----

Contents

| Management’s      Discussion and Analysis              | F-3    |
|--------------------------------------------------------------|--------|
|                                                         |   |
| Report      of Independent Registered Public Accounting Firm | F-16   |
|                                                         |   |
| Financial      Statements                                    |   |
|                                                         |   |
| Consolidated      Balance Sheets                             | F-17   |
| Consolidated      Statements of Operations                   | F-19   |
| Consolidated      Statements of Shareholders’ Equity   | F-20   |
| Consolidated      Statements of Cash Flows                   | F-21   |
| Notes      to Consolidated Financial Statements              | F-22   |

----

|   | MANAGEMENT’S      DISCUSSION AND ANALYSIS OF |
|--------|----------------------------------------------------|

|   |  FINANCIAL      CONDITION AND RESULTS OF OPERATIONS |
|--------|----------------------------------------------------------|

----

----

|                                            |   | Year      Ended December 31, |        |
|-------------------------------------------------|--------|------------------------------|-------------|
|                                            |   | 2007                         |        |   | 2006 |   |
|                                            |   | AverageBalance               |        |   | Interest |   |   | AverageRate |   |   | AverageBalance |   |   | Interest |   |   | AverageRate |   |
| Assets                                          |   |                         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,      net (1)                             |   | $                            | 298,195,000 |   |   | $ | 22,802,000 |   |   |   | 7.65 | % |   | $ | 254,008,000 |   |   | $ | 19,430,000 |   |   |   | 7.65 | % |
| Investment      securities (2)                  |   |                         | 57,350,000  |   |   |   | 2,374,000 |   |   |   | 4.14 |   |   |   | 60,436,000 |   |   |   | 2,410,000 |   |   |   | 3.99 |   |
| Federal      funds sold                         |   |                         | 9,452,000   |   |   |   | 485,000 |   |   |   | 5.13 |   |   |   | 8,222,000 |   |   |   | 417,000 |   |   |   | 5.07 |   |
| Due      from banks                             |   |                         | 3,420,000   |   |   |   | 173,000 |   |   |   | 5.04 |   |   |   | 5,633,000 |   |   |   | 289,000 |   |   |   | 5.13 |   |
| Total      interest-earning assets              |   |                         | 368,417,000 |   |   |   | 25,834,000 |   |   |   | 7.01 |   |   |   | 328,299,000 |   |   |   | 22,546,000 |   |   |   | 6.87 |   |
|                                            |   |                         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loan losses                  |   |                         | (2,610,000  | ) |   |   |   |   |   |   |   |   |   |   | (1,265,000 | ) |   |   |   |   |   |   |   |   |
| Other      assets                               |   |                         | 42,278,000  |   |   |   |   |   |   |   |   |   |   |   | 20,072,000 |   |   |   |   |   |   |   |   |   |
| Total      Assets                               |   | $                            | 408,085,000 |   |   |   |   |   |   |   |   |   |   | $ | 347,106,000 |   |   |   |   |   |   |   |   |   |
|                                            |   |                         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities      and shareholders’ equity |   |                         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time      deposits                              |   | $                            | 219,735,000 |   |   |   | 10,569,00 |   |   |   | 4.81 |   |   | $ | 185,903,000 |   |   |   | 8,012,000 |   |   |   | 4.31 |   |
|         NOW/MMDA/savings accounts     |   |                         | 99,205,00   |   |   |   | 2,263,000 |   |   |   | 2.28 |   |   |   | 79,511,000 |   |   |   | 1,923,000 |   |   |   | 2.42 |   |
| Borrowings                                      |   |                         | 6,327,000   |   |   |   | 371,000 |   |   |   | 5.86 |   |   |   | 12,247,000 |   |   |   | 417,000 |   |   |   | 3.41 |   |
| Total      interest-bearing liabilities         |   |                         | 325,267,000 |   |   |   | 13,203,00 |   |   |   | 4.06 |   |   |   | 277,661,000 |   |   |   | 10,352,000 |   |   |   | 3.73 |   |
|                                            |   |                         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing      demand                 |   |                         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| deposits                                        |   |                         | 41,166,000  |   |   |   |   |   |   |   |   |   |   |   | 33,928,000 |   |   |   |   |   |   |   |   |   |
| Other      liabilities                          |   |                         | 368,000     |   |   |   |   |   |   |   |   |   |   |   | 1,034,000 |   |   |   |   |   |   |   |   |   |
| Shareholders’      equity                 |   |                         | 41,284,000  |   |   |   |   |   |   |   |   |   |   |   | 34,483,000 |   |   |   |   |   |   |   |   |   |
| Total      liabilities and                      |   |                         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| shareholders’      equity                 |   | $                            | 408,085,000 |   |   |   |   |   |   |   |   |   |   | $ | 347,106,000 |   |   |   |   |   |   |   |   |   |
|                                            |   |                         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                        |   |                         |        |   |   |  $ | 12,631,00 |   |   |   |   |   |   |   |   |   |   | $ | 12,194,000 |   |   |   |   |   |
| Interest      rate spread (3)                   |   |                         |        |   |   |   |   |   |   |   | 2.95 |   |   |   |   |   |   |   |   |   |   |   | 3.14 |   |
| Net      interest margin (4)                    |   |                         |        |   |   |   |   |   |   |   | 3.43 |   |   |   |   |   |   |   |   |   |   |   | 3.71 |   |

----

|                                                             |   | Year      Ended December 31, 2007Compared      to Year EndedDecember      31, 2006 |      |   | Year      Ended December 31, 2006Compared      to Year EndedDecember      31, 2005 |   |
|------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|-----------|--------|------------------------------------------------------------------------------------|--------|
|                                                             |   | Variance      Due toChanges      In                                                |      |   |                                                                               |   |   | Variance      Due toChanges      In |   |   |   |   |
|                                                             |   | AverageVolume                                                                      |      |   | AverageRate                                                                        |   |   | NetIncrease/(Decrease) |   |   | AverageVolume |   |   | AverageRate |   |   | NetIncrease/(Decrease) |   |
| Interest      Income:                                            |   |                                                                               |      |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,      net                                                  |   | $                                                                                  | 3,372,000 |   |                                                                               | $      | - |   |   | $ | 3,372,000 |   |   | $ | 1,067,000 |   |   | $ | 1,858,000 |   |   | $ | 2,925,000 |   |
| Investment      securities                                       |   |                                                                               | (122,000  | )      |                                                                               |   | 86,000 |   |   |   | (36,000 | ) |   |   | (152,000 | ) |   |   | 135,000 |   |   |   | (17,000 | ) |
| Federal      funds sold and   due      from banks |   |                                                                               | (51,000   | )      |                                                                               |   | 3,000 |   |   |   | (48,000 | ) |   |   | 389,000 |   |   |   | 117,000 |   |   |   | 506,000 |   |
| Total      interest income                                       |   |                                                                               | 3,199,000 |   |                                                                               |   | 89,000 |   |   |   | 3,288,000 |   |   |   | 1,304,000 |   |   |   | 2,110,000 |   |   |   | 3,414,000 |   |
| Interest      Expense:                                           |   |                                                                               |      |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                         |   |                                                                               | 1,937,000 |   |                                                                               |   | 960,000 |   |   |   | 2,897,000 |   |   |   | 1,208,000 |   |   |   | 2,185,000 |   |   |   | 3,393,000 |   |
| Borrowed      funds                                              |   |                                                                               | (197,000  | )      |                                                                               |   | 151,000 |   |   |   | (46,000 | ) |   |   | (327,000 | ) |   |   | 133,000 |   |   |   | (194,000 | ) |
| Total      interest expense                                      |   |                                                                               | 1,740,000 |   |                                                                               |   | 1,111,000 |   |   |   | 2,851,000 |   |   |   | 881,000 |   |   |   | 2,318,000 |   |   |   | 3,199,000 |   |
| Net      interest income                                         |   | $                                                                                  | 1,459,000 |   |                                                                               | $      | (1,022,000 | ) |   | $ | 437,000 |   |   | $ | 423,000 |   |   | $ | (208,000 | ) |   | $ | 215,000 |   |

----

|                            |   | At      December 31, |        |
|---------------------------------|--------|----------------------|-------------|
|                            |   | 2007                 |        |   | 2006 |   |
| Commercial      loans           |   | $                    | 195,233,000 |   |   | $ | 167,581,000 |   |
| Residential      mortgage loans |   |                 | 61,791,000  |   |   |   | 27,684,000 |   |
| Consumer      loans             |   |                 | 55,186,000  |   |   |   | 48,018,000 |   |
| Total      loans                |   | $                    | 312,210,000 |   |   | $ | 243,283,000 |   |

----

|                                                      |   | At      December 31, |      |
|-----------------------------------------------------------|--------|----------------------|-----------|
|                                                      |   | 2007                 |      |   | 2006 |   |
| Loans      accruing, but past due 90 days or more         |   | $                    | 2,644,000 |   |   | $ | 178,000 |   |
| Non-accrual      loans                                    |   |                 | 4,538,000 |   |   |   | 268,000 |   |
| Total      non-performing loans                           |   |                 | 7,182,000 |   |   |   | 446,000 |   |
| OREO      and repossessed personal property               |   |                 | -         |   |   |   | - |   |
| Total      non-performing assets                          |   | $                    | 7,182,000 |   |   | $ | 446,000 |   |
|                                                      |   |                 |      |   |   |   |   |   |
| Non-performing      loans/Total loans (1)                 |   |                 | 2.30      | % |   |   | 0.18 | % |
| Non-performing      assets/Total assets                   |   |                 | 1.75      | % |   |   | 0.13 | % |
| Allowance      for loan losses/Total non-performing loans |   |                 | 40.25     | % |   |   | 394.62 | % |

