | 954 |   |
|                                                                                                                                               |   |   |   |   |   |   |    |   |   |   |   |   |
| Cash      at January 1                                                                                                                             |   |   | 309    |   |   |   | 1,312   |   |   |   | 358 |   |
|                                                                                                                                               |   |   |   |   |   |   |    |   |   |   |   |   |
| Cash      at December 31                                                                                                                           |   | $      | 413    |   |   | $      | 309     |   |   | $ | 1,312 |   |

----

----

----

| (a)  | Management’s      Annual Report on Internal Control Over Financial  Reporting |
|-----------|-------------------------------------------------------------------------------------|

| (b)  | Report      of Independent Registered Public Accounting Firm  (on internal      control) |
|-----------|----------------------------------------------------------------------------------------------------|

| (c)  | Reports      of Independent Registered Public Accounting  Firms |
|-----------|-----------------------------------------------------------------|

| (d)  | Consolidated      Statements of Condition – December 31, 2008 and  2007 |
|-----------|-------------------------------------------------------------------------------|

| (e)  | Consolidated      Statements of Income – Years Ended December 31, 2008, 2007 and      2006 |
|-----------|--------------------------------------------------------------------------------------------------|

| (f)  | Consolidated      Statements of Comprehensive Income – Years Ended December 31, 2008, 2007      and 2006 |
|-----------|----------------------------------------------------------------------------------------------------------------|

| (g)  | Consolidated      Statements of Stockholders’ Equity – Years Ended December 31, 2008, 2007      and 2006 |
|-----------|----------------------------------------------------------------------------------------------------------------------|

| (h)  | Consolidated      Statements of Cash Flows – Years Ended December 31, 2008, 2007 and      2006 |
|-----------|------------------------------------------------------------------------------------------------------|

| (i)  | Notes      to Consolidated FinancialStatements |
|-----------|------------------------------------------------|

| 3      (A) | Articles      of Incorporation, as amended. Filed as Exhibit 3 to the Company's Form S-1      (File No. 33-08751) September 15, 1986, incorporated herein by      reference. |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3      (B) | Bylaws,      as amended. Filed as Exhibit 3-b to the Company's Form S-1 (File No.      33-08751) September 15, 1986, incorporated herein by      reference. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(A)  | First      M&F Corporation 2005 Equity Incentive Plan. Filed as Appendix A to the      Company’s Proxy Statement, March 15, 2005, incorporated herein by      reference |
|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(B) | Merchants      and Farmers Bank Profit and Savings Plan, as amended. Filed as Exhibit      10(B) to the Company’s Form 10-Q on August 9, 2005, incorporated      herein by reference |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 21  | Subsidiaries      of the Registrant |
|----------|-------------------------------------|

| 23  | Consent      of Independent Registered Public AccountingFirm |
|----------|--------------------------------------------------------------|

| 31 | Rule      13a-14(a) Certification of Hugh S. Potts, Jr., Chief Executive Officer and      Rule 13a-14(a) Certification of John G. Copeland, Chief Financial      Officer |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32 | Section      1350 Certification of Hugh S. Potts, Jr., Chief Executive Officer and      Section 1350 Certification of John G. Copeland, Chief Financial      Officer |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| BY:    | /s/      Hugh S. Potts, Jr.    |   | BY:    | /s/      John G. Copeland              |
|--------|--------------------------------|--------|--------|----------------------------------------|
|   | Hugh      S. Potts, Jr.        |   |   | John      G. Copeland                  |
|   | Chairman      of the Board and |   |   | EVP      & Chief Financial Officer |
|   | Chief      Executive Officer   |   |   |                                   |