----

|                            |   | At      December 31, |      |
|---------------------------------|--------|----------------------|-----------|
|                            |   | 2007                 |      |   | 2006 |   |
|                            |   |                 |      |   | %      of Loans in |   |   |   |   |   | %      of Loans in |   |
|                            |   |                 |      |   | Each      Category |   |   |   |   |   | Each      Category |   |
|                            |   | Amount               |      |   | to      Total Loans |   |   | Amount |   |   | to      Total Loans |   |
| Allocation      of allowance    |   |                 |      |   |   |   |   |   |   |   |   |   |
| for      loan losses:           |   |                 |      |   |   |   |   |   |   |   |   |   |
| Commercial      loans           |   | $                    | 2,596,000 |   |   |   | 62 | % |   | $ | 1,570,000 |   |   |   | 69 | % |
| Consumer      loans             |   |                 | 141,000   |   |   |   | 18 |   |   |   | 120,000 |   |   |   | 20 |   |
| Residential      mortgage loans |   |                 | 154,000   |   |   |   | 20 |   |   |   | 70,000 |   |   |   | 11 |   |
| Total                           |   | $                    | 2,891,000 |   |   |   | 100 | % |   | $ | 1,760,000 |   |   |   | 100 | % |

|                                                         |   | Year      Ended December 31, |        |
|--------------------------------------------------------------|--------|------------------------------|-------------|
|                                                         |   | 2007                         |        |   | 2006 |   |
| Balance      at beginning of period                          |   | $                            | 1,760,000   |   |   | $ | 1,154,000 |   |
| Charge-offs:                                                 |   |                         |        |   |   |   |   |   |
| Commercial      loans                                        |   |                         | (242,000    | ) |   |   | - |   |
| Consumer      loans                                          |   |                         | (58,000     | ) |   |   | (1,000 | ) |
| Residential      mortgage loans                              |   |                         | -           |   |   |   | - |   |
|                                                         |   |                         | (300,000    | ) |   |   | (1,000 | ) |
| Recoveries:                                                  |   |                         |        |   |   |   |   |   |
| Commercial      loans                                        |   |                         | 1,000       |   |   |   | 1,000 |   |
| Consumer      loans                                          |   |                         | 3,000       |   |   |   | 1,000 |   |
| Residential      mortgage loans                              |   |                         | 8,000       |   |   |   | - |   |
|                                                         |   |                         | 12,000      |   |   |   | 2,000 |   |
| Net      recoveries (charge-offs)                            |   |                         | (288,000    | ) |   |   | 1,000 |   |
| Provision      for loan loss                                 |   |                         | 401,000     |   |   |   | 605,000 |   |
| Allowance      for credit losses in acquired bank            |   |                         | 1,018,000   |   |   |   | - |   |
| Balance      at end of period                                |   | $                            | 2,891,000   |   |   | $ | 1,760,000 |   |
|                                                         |   |                         |        |   |   |   |   |   |
| Average      loans outstanding (1)                           |   | $                            | 302,834,000 |   |   | $ | 254,693,000 |   |
|                                                         |   |                         |        |   |   |   |   |   |
| Net      charge-offs as a percentage of average loans        |   |                         | 0.10        | % |   |   | 0.00 | % |
|                                                         |   |                         |        |   |   |   |   |   |
| (1)      Includes loans held for sale and non-accruing loans |   |                         |        |   |   |   |   |   |

----

|                                                    |   | At      December 31, |       |
|---------------------------------------------------------|--------|----------------------|------------|
|                                                    |   | 2007                 |       |   | 2007 |   |   | 2006 |   |   | 2006 |   |
|                                                    |   |                 |       |   |   |   |   |   |   |   |   |   |
|                                                    |   | Amortized            |       |   | Estimated |   |   | Amortized |   |   | Estimated |   |
|                                                    |   | Cost                 |       |   | Fair      Value |   |   | Cost |   |   | Fair      Value |   |
| Investment      Securities Available-for-Sale           |   |                 |       |   |   |   |   |   |   |   |   |   |
| U.S.      Government agencies                           |   |                 |       |   |   |   |   |   |   |   |   |   |
| and      corporations                                   |   | $                    | 29,267,000 |   |   | $ | 29,257,000 |   |   | $ | 30,263,000 |   |   | $ | 29,559,000 |   |
| Municipalities                                          |   |                 | 7,324,000  |   |   |   | 7,310,000 |   |   |   | 4,507,000 |   |   |   | 4,398,000 |   |
| Mortgage-backed      securities                         |   |                 | 11,563,000 |   |   |   | 11,528,000 |   |   |   | 13,856,000 |   |   |   | 13,569,000 |   |
| Total      investment securities                        |   |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available-for-Sale                                      |   | $                    | 48,154,000 |   |   | $ | 48,095,000 |   |   | $ | 48,626,000 |   |   | $ | 47,526,000 |   |
|                                                    |   |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment      Securities Held-to-Maturity             |   |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.      Government agenciesand      corporations      |   |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                    | $      | 100,000              |       |   | $ | 100,000 |   |   | $ | 25,000 |   |   | $ | 25,000 |   |
| Municipalities                                          |   |                 | -          |   |   |   | - |   |   |   | 875,000 |   |   |   | 875,000 |   |
|     Mortgage-backed      securities |   |                 | 6,754,000  |   |   |   | 6,697,000 |   |   |   | 8,392,000 |   |   |   | 8,187,000 |   |
| Total      investment securities                        |   |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Held-to-Maturity                |   | $                    | 6,854,000  |   |   | $ | 6,797,000 |   |   | $ | 9,292,000 |   |   | $ | 9,087,000 |   |

|                       |                                       | At      December 31, 2007                                             |
|----------------------------|--------------------------------------------|-----------------------------------------------------------------------|
|                       |                                       | Within      1 Year                                                    |   | After      1 Year Through      5 Years |   | After      5 YearsThrough      10 Years |   | After      10 Years |   | Total |
|                       |
|                       |                                       |                                                                  |   | Amount |   |  Yield |   |        Amount |   |        Yield |   |        Amount |   |        Yield |   |        Amount |   |        Yield |   |        Amount |   | Yield |
|                       | (Dollars      in thousands)                |
| Investment      Securities |                                       |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       |                                       |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       | Available-for-Sale      at amortized cost: |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       |                                       | U.S.      Government agencies and    corporations | $   4,900 |   | 3.18% |   | $23,367 |   | 4.17% |   | $  1,000 |   | 6.15% |   | $         - |   |       - |   | $29,267 |   | 4.07% |
|                       |                                       | Municipalities                                                        | - |   |        - |   | - |   |       - |   | 1,271 |   | 5.03% |   | 6,053 |   | 6.40% |   | 7,324 |   | 6.18% |
|                       |                                       | Mortgage-backed      securities                                       | 237 |   |   4.20% |   | 2,444 |   | 4.26% |   | 957 |   | 4.05% |   | 7,925 |   | 4.59% |   | 11,563 |   | 4.47% |
|                       |                                       | Total      securities available-for-sale                              | $   5,137 |   | 3.23% |   | $25,811 |   | 4.18% |   | $  3,228 |   | 5.09% |   | $13,978 |   | 5.37% |   | $48,154 |   | 4.49% |
|                       |                                       |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       | Held-to-Maturity      at amortized cost:   |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       |                                       | U.S.      Government agencies and    corporations | $       100 |   | 1.00% |   | $         - |   |       - |   | $         - |   | - |   | $         - |   |       - |   | $     100 |   | 1.00% |
|                       |                                       | Mortgage-backed      securities                                       | 300 |   |   3.83% |   | 2,777 |   | 4.03% |   | 870 |   | 3.91% |   | 2,807 |   | 4.36% |   | 6,754 |   | 4.15% |
|                       |                                       | Total      securities held-to-maturity                                | $      400 |   | 3.13% |   | $      2,777 |   | 4.03% |   | $    870 |   | 3.91% |   | $      2,807 |   | 4.36% |   | $  6,854 |   | 4.10% |

----

|                       |                                       | At      December 31, 2006                     |
|----------------------------|--------------------------------------------|-----------------------------------------------|
|                       | Within      1 Year                         | After      1 YearThrough      5 Years         | After      5 YearsThrough      10 Years | After      10 Years | Total |
|                       |                                       |
|                       |                                       |                                          |   | Amount |   | Yield | Amount |   | Yield | Amount |   | Yield | Amount |   | Yield | Amount |   | Yield |
|                       | (Dollars      in thousands)                |
| Investment      Securities |                                       |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       |                                       |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       | Available-for-Sale      at amortized cost: |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       |                                       | U.S.      Government agencies andcorporations | $   1,000 |   | 2.74% | $25,513 |   | 3.94% | $  3,750 |   | 5.32% | $         - |   |       - | $30,263 |   | 4.07% |
|                       |                                       | Municipalities                                | - |   |        - | - |   | - | 1,271 |   | 4.50% | 3,236 |   | 5.52% | 4,507 |   | 5.23% |
|                       |                                       | Mortgage-backed      securities               | - |   |        - | 3,298 |   | 4.17% | 1,211 |   | 3.97% | 9,347 |   | 4.51% | 13,856 |   | 4.38% |
|                       |                                       | Total      securities available-for-sale      | $   1,000 |   |  2.74% | $28,811 |   | 3.97% | $  6,232 |   | 4.89% | $12,583 |   | 4.77% | $48,626 |   | 4.27% |
|                       |                                       |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       | Held-to-Maturity      at amortized cost:   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       |                                       | U.S.      Government agencies andcorporations | $        25 |   | 1.00% | $         - |   |       - | $         - |   |               - | $        - |   |       - | $       25 |   | 1.00% |
|                       |                                       | Municipalities                                | 875 |   | 2.96% | - |   |       - | - |   | - | - |   |       - | 875 |   | 2.96% |
|                       |                                       | Mortgage-backed      securities               | - |   |       - | 3,668 |   | 3.94% | 1,115 |   | 3.88% | 3,609 |   | 4.05% | 8,392 |   | 3.98% |
|                       |                                       | Total      securities held-to-maturity        | $      900 |   | 2.91% | $      3,668 |   | 3.94% | $      1,115 |   | 3.88% | $      3,609 |   | 4.05% | $  9,292 |   | 3.88% |

|                                     |   | At      December 31, |        |
|------------------------------------------|--------|----------------------|-------------|
|                                     |   | 2007                 |        |   | 2006 |   |
|                                     |   | Amount               |        |   | % |   |   | Amount |   |   | % |   |
| Noninterest-bearing      demand deposits |   | $                    | 37,246,000  |   |   |   | 10.7 | % |   | $ | 39,021,000 |   |   |   | 13.2 | % |
| Interest-bearing      demand deposits    |   |                 | 59,207,000  |   |   |   | 17.0 |   |   |   | 48,593,000 |   |   |   | 16.5 |   |
| Savings      deposits                    |   |                 | 45,791,000  |   |   |   | 13.1 |   |   |   | 27,195,000 |   |   |   | 9.2 |   |
| Time      deposits, under $100,000       |   |                 | 167,563,000 |   |   |   | 48.0 |   |   |   | 146,284,000 |   |   |   | 49.5 |   |
| Time      deposits, $100,000 or more     |   |                 | 39,151,000  |   |   |   | 11.2 |   |   |   | 34,197,000 |   |   |   | 11.6 |   |
| Total      Deposits                      |   | $                    | 348,958,000 |   |   |   | 100.0 | % |   | $ | 295,290,000 |   |   |   | 100.0 | % |

|                                 |   | At      December 31, |       |
|--------------------------------------|--------|----------------------|------------|
|                                 |   | 2007                 |       |   | 2006 |   |
| 3      months or less                |   | $                    | 28,711,000 |   |   | $ | 26,351,000 |   |
| Over      3 months through 6 months  |   |                 | 5,420,000  |   |   |   | 2,057,000 |   |
| Over      6 months through 12 months |   |                 | 2,525,000  |   |   |   | 4,033,000 |   |
| Over      1 year                     |   |                 | 2,495,000  |   |   |   | 1,756,000 |   |
| Total                                |   | $                    | 39,151,000 |   |   | $ | 34,197,000 |   |

----

|                                                   |   | Year      Ended December 31, 2007 |        |
|--------------------------------------------------------|--------|-----------------------------------|-------------|
|                                                   |   | Daily      Average                |        |   | Average |   |   | Percent |   |
|                                                   |   | Balance                           |        |   | Rate |   |   | Of      Total |   |
| NOW      & money market savings deposits           |   | $                                 | 60,776,000  |   |   |   | 2.1 | % |   |   | 16.9 | % |
| Regular      savings deposits                          |   |                              | 38,429,000  |   |   |   | 2.6 |   |   |   | 10.7 |   |
| Time      deposits                                     |   |                              | 219,735,000 |   |   |   | 4.8 |   |   |   | 61.0 |   |
|    Total      interest-bearing deposits |   |                              | 318,940,000 |   |   |   |   |   |   |   | 88.6 |   |
| Noninterest-bearing      demand deposits               |   |                              | 41,166,000  |   |   |   |   |   |   |   | 11.4 |   |
|    Total      deposits                  |   | $                                 | 360,106,000 |   |   |   |   |   |   |   | 100.0 | % |
|                                                   |   |                              |        |   |   |   |   |   |   |   |   |   |
|                                                   |   | Year      Ended December 31, 2006 |        |
|                                                   |   | Daily      Average                |        |   | Average |   |   | Percent |   |
|                                                   |   | Balance                           |        |   | Rate |   |   | Of      Total |   |
| NOW      & money market savings deposits           |   | $                                 | 52,753,000  |   |   |   | 2.4 | % |   |   | 17.6 | % |
| Regular      savings deposits                          |   |                              | 26,758,000  |   |   |   | 2.5 |   |   |   | 9.0 |   |
| Time      deposits                                     |   |                              | 185,903,000 |   |   |   | 4.3 |   |   |   | 62.1 |   |
|    Total      interest-bearing deposits |   |                              | 265,414,000 |   |   |   |   |   |   |   | 88.7 |   |
| Noninterest-bearing      demand deposits               |   |                              | 33,928,000  |   |   |   |   |   |   |   | 11.3 |   |
|    Total      deposits                  |   | $                                 | 299,342,000 |   |   |   |   |   |   |   | 100.0 | % |

|                                        | At      December 31, |
|---------------------------------------------|----------------------|
|                                        | 2007                 |   | 2006 |
| Return      (Loss) on average assets        | (0.12)%              |   | 0.21% |
| Return      (Loss) on average equity        | (1.22)%              |   | 2.14% |
| Dividend      payout ratio                  | N/M                  |   | 80.00% |
| Average      equity to average assets ratio | 10.12%               |   | 9.93% |

----

|                                        |   | “Well      Capitalized” |   | Actual      atDecember      31, 2007 |   | Actual      atDecember      31, 2006 |
|---------------------------------------------|--------|-------------------------------------|--------|--------------------------------------|--------|--------------------------------------|
| Leverage      ratio (1)                     |   | 5.00%                               |   | 8.28%                                |   | 10.39%                               |
|                                        |   |                                |   |                                 |   |                                 |
| Tier      I capital to risk-weighted assets |   | 6.00%                               |   | 10.21%                               |   | 13.09%                               |
|                                        |   |                                |   |                                 |   |                                 |
| Total      capital to risk-weighted assets  |   | 10.00%                              |   | 11.13%                               |   | 13.77%                               |

----

| Years      Ending December 31, |                                                                                                                                  |
|--------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
| 2008                           |  $                  641,000            |
| 2009                           |                      581,000 |
| 2010                           |                      593,000 |
| 2011                           |                      609,000 |
| 2012                           |                      604,000 |
| Thereafter                     |                   4,554,000                 |
|                           |  $               7,582,000                            |

----

|                                             |   | At      December 31, 2007        |     |
|--------------------------------------------------|--------|----------------------------------|----------|
|                                             |   |  3      months or      less |     |   | Over      3 months through      1 year |   |   | Over      1 year      through      3 years |   |   | Over      3 years through      5 years |   |   | Over      5 years      through      15years |   |   |  Over15 years |   |   |   Total |   |
|                                             |   | (In      thousands)              |     |
| Interest-Earning      Assets:                    |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans      (1)                                   |   | $                                | 86,763   |   |   | $ | 39,760 |   |   | $ | 41,953 |   |   | $ | 27,496 |   |   | $ | 33,320 |   |   | $ | 78,770 |   |   | $ | 308,062 |   |
| Investment      securities:                      |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held-to-maturity                                 |   |                             | 265      |   |   |   | 1,588 |   |   |   | 2,694 |   |   |   | 1,437 |   |   |   | 870 |   |   |   | - |   |   |   | 6,854 |   |
| Available-for-sale                               |   |                             | 305      |   |   |   | 6,748 |   |   |   | 25,029 |   |   |   | 5,490 |   |   |   | 10,545 |   |   |   | 37 |   |   |   | 48,154 |   |
| Restricted      stock                            |   |                             | 2,229    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,229 |   |
| Federal      funds sold                          |   |                             | 234      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 234 |   |
| Due      from banks                              |   |                             | 69       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 69 |   |
|                                             |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-earning                      |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        assets                               |   | $                                | 89,865   |   |   | $ | 48,096 |   |   | $ | 69,676 |   |   | $ | 34,423 |   |   | $ | 44,735 |   |   | $ | 78,807 |   |   | $ | 365,602 |   |
|                                             |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-Bearing      Liabilities:               |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings      deposits                            |   | $                                | 45,791   |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 45,791 |   |
| NOW      and MMDA                                |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| deposits                                         |   |                             | 59,207   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59,207 |   |
| Time      deposits                               |   |                             | 84,671   |   |   |   | 100,410 |   |   |   | 20,734 |   |   |   | 899 |   |   |   | - |   |   |   | - |   |   |   | 206,714 |   |
| Borrowings                                       |   |                             | 9,500    |   |   |   | - |   |   |   | 1,000 |   |   |   | 6,186 |   |   |   | - |   |   |   | - |   |   |   | 16,686 |   |
|                                             |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-bearing liabilities          |   | $                                | 199,169  |   |   | $ | 100,410 |   |   | $ | 21,734 |   |   | $ | 7,085 |   |   | $ | - |   |   | $ | - |   |   | $ | 328,398 |   |
|                                             |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      rate sensitive gap                 |   | $                                | (109,304 | ) |   | $ | (52,314 | ) |   | $ | 47,942 |   |   | $ | 27,338 |   |   | $ | 44,735 |   |   | $ | 78,807 |   |   | $ | 37,204 |   |
|                                             |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative      interest rate sensitive      gap |   | $                                | (109,304 | ) |   | $ | (161,618 | ) |   | $ | (113,676 | ) |   | $ | (86,338 | ) |   | $ | (41,603 | ) |   | $ | 37,204 |   |   |   |   |   |
|                                             |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative      gap/Total assets                 |   |                             | (26.6    | %) |   |   | (39.4 | %) |   |   | (27.7 | %) |   |   | (21.0 | %) |   |   | (10.1 | %) |   |   | 9.1 | % |   |   |   |   |
|                                             |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