|                                 |   | /s/      Hugh S. Potts, Jr.           |
|--------------------------------------|--------|---------------------------------------|
| DATE:  March      11, 2009 |   | Hugh      S. Potts, Jr., Director     |
|                                 |   |                                  |
|                                 |   | /s/      Scott M. Wiggers             |
| DATE:  March      11, 2009 |   | Scott      M. Wiggers, Director       |
|                                 |   |                                  |
|                                 |   | /s/      Hollis C. Cheek              |
| DATE:  March      11, 2009 |   | Hollis      C. Cheek, Director        |
|                                 |   |                                  |
|                                 |   | /s/      Jon A. Crocker               |
| DATE:  March      11, 2009 |   | Jon      A. Crocker, Director         |
|                                 |   |                                  |
|                                 |   | /s/      Toxey Hall, III              |
| DATE:  March      11, 2009 |   | Toxey      Hall, III, Director        |
|                                 |   |                                  |
|                                 |   | /s/      J. Marlin Ivey               |
| DATE:  March      11, 2009 |   | J.      Marlin Ivey, Director         |
|                                 |   |                                  |
|                                 |   | /s/      John Clark Love, III         |
| DATE:  March      11, 2009 |   | John      Clark Love, III, Director   |
|                                 |   |                                  |
|                                 |   | /s/      Susan P. McCaffery           |
| DATE:  March      11, 2009 |   | Susan      P. McCaffery, Director     |
|                                 |   |                                  |
|                                 |   | /s/      Michael L. Nelson            |
| DATE:  March      11, 2009 |   | Michael      L. Nelson, Director      |
|                                 |   |                                  |
|                                 |   | /s/      Otho E. Pettit, Jr.          |
| DATE:  March      11, 2009 |   | Otho      E. Pettit, Jr., Director    |
|                                 |   |                                  |
|                                 |   | /s/      Samuel B. Potts              |
| DATE:  March      11, 2009 |   | Samuel      B. Potts, Director        |
|                                 |   |                                  |
|                                 |   | /s/      Charles W. Ritter, Jr.       |
| DATE:  March      11, 2009 |   | Charles      W. Ritter, Jr., Director |
|                                 |   |                                  |
|                                 |   | /s/      L. F. Sams, Jr.              |
| DATE:  March      11, 2009 |   | L.      F. Sams, Jr., Director        |

----

|                                 |   | /s/      Michael W. Sanders       |
|--------------------------------------|--------|-----------------------------------|
| DATE:  March      11, 2009 |   | Michael      W. Sanders, Director |
|                                 |   |                              |
|                                 |   | /s/      Larry Terrell            |
| DATE:  March      11, 2009 |   | Larry      Terrell, Director      |
|                                 |   |                              |
|                                 |   | /s/      James I. Tims            |
| DATE:  March      11, 2009 |   | James      I. Tims, Director      |

| 3      (A) | Articles      of Incorporation, as amended. Filed as Exhibit 3 to the Company's Form S-1      (File No. 33-08751) September 15, 1986, incorporated herein by      reference. |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3      (B) | Bylaws,      as amended. Filed as Exhibit 3-b to the Company's Form S-1 (File No.      33-08751) September 15, 1986, incorporated herein by      reference. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(A)  | First      M&F Corporation 2005 Equity Incentive Plan. Filed as Appendix A to the      Company’s Proxy Statement, March 15, 2005, incorporated herein by      reference |
|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(B) | Merchants      and Farmers Bank Profit and Savings Plan, as amended. Filed as Exhibit      10(B) to the Company’s Form 10-Q on August 9, 2005, incorporated herein by      reference |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 21  | Subsidiaries      of the Registrant |
|----------|-------------------------------------|

| 23  | Consent      of Independent Registered Public AccountingFirm |
|----------|--------------------------------------------------------------|

| 31 | Rule      13a-14(a) Certification of Hugh S. Potts, Jr., Chief Executive Officer and      Rule 13a-14(a) Certification of John G. Copeland, Chief Financial      Officer |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32 | Section      1350 Certification of Hugh S. Potts, Jr., Chief Executive Officer and      Section 1350 Certification of John G. Copeland, Chief Financial      Officer |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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