----

| Sterling      Banks, Inc.                                                         |   |   |        |   |   |   |
|-----------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                              |   |   |        |   |   |   |
| Consolidated      Balance Sheets                                                  |   |   |        |   |   |   |
| December  31,      2007 and 2006                                        |   |   |        |   |   |   |
|                                                                              |   |   |        |   |   |   |
|                                                                              |   |   |        |   |   |   |
| Assets                                                                            |   | 2007   |        |   | 2006   |   |
|                                                                              |   |   |        |   |   |   |
| Cash      and cash due from banks                                                 |   | $      | 11,554,000  |   |   | $      | 16,064,000 |   |
| Federal      funds sold                                                           |   |   | 234,000     |   |   |   | 6,878,000 |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Cash      and cash equivalents                                                    |   |   | 11,788,000  |   |   |   | 22,942,000 |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Investment      securities held-to-maturity, at cost (fair value of    $6,797,000 |   |   |        |   |   |   |   |   |
| and      $9,087,000 at December 31, 2007 and 2006, respectively)                  |   |   | 6,854,000   |   |   |   | 9,292,000 |   |
| Investment      securities available-for-sale, at fair value                      |   |   | 48,095,000  |   |   |   | 47,526,000 |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Total      investment securities                                                  |   |   | 54,949,000  |   |   |   | 56,818,000 |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Restricted      stock, at cost                                                    |   |   | 2,229,000   |   |   |   | 1,436,000 |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Loans      held for sale                                                          |   |   | 38,000      |   |   |   | 1,618,000 |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Loans                                                                             |   |   | 312,210,000 |   |   |   | 243,283,000 |   |
| Less:      allowance for loan losses                                              |   |   | (2,891,000  | )      |   |   | (1,760,000 | ) |
|                                                                              |   |   |        |   |   |   |   |   |
| Net      loans                                                                    |   |   | 309,319,000 |   |   |   | 241,523,000 |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Goodwill      and core deposit intangible asset, net                              |   |   | 14,924,000  |   |   |   | - |   |
| Bank      premises and equipment, net                                             |   |   | 9,751,000   |   |   |   | 6,922,000 |   |
| Accrued      interest receivable and other assets                                 |   |   | 7,487,000   |   |   |   | 5,989,000 |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Total      assets                                                                 |   | $      | 410,485,000 |   |   | $      | 337,248,000 |   |

----

| Sterling      Banks, Inc.                                                            |   |   |        |   |   |   |
|--------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                                 |   |   |        |   |   |   |
| Consolidated      Balance Sheets                                                     |   |   |        |   |   |   |
| December  31,      2007 and 2006                                           |   |   |        |   |   |   |
|                                                                                 |   |   |        |   |   |   |
|                                                                                 |   |   |        |   |   |   |
| Liabilities      and Shareholders' Equity                                            |   | 2007   |        |   | 2006   |   |
|                                                                                 |   |   |        |   |   |   |
| Liabilities                                                                          |   |   |        |   |   |   |
| Deposits:                                                                            |   |   |        |   |   |   |
| Noninterest-bearing                                                                  |   | $      | 37,246,000  |   |   | $      | 39,021,000 |   |
| Interest-bearing                                                                     |   |   | 311,712,000 |   |   |   | 256,269,000 |   |
|                                                                                 |   |   |        |   |   |   |   |   |
| Total      deposits                                                                  |   |   | 348,958,000 |   |   |   | 295,290,000 |   |
|                                                                                 |   |   |        |   |   |   |   |   |
| Federal      Home Loan Bank advances                                                 |   |   | 10,500,000  |   |   |   | 5,885,000 |   |
| Subordinated      debentures                                                         |   |   | 6,186,000   |   |   |   | - |   |
| Accrued      interest payable and other accrued liabilities                          |   |   | 1,533,000   |   |   |   | 1,305,000 |   |
|                                                                                 |   |   |        |   |   |   |   |   |
| Total      liabilities                                                               |   |   | 367,177,000 |   |   |   | 302,480,000 |   |
|                                                                                 |   |   |        |   |   |   |   |   |
| Commitments      and Contingencies (Notes 8, 9 and 16)                               |   |   |        |   |   |   |   |   |
|                                                                                 |   |   |        |   |   |   |   |   |
| Shareholders'      Equity                                                            |   |   |        |   |   |   |   |   |
| Common      stock,                                                                   |   |   |        |   |   |   |   |   |
| $2      par value, 15,000,000 shares authorized; 5,843,362 and 4,783,568      shares |   |   |        |   |   |   |   |   |
| issued      and outstanding at December 31, 2007 and 2006,respectively               |   |   | 11,687,000  |   |   |   | 9,567,000 |   |
| Additional      paid-in capital                                                      |   |   | 29,708,000  |   |   |   | 22,930,000 |   |
| Retained      earnings                                                               |   |   | 1,949,000   |   |   |   | 2,931,000 |   |
| Accumulated      other comprehensive loss                                            |   |   | (36,000     | )      |   |   | (660,000 | ) |
|                                                                                 |   |   |        |   |   |   |   |   |
| Total      shareholders' equity                                                      |   |   | 43,308,000  |   |   |   | 34,768,000 |   |
|                                                                                 |   |   |        |   |   |   |   |   |
| Total      liabilities and shareholders' equity                                      |   | $      | 410,485,000 |   |   | $      | 337,248,000 |   |
|                                                                                 |   |   |        |   |   |   |   |   |
| See      Notes to Consolidated Financial Statements.                                 |   |   |        |   |   |   |   |   |

----

| Sterling Banks,      Inc.                                                |   |   |       |   |   |   |
|--------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                                                     |   |   |       |   |   |   |
| Consolidated Statements of Operations                                    |   |   |       |   |   |   |
| Years      Ended December 31, 2007 and 2006                              |   |   |       |   |   |   |
|                                                                     |   |   |       |   |   |   |
|                                                                     |   | 2007   |       |   | 2006   |   |
| Interest      and dividend income                                        |   |   |       |   |   |   |
| Interest      and fees on loans                                          |   | $      | 22,802,000 |   |   | $      | 19,430,000 |   |
| Interest      and dividends on securities                                |   |   | 2,374,000  |   |   |   | 2,410,000 |   |
| Interest      on due from banks                                          |   |   | 173,000    |   |   |   | 289,000 |   |
| Interest      on Federal funds sold                                      |   |   | 485,000    |   |   |   | 417,000 |   |
| Total      interest and dividend income                                  |   |   | 25,834,000 |   |   |   | 22,546,000 |   |
|                                                                     |   |   |       |   |   |   |   |   |
| Interest      expense                                                    |   |   |       |   |   |   |   |   |
| Interest      on deposits                                                |   |   | 12,832,000 |   |   |   | 9,935,000 |   |
| Interest      on Federal Home Loan Bank advances and overnightborrowings |   |   | 93,000     |   |   |   | 417,000 |   |
| Interest      on subordinated debentures                                 |   |   | 278,000    |   |   |   | - |   |
| Total      interest expense                                              |   |   | 13,203,000 |   |   |   | 10,352,000 |   |
|                                                                     |   |   |       |   |   |   |   |   |
| Net      interest income                                                 |   |   | 12,631,000 |   |   |   | 12,194,000 |   |
|                                                                     |   |   |       |   |   |   |   |   |
| Provision      for loan losses                                           |   |   | 401,000    |   |   |   | 605,000 |   |
|                                                                     |   |   |       |   |   |   |   |   |
| Net      interest income after provision for loan losses                 |   |   | 12,230,000 |   |   |   | 11,589,000 |   |
|                                                                     |   |   |       |   |   |   |   |   |
| Noninterest      income                                                  |   |   |       |   |   |   |   |   |
| Service      charges                                                     |   |   | 280,000    |   |   |   | 249,000 |   |
| Miscellaneous      fees and other                                        |   |   | 638,000    |   |   |   | 402,000 |   |
| Total      noninterest income                                            |   |   | 918,000    |   |   |   | 651,000 |   |
|                                                                     |   |   |       |   |   |   |   |   |
| Noninterest      expenses                                                |   |   |       |   |   |   |   |   |
| Compensation      and benefits                                           |   |   | 7,235,000  |   |   |   | 6,212,000 |   |
| Occupancy,      equipment and data processing                            |   |   | 3,470,000  |   |   |   | 2,873,000 |   |
| Marketing      and business development                                  |   |   | 741,000    |   |   |   | 605,000 |   |
| Professional      services                                               |   |   | 850,000    |   |   |   | 486,000 |   |
| Amortization      of core deposit intangible asset                       |   |   | 275,000    |   |   |   | - |   |
| Other      operating expenses                                            |   |   | 1,351,000  |   |   |   | 874,000 |   |
| Total      noninterest expenses                                          |   |   | 13,922,000 |   |   |   | 11,050,000 |   |
|                                                                     |   |   |       |   |   |   |   |   |
| Income      (Loss) before income tax expense                             |   |   | (774,000   | )      |   |   | 1,190,000 |   |
|                                                                     |   |   |       |   |   |   |   |   |
| Income      tax expense (benefit)                                        |   |   | (269,000   | )      |   |   | 452,000 |   |
|                                                                     |   |   |       |   |   |   |   |   |
| Net      income (loss)                                                   |   | $      | (505,000   | )      |   | $      | 738,000 |   |
|                                                                     |   |   |       |   |   |   |   |   |
| Net      income (loss) per common share:                                 |   |   |       |   |   |   |   |   |
| Basic                                                                    |   | $      | (0.09      | )      |   | $      | 0.15 |   |
| Diluted                                                                  |   | $      | (0.09      | )      |   | $      | 0.14 |   |
| Weighted      average shares outstanding:                                |   |   |       |   |   |   |   |   |
| Basic                                                                    |   |   | 5,676,000  |   |   |   | 5,011,000 |   |
| Diluted                                                                  |   |   | 5,676,000  |   |   |   | 5,107,000 |   |
|                                                                     |   |   |       |   |   |   |   |   |
| See      Notes to Consolidated Financial Statements.                     |   |   |       |   |   |   |   |   |

----

| Sterling Banks,      Inc.                                                                                          |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|--------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| Consolidated Statements of Shareholders'      Equity                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |
| Years      Ended December 31, 2007 and 2006                                                                        |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    | Accumulated                                                                                                                                       |                                                                                                                                                                                                                                                               |
|                                                                                                               |                                                                                                    |                                                                                                                | Additional                                                                                                          |                                                                                                    | Other                                                                                                                                             | Total                                                                                                                                                                                                                                                              |
|                                                                                                               | Common      Stock                                                                                       | Paid-In                                                                                                             | Retained                                                                                                            | Comprehensive                                                                                           | Shareholders'                                                                                                                                     |
|                                                                                                               | Shares                                                                                                  | Amount                                                                                                              | Capital                                                                                                             | Earnings                                                                                                | Income      (Loss)                                                                                                                                | Equity                                                                                                                                                                                                                                                             |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| December      31, 2005                                                                                             |     4,536,452                                                                       |  $9,073,000                                                                                                    |  $23,263,000                                                                                                   | $2,746,000                                                                                              |            $(834,000))                                                                     |      $34,248,000                                                                                                                                                                                                                          |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| Comprehensive      income:                                                                                         |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|    Net      income                                                                                  |                 -       |                    - |                    - |   738,000                                                                                     |                         - |          738,000                                                                                                                                                                                                      |
|    Change      in net unrealized loss on                                                            |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|        securities      available-for-sale, net of                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|        reclassification      adjustment and tax                                 |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|        effects                                                                  |                  - |                    - |                    - |                  - |            174,000                                                                         |      174,000                                                                                                                                                                                                                              |
|       Total      comprehensive income                                                |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |          912,000                                                                                                                                                                                                      |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| Cash      dividends paid ($0.12 per share)                                                                         |                  - |                    - |                    - |    (553,000))                                                                            |                         - |           (553,000))                                                                                                                                                                                             |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| 5%      common stock dividend                                                                                      |      227,181                                                                   |         454,000                                                             |      (454,000))                                                                            |                  - |                         - |               -                                                                                                                                                                              |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| Stock      compensation                                                                                            |                  - |                    - |           12,000                                                  |                  - |                         - |                                           12,000 |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| Net      proceeds from issuance of common                                                                          |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|    stock                                                                                            |     19,935                                                                          |        40,000                                                                    |      109,000                                                                               |                  - |                         - |        149,000                                                                                                                                                                                                                  |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| December      31, 2006                                                                                             |     4,783,568                                                                       |  9,567,000                                                                                                     |    22,930,000                                                                                        | 2,931,000                                                                                               |              (660,000))                                                          |        34,768,000                                                                                                                                                                                                               |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| Comprehensive      income:                                                                                         |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|    Net      loss                                                                                    |                  - |                    - |                    - |  (505,000))                                                                                        |                         - |         (505,000))                                                                                                                                                                                                         |
|    Change      in net unrealized loss on                                                            |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|        securities      available-for-sale, net of                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|        reclassification      adjustment and tax                                 |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|        effects                                                                  |                  - |                    - |                    - |                  - |            624,000                                                                         |             624,000                                                                                                                                                                                    |
|       Total      comprehensive income                                                |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |          119,000                                                                                                                                                                                                      |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| Cash      dividends paid ($0.09 per share)                                                                         |                  - |                    - |                    - |    (477,000))                                                                            |                         - |           (477,000))                                                                                                                                                                                             |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| Common      stock split effected in the form      of      a 5% common stock dividend |      277,863                                                                   |         556,000                                                             |      (558,000))                                                                            |                  - |                         - |               (2,000))                                                                                                                                                                       |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| Stock      compensation                                                                                            |                  - |                    - |           26,000                                                  |                  - |                         - |                                           26,000 |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| Net      proceeds from issuance of common                                                                          |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
|    stock                                                                                            |     13,493                                                                          |       27,000                                                                          |      64,000                                                                                |                  - |                         - |        91,000                                                                                                                                                                                                                   |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| Acquisition      of Farnsworth Bancorp, Inc.                                                                       | 768,438                                                                                                 | 1,537,000                                                                                                           | 7,246,000                                                                                                           | -                                                                                                       | -                                                                                                                                                 | 8,783,000                                                                                                                                                                                                                                                          |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| December      31, 2007                                                                                             |     5,843,362                                                                       |  $11,687,000                                                                                                   |  $29,708,000                                                                                                   | $1,949,000                                                                                              |              $     (36,000))                                                               |  $          43,308,000                                                                                                                                                                                                                    |
|                                                                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |                                                                                                                                                                                                                                                               |
| See      Notes to Consolidated Financial Statements.                                                               |                                                                                                    |                                                                                                                |                                                                                                                |                                                                                                    |                                                                                                                                              |

----

| Sterling Banks, Inc.                                                                        |   |   |        |   |   |   |
|---------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                                        |   |   |        |   |   |   |
| Consolidated Statements of CashFlows                                                        |   |   |        |   |   |   |
| Years      Ended December 31, 2007 and 2006                                                 |   |   |        |   |   |   |
|                                                                                        |   |   |        |   |   |   |
|                                                                                        |   | 2007   |        |   | 2006   |   |
| Cash      Flows From Operating Activities                                                   |   |   |        |   |   |   |
| Net      income (loss)                                                                      |   | $      | (505,000    | )      |   | $      | 738,000 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities: |   |   |        |   |   |   |   |   |
| Depreciation      and amortization of premises and equipment                                |   |   | 1,020,000   |   |   |   | 913,000 |   |
| Provision      for loan losses                                                              |   |   | 401,000     |   |   |   | 605,000 |   |
| Net      amortization of purchase premiums and discounts on    securities                   |   |   | 49,000      |   |   |   | 87,000 |   |
| Net      amortization of core deposit intangible                                            |   |   | 275,000     |   |   |   | - |   |
| Stock      compensation                                                                     |   |   | 26,000      |   |   |   | 12,000 |   |
| Realized      gain on sales of securities available-for-sale                                |   |   | (5,000      | )      |   |   | - |   |
| Realized      (gain) loss on sales of equipment                                             |   |   | (6,000      | )      |   |   | 30,000 |   |
| Deferred      income tax benefit                                                            |   |   | (269,000    | )      |   |   | (386,000 | ) |
| Proceeds      from sale of loans held for sale                                              |   |   | 5,500,000   |   |   |   | 204,479,000 |   |
| Originations      of loans held for sale                                                    |   |   | (3,920,000  | )      |   |   | (165,376,000 | ) |
| Changes      in operating assets and liabilities:                                           |   |   |        |   |   |   |   |   |
| Increase      in accrued interest receivable and other assets                               |   |   | (199,000    | )      |   |   | (730,000 | ) |
| Increase      (decrease) in accrued interest payable and other accrued      liabilities     |   |   | (2,260,000  | )      |   |   | 289,000 |   |
| Net      cash provided by operating activities                                              |   |   | 107,000     |   |   |   | 40,661,000 |   |
|                                                                                        |   |   |        |   |   |   |   |   |
| Cash      Flows From Investing Activities                                                   |   |   |        |   |   |   |   |   |
| Purchases      of securities available-for-sale                                             |   |   | (4,595,000  | )      |   |   | (7,886,000 | ) |
| Purchases      of securities held-to-maturity                                               |   |   | (75,000     | )      |   |   | (875,000 | ) |
| Proceeds      from sales of securities available-for-sale                                   |   |   | 20,416,000  |   |   |   | - |   |
| Proceeds      from maturities of securities available-for-sale                              |   |   | 3,000,000   |   |   |   | 2,000,000 |   |
| Proceeds      from maturities of securities held-to-maturity                                |   |   | 875,000     |   |   |   | - |   |
| Proceeds      from principal payments on mortgage-backed securities      available-for-sale |   |   | 2,409,000   |   |   |   | 3,084,000 |   |
| Proceeds      from principal payments on mortgage-backed securities      held-to-maturity   |   |   | 1,620,000   |   |   |   | 2,357,000 |   |
| Purchases      of restricted stock                                                          |   |   | (2,308,000  | )      |   |   | - |   |
| Proceeds      from sale of restricted stock                                                 |   |   | 1,515,000   |   |   |   | 440,000 |   |
| Net      (increase) decrease in loans                                                       |   |   | 6,505,000   |   |   |   | (17,944,000 | ) |
| Proceeds      from sales of equipment                                                       |   |   | 29,000      |   |   |   | 85,000 |   |
| Purchases      of premises and equipment                                                    |   |   | (1,701,000  | )      |   |   | (1,867,000 | ) |
| Cash      acquired in acquisition, net of cash paid                                         |   |   | 3,096,000   |   |   |   | - |   |
| Net      cash provided by (used in) investing activities                                    |   |   | 30,786,000  |   |   |   | (20,606,000 | ) |
|                                                                                        |   |   |        |   |   |   |   |   |
| Cash      Flows From Financing Activities                                                   |   |   |        |   |   |   |   |   |
| Net      proceeds from issuance of common stock                                             |   |   | 91,000      |   |   |   | 149,000 |   |
| Dividends      paid                                                                         |   |   | (477,000    | )      |   |   | (553,000 | ) |
| Net      decrease in deposits                                                               |   |   | (52,054,000 | )      |   |   | (5,121,000 | ) |
| Proceeds      from issuance of subordinated debentures                                      |   |   | 6,186,000   |   |   |   | - |   |
| Proceeds      from Federal Home Loan Bank Advances                                          |   |   | 10,500,000  |   |   |   | - |   |
| Repayment      of Federal Home Loan Bank Advances                                           |   |   | (6,293,000  | )      |   |   | (9,756,000 | ) |
| Net      cash used in financing activities                                                  |   |   | (42,047,000 | )      |   |   | (15,281,000 | ) |
|                                                                                        |   |   |        |   |   |   |   |   |
| Increase      (Decrease) in cash and cash equivalents                                       |   |   | (11,154,000 | )      |   |   | 4,774,000 |   |
|                                                                                        |   |   |        |   |   |   |   |   |
| Cash      and Cash Equivalents, beginning                                                   |   |   | 22,942,000  |   |   |   | 18,168,000 |   |
| Cash      and Cash Equivalents, ending                                                      |   | $      | 11,788,000  |   |   | $      | 22,942,000 |   |
|                                                                                        |   |   |        |   |   |   |   |   |
| Supplemental      Disclosure of Cash Flow Information:                                      |   |   |        |   |   |   |   |   |
| Cash      paid during the year for:                                                         |   |   |        |   |   |   |   |   |
| Interest      on deposits and borrowed funds                                                |   | $      | 13,311,000  |   |   | $      | 10,272,000 |   |
| Income      taxes                                                                           |   | $      | 175,000     |   |   | $      | 685,000 |   |
|                                                                                        |   |   |        |   |   |   |   |   |

| See      Notes to Consolidated FinancialStatements. |
|-----------------------------------------------------|

----

----

----

----

----

|                                                           |   | 2007   |      |   | 2006   |   |
|----------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Unrealized      holding gains on available-for-sale securities |   | $      | 1,045,000 |   |   | $      | 290,000 |   |
| Reclassification      adjustment for gains realized in income  |   |   | (5,000    | )      |   |   | - |   |
| Net      unrealized gains                                      |   |   | 1,040,000 |   |   |   | 290,000 |   |
| Tax      effect                                                |   |   | (416,000  | )      |   |   | (116,000 | ) |
| Net-of-tax      amount                                         |   | $      | 624,000   |   |   | $      | 174,000 |   |

|                                                     |   | 2007   |      |   | 2006   |   |
|----------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Net      income (loss)                                   |   | $      | (505,000  | )      |   | $      | 738,000 |   |
|                                                     |   |   |      |   |   |   |   |   |
| Average      number of common shares outstanding         |   |   | 5,676,000 |   |   |   | 5,011,000 |   |
| Effect      of dilutive options                          |   |   | -         |   |   |   | 96,000 |   |
| Average      number of common shares outstanding used to |   |   |      |   |   |   |   |   |
| calculate      diluted earnings per common share         |   |   | 5,676,000 |   |   |   | 5,107,000 |   |

----

----

----

|  Note 2.         | Business Combination      (Continued)                                              |   |   |         |
|---------------------------------|------------------------------------------------------------------------------------|--------|--------|--------------|
|                            |                                                                               |   |   |         |
|                            |                                                                               |   |   |         |
|                            | Loans,      net                                                                    |   | $      | 74,702,000   |   |
|                            | Investments                                                                        |   |   | 20,785,000   |   |
|                            | Core      deposit intangible asset                                                 |   |   | 3,471,000    |   |
|                            | Deposits                                                                           |   |   | (105,722,000 | ) |
|                            | Other,      net (including acquired cash and cash equivalents of      $12,598,000) |   |   | 13,320,000   |   |
|                            | Net      fair value of assets acquired                                             |   |   | 6,556,000    |   |
|                            | Purchase      price, including acquisition costs                                   |   |   | 18,284,000   |   |
|                            | Goodwill                                                                           |   | $      | 11,728,000   |   |

|   |                       | 2007   |   |       | 2006   |   |
|--------|----------------------------|--------|--------|------------|--------|--------|
|   | Interest      income       |   | $      | 26,739,000 |   |   | $ | 28,458,000 |   |
|   | Interest      expense      |   |   | 13,906,000 |   |   |   | 13,217,000 |   |
|   | Net      income (loss)     |   |   | (1,251,000 | )      |   |   | 396,000 |   |
|   | Basic      and Diluted EPS |   |   | (0.22      | )      |   |   | 0.07 |   |

----

|                                           |   |      |       |   | Gross      |   |    | Gross      |   |   | Estimated |   |
|------------------------------------------------|--------|-----------|------------|--------|------------|--------|---------|------------|--------|--------|-----------|--------|
|                                           |   | Amortized |       |   | Unrealized |   |    | Unrealized |   |   | Fair      |   |
|                                           |   | Cost      |       |   | Gains      |   |    | Losses     |   |   | Value     |   |
| Available-for-sale                             |   |      |       |   |       |   |    |       |   |   |      |   |
| U.S.      Government agencies and corporations |   | $         | 29,267,000 |   |       | $      | 45,000  |       |   | $      | (55,000   | )      |   | $ | 29,257,000 |   |
| Mortgage-backed      securities                |   |      | 11,563,000 |   |       |   | 42,000  |       |   |   | (77,000   | )      |   |   | 11,528,000 |   |
| Municipal      securities                      |   |      | 7,324,000  |   |       |   | 49,000  |       |   |   | (63,000   | )      |   |   | 7,310,000 |   |
| Total      securities available-for-sale       |   | $         | 48,154,000 |   |       | $      | 136,000 |       |   | $      | (195,000  | )      |   | $ | 48,095,000 |   |
| Held-to-maturity                               |   |      |       |   |       |   |    |       |   |   |      |   |   |   |   |   |
| U.S.      Government agencies and corporations |   | $         | 100,000    |   |       | $      | -       |       |   | $      | -         |   |   | $ | 100,000 |   |
| Mortgage-backed      securities                |   |      | 6,754,000  |   |       |   | 7,000   |       |   |   | (64,000   | )      |   |   | 6,697,000 |   |
| Total      securities held-to-maturity         |   | $         | 6,854,000  |   |       | $      | 7,000   |       |   | $      | (64,000   | )      |   | $ | 6,797,000 |   |

|                                           |   |      |       |   | Gross      |   |   | Gross      |   |   | Estimated  |   |
|------------------------------------------------|--------|-----------|------------|--------|------------|--------|--------|------------|--------|--------|------------|--------|
|                                           |   | Amortized |       |   | Unrealized |   |   | Unrealized |   |   | Fair       |   |
|                                           |   | Cost      |       |   | Gains      |   |   | Losses     |   |   | Value      |   |
| Available-for-sale                             |   |      |       |   |       |   |   |       |   |   |       |   |
| U.S.      Government agencies and corporations |   | $         | 30,263,000 |   |       | $      | 11,000 |       |   | $      | (715,000   | )      |   | $ | 29,559,000 |   |
| Mortgage-backed      securities                |   |      | 13,856,000 |   |       |   | 14,000 |       |   |   | (301,000   | )      |   |   | 13,569,000 |   |
| Municipal      securities                      |   |      | 4,507,000  |   |       |   | -      |       |   |   | (109,000   | )      |   |   | 4,398,000 |   |
| Total      securities available-for-sale       |   | $         | 48,626,000 |   |       | $      | 25,000 |       |   | $      | (1,125,000 | )      |   | $ | 47,526,000 |   |
| Held-to-maturity                               |   |      |       |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S.      Government agencies and corporations |   | $         | 25,000     |   |       | $      | -      |       |   | $      | -          |   |   | $ | 25,000 |   |
| Mortgage-backed      securities                |   |      | 8,392,000  |   |       |   | 1,000  |       |   |   | (206,000   | )      |   |   | 8,187,000 |   |
| Municipal      securities                      |   |      | 875,000    |   |       |   | -      |       |   |   | -          |   |   |   | 875,000 |   |
| Total      securities held-to-maturity         |   | $         | 9,292,000  |   |       | $      | 1,000  |       |   | $      | (206,000   | )      |   | $ | 9,087,000 |   |

----

|                                                 |   | December      31, 2007 |       |
|------------------------------------------------------|--------|------------------------|------------|
|                                                 |   | Available-for-sale     |       |   | Held-to-maturity |   |
|                                                 |   | Amortized              |       |   | Estimated |   |   | Amortized |   |   | Estimated |   |
|                                                 |   | Cost                   |       |   | Fair      Value |   |   | Cost |   |   | Fair      Value |   |
| Maturing      within one year                        |   | $                      | 4,900,000  |   |   | $ | 4,874,000 |   |   | $ | 100,000 |   |   | $ | 100,000 |   |
| Maturing      after one year, but within five years  |   |                   | 23,367,000 |   |   |   | 23,372,000 |   |   |   | - |   |   |   | - |   |
| Maturing      after five years, but within ten years |   |                   | 2,271,000  |   |   |   | 2,257,000 |   |   |   | - |   |   |   | - |   |
| Maturing      after ten years                        |   |                   | 6,053,000  |   |   |   | 6,064,000 |   |   |   | - |   |   |   | - |   |
| Mortgage-backed      securities                      |   |                   | 11,563,000 |   |   |   | 11,528,000 |   |   |   | 6,754,000 |   |   |   | 6,697,000 |   |
| Total      securities                                |   | $                      | 48,154,000 |   |   | $ | 48,095,000 |   |   | $ | 6,854,000 |   |   | $ | 6,797,000 |   |

|                                           |   | Continuous      Unrealized Losses     |      |   | Continuous      Unrealized Losses Existing |   |
|------------------------------------------------|--------|---------------------------------------|-----------|--------|--------------------------------------------|--------|
|                                           |   | Existing      for Less Than 12 Months |      |   | for      More Than 12 Months               |   |
|                                           |   |                                  |      |   |                                       |   |
|                                           |   |                                  |      |   | Unrealized                                 |   |   |   |   |   | Unrealized |   |
|                                           |   | Fair      Value                       |      |   | Losses                                     |   |   | Fair      Value |   |   | Losses |   |
| Available-for-sale:                            |   |                                  |      |   |                                       |   |   |   |   |   |   |   |
| U.S.      Government agencies and corporations |   | $                                     | -         |   |                                       | $      | - |   |   | $ | 15,240,000 |   |   | $ | (55,000 | ) |
| Mortgage-backed      securities                |   |                                  | 1,084,000 |   |                                       |   | (3,000 | ) |   |   | 6,444,000 |   |   |   | (74,000 | ) |
| Municipal      securities                      |   |                                  | -         |   |                                       |   | - |   |   |   | 3,614,000 |   |   |   | (63,000 | ) |
|                                           |   |                                  | 1,084,000 |   |                                       |   | (3,000 | ) |   |   | 25,298,000 |   |   |   | (192,000 | ) |
| Held-to-maturity:                              |   |                                  |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed      securities                |   |                                  | -         |   |                                       |   | - |   |   |   | 5,700,000 |   |   |   | (64,000 | ) |
| Total      temporarily impaired securities     |   | $                                     | 1,084,000 |   |                                       | $      | (3,000 | ) |   | $ | 30,998,000 |   |   | $ | (256,000 | ) |

----

|                                           |   | Continuous      Unrealized Losses     |    |   | Continuous      Unrealized Losses Existing |   |
|------------------------------------------------|--------|---------------------------------------|---------|--------|--------------------------------------------|--------|
|                                           |   | Existing      for Less Than 12 Months |    |   | for      More Than 12 Months               |   |
|                                           |   |                                  |    |   |                                       |   |
|                                           |   |                                  |    |   | Unrealized                                 |   |   |   |   |   | Unrealized |   |
|                                           |   | Fair      Value                       |    |   | Losses                                     |   |   | Fair      Value |   |   | Losses |   |
| Available-for-sale:                            |   |                                  |    |   |                                       |   |   |   |   |   |   |   |
| U.S.      Government agencies and corporations |   | $                                     | -       |   |                                       | $      | - |   |   | $ | 26,548,000 |   |   | $ | (715,000 | ) |
| Mortgage-backed      securities                |   |                                  | -       |   |                                       |   | - |   |   |   | 11,358,000 |   |   |   | (301,000 | ) |
| Municipal      securities                      |   |                                  | 528,000 |   |                                       |   | (2,000 | ) |   |   | 3,568,000 |   |   |   | (107,000 | ) |
|                                           |   |                                  | 528,000 |   |                                       |   | (2,000 | ) |   |   | 41,474,000 |   |   |   | (1,123,000 | ) |
| Held-to-maturity:                              |   |                                  |    |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed      securities                |   |                                  | -       |   |                                       |   | - |   |   |   | 7,891,000 |   |   |   | (206,000 | ) |
| Total      temporarily impaired securities     |   | $                                     | 528,000 |   |                                       | $      | (2,000 | ) |   | $ | 49,365,000 |   |   | $ | (1,329,000 | ) |

|                                            |   | 2007   |        |   | 2006   |   |
|-------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Commercial                                      |   | $      | 195,233,000 |   |   | $      | 167,581,000 |   |
| Consumer                                        |   |   | 55,186,000  |   |   |   | 48,018,000 |   |
| Residential      mortgage                       |   |   | 61,791,000  |   |   |   | 27,684,000 |   |
| Total      loans                                |   |   | 312,210,000 |   |   |   | 243,283,000 |   |
| Less:  allowance      for loan losses |   |   | (2,891,000  | )      |   |   | (1,760,000 | ) |
| Net      loans                                  |   | $      | 309,319,000 |   |   | $      | 241,523,000 |   |

----

|                                       |   | 2007   |       |   | 2006   |   |
|--------------------------------------------|--------|--------|------------|--------|--------|--------|
| Balance,      beginning of year            |   | $      | 4,899,000  |   |   | $      | 4,870,000 |   |
| Additions                                  |   |   | 3,713,000  |   |   |   | 3,118,000 |   |
| Payments                                   |   |   | (3,295,000 | )      |   |   | (3,089,000 | ) |
| Reclassification      as non-related party |   |   | (1,049,000 | )      |   |   | - |   |
| Balance,      end of year                  |   | $      | 4,268,000  |   |   | $      | 4,899,000 |   |

|                                              |   | 2007   |      |   | 2006   |   |
|---------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Balance,      beginning of year                   |   | $      | 1,760,000 |   |   | $      | 1,154,000 |   |
| Provision      for loan losses                    |   |   | 401,000   |   |   |   | 605,000 |   |
| Loans      charged off                            |   |   | (300,000  | )      |   |   | (1,000 | ) |
| Recoveries      of loans previously charged off   |   |   | 12,000    |   |   |   | 2,000 |   |
| Allowance      for credit losses in acquired bank |   |   | 1,018,000 |   |   |   | - |   |
| Balance,      end of year                         |   | $      | 2,891,000 |   |   | $      | 1,760,000 |   |

----

|                                                 |   | 2007   |       |   | 2006   |   |
|------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Land                                                 |   | $      | 1,364,000  |   |   | $      | 1,004,000 |   |
| Premises      and improvements                       |   |   | 9,078,000  |   |   |   | 6,285,000 |   |
| Furniture      and equipment                         |   |   | 4,620,000  |   |   |   | 4,141,000 |   |
| Total      premises and equipment, at cost           |   |   | 15,062,000 |   |   |   | 11,430,000 |   |
| Less:      accumulated depreciation and amortization |   |   | (5,311,000 | )      |   |   | (4,508,000 | ) |
| Premises      and equipment, net                     |   | $      | 9,751,000  |   |   | $      | 6,922,000 |   |

----

| Years      Ending December 31, |                                                                                                                                  |
|--------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
| 2008                           |  $                  641,000            |
| 2009                           |                      581,000 |
| 2010                           |                      593,000 |
| 2011                           |                      609,000 |
| 2012                           |                      604,000 |
| Thereafter                     |                   4,554,000                 |
|                           |  $               7,582,000                            |

|                                      |   | 2007   |        |   | 2006   |   |
|-------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Demand      deposits, noninterest-bearing |   | $      | 37,246,000  |   |   | $      | 39,021,000 |   |
| Demand      deposits, interest-bearing    |   |   | 59,207,000  |   |   |   | 48,593,000 |   |
| Savings      deposits                     |   |   | 45,791,000  |   |   |   | 27,195,000 |   |
| Time      deposits of $100,000 or more    |   |   | 39,151,000  |   |   |   | 34,197,000 |   |
| Other      time deposits                  |   |   | 167,563,000 |   |   |   | 146,284,000 |   |
| Total      deposits                       |   | $      | 348,958,000 |   |   | $      | 295,290,000 |   |

| Years      Ending December 31, |                                                                                                                                  |
|--------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
| 2008                           |  $           185,081,000                                                  |
| 2009                           |                 16,890,000                            |
| 2010                           |                   3,844,000                 |
| 2011                           |                      516,000 |
| 2012                           |                      383,000 |
|                           |  $           206,714,000                                                  |

----

----

|                          |   | 2007   |       |   | 2006   |   |
|-------------------------------|--------|--------|------------|--------|--------|--------|
| Deferred      tax assets      |   | $      | 3,282,000  |   |   | $      | 1,168,000 |   |
| Deferred      tax liabilities |   |   | (1,585,000 | )      |   |   | (237,000 | ) |
| Net      deferred tax asset   |   | $      | 1,697,000  |   |   | $      | 931,000 |   |

|                      |   | 2007   |     |   | 2006   |   |
|---------------------------|--------|--------|----------|--------|--------|--------|
| Current      tax expense  |   |   |     |   |   |   |
| Federal                   |   | $      | -        |   |   | $      | 592,000 |   |
| State                     |   |   | -        |   |   |   | 246,000 |   |
| Deferred      tax benefit |   |   | (269,000 | )      |   |   | (386,000 | ) |
|                      |   | $      | (269,000 | )      |   | $      | 452,000 |   |

----

|                                                |   | 2007   |     |   | 2006   |   |
|-----------------------------------------------------|--------|--------|----------|--------|--------|--------|
| Tax      expense (benefit) at statutory rate (35%)  |   | $      | (271,000 | )      |   | $      | 417,000 |   |
| Tax      free interest income                       |   |   | (69,000  | )      |   |   | (62,000 | ) |
| Permanent      differences and other, net           |   |   | 133,000  |   |   |   | (15,000 | ) |
| State      income taxes, net of federal tax benefit |   |   | (70,000  | )      |   |   | 124,000 |   |
| Benefit      of income taxed at lower rates         |   |   | 8,000    |   |   |   | (12,000 | ) |
|                                                |   | $      | (269,000 | )      |   | $      | 452,000 |   |

|                                          |   | 2007   |      |   | 2006   |   |
|-----------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Allowance      for loan losses                |   | $      | 1,057,000 |   |   | $      | 721,000 |   |
| Net      operating loss carryforwards         |   |   | 1,668,000 |   |   |   | - |   |
| Core      deposit intangible and loan premium |   |   | (907,000  | )      |   |   | - |   |
| Securities      available-for-sale            |   |   | 24,000    |   |   |   | 440,000 |   |
| Other                                         |   |   | (74,000   | )      |   |   | (163,000 | ) |
| Property      and equipment                   |   |   | (71,000   | )      |   |   | (67,000 | ) |
| Net      deferred tax asset                   |   | $      | 1,697,000 |   |   | $      | 931,000 |   |

----

|                           |   |   |       |   |   |                   |   |   |             |                   |   |       |                   |   |   |   | To      Be Well        |   |
|--------------------------------|--------|--------|------------|--------|--------|------------------------|--------|--------|------------------|------------------------|--------|------------|------------------------|--------|--------|--------|------------------------|--------|
|                           |   |   |       |   |   |                   |   |   |             |                   |   |       |                   |   |   |   | Capitalized      Under |   |
|                           |   |   |       |   |   |                   |   |   | For      Capital |                   |   |       | Prompt      Corrective |   |
|                           |   | Actual |       |   |   | Adequacy      Purposes |   |   |             | Action      Provisions |   |
|                           |   | Amount |       |   | Ratio  |                   |   |   | Amount           |                   |   |       | Ratio                  |   |   |   | Amount                 |   |   |   | Ratio |   |
| Total      Capital             |   |   |       |   |   |                   |   |   |             |                   |   |       |                   |   |   |   |                   |   |   |   |   |   |
| (To      Risk Weighted Assets) |   | $      | 35,923,000 |   |   |                   | 11.13  | %      | >             |                   | $      | 25,824,000 |                   | >   |   |   | 8.0                    | %      | > |   | $ | 32,280,000 |   | > |   |   | 10.0 | % |
| Tier      1 Capital            |   |   |       |   |   |                   |   |   |             |                   |   |       |                   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| (To      Risk Weighted Assets) |   | $      | 32,957,000 |   |   |                   | 10.21  | %      | >             |                   | $      | 12,912,000 |                   | >   |   |   | 4.0                    | %      | > |   | $ | 19,368,000 |   | > |   |   | 6.0 | % |
| Tier      1 Capital            |   |   |       |   |   |                   |   |   |             |                   |   |       |                   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| (to      Average Assets)       |   | $      | 32,957,000 |   |   |                   | 8.28   | %      | >             |                   | $      | 15,926,000 |                   | >   |   |   | 4.0                    | %      | > |   | $ | 19,907,000 |   | > |   |   | 5.0 | % |

|                           |   |   |       |   |   |                   |   |   |             |                   |   |       |                   |   |   |   | To      Be Well        |   |
|--------------------------------|--------|--------|------------|--------|--------|------------------------|--------|--------|------------------|------------------------|--------|------------|------------------------|--------|--------|--------|------------------------|--------|
|                           |   |   |       |   |   |                   |   |   |             |                   |   |       |                   |   |   |   | Capitalized      Under |   |
|                           |   |   |       |   |   |                   |   |   | For      Capital |                   |   |       | Prompt      Corrective |   |
|                           |   | Actual |       |   |   | Adequacy      Purposes |   |   |             | Action      Provisions |   |
|                           |   | Amount |       |   | Ratio  |                   |   |   | Amount           |                   |   |       | Ratio                  |   |   |   | Amount                 |   |   |   | Ratio |   |
| Total      Capital             |   |   |       |   |   |                   |   |   |             |                   |   |       |                   |   |   |   |                   |   |   |   |   |   |
| (To      Risk Weighted Assets) |   | $      | 37,263,000 |   |   |                   | 13.77  | %      | >             |                   | $      | 21,649,000 |                   | >   |   |   | 8.0                    | %      | > |   | $ | 27,062,000 |   | > |   |   | 10.0 | % |
| Tier      1 Capital            |   |   |       |   |   |                   |   |   |             |                   |   |       |                   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| (To      Risk Weighted Assets) |   | $      | 35,428,000 |   |   |                   | 13.09  | %      | >             |                   | $      | 10,825,000 |                   | >   |   |   | 4.0                    | %      | > |   | $ | 16,237,000 |   | > |   |   | 6.0 | % |
| Tier      1 Capital            |   |   |       |   |   |                   |   |   |             |                   |   |       |                   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| (to      Average Assets)       |   | $      | 35,428,000 |   |   |                   | 10.39  | %      | >             |                   | $      | 13,634,000 |                   | >   |   |   | 4.0                    | %      | > |   | $ | 17,043,000 |   | > |   |   | 5.0 | % |

----

|                                  |   |           |    |   |                  |   |   | Weighted      Average |   |   |                 |   |
|---------------------------------------|--------|----------------|---------|--------|-----------------------|--------|--------|-----------------------|--------|--------|----------------------|--------|
|                                  |   | Number         |    |   | Weighted      Average |   |   | Remaining             |   |   | Aggregate            |   |
|                                  |   | of      Shares |    |   | Exercise      Price   |   |   | Contractual      Term |   |   | Intrinsic      Value |   |
| Outstanding,      December 31, 2005   |   |           | 423,516 |   |                  | $      | 8.21   |                  |   |   |                 |   |   |   |
| Granted                               |   |           | 68,548  |   |                  | $      | 10.57  |                  |   |   |                 |   |   |   |
| Expired/terminated                    |   |           | (15,035 | )      |                  | $      | 9.53   |                  |   |   |                 |   |   |   |
| Exercised                             |   |           | (19,935 | )      |                  | $      | 7.85   |                  |   |   |                 |   |   |   |
| Outstanding,      December 31, 2006   |   |           | 457,094 |   |                  | $      | 8.54   |                  |   |   |                 |   |   |   |
| Granted                               |   |           | 83,881  |   |                  | $      | 7.70   |                  |   |   |                 |   |   |   |
| Expired/terminated                    |   |           | (9,314  | )      |                  | $      | 9.66   |                  |   |   |                 |   |   |   |
| Exercised                             |   |           | (13,493 | )      |                  | $      | 6.77   |                  |   |   |                 |   |   |   |
| Outstanding,      December 31, 2007   |   |           | 518,168 |   |                  | $      | 8.43   |                  |   |   | 6.0                  |   |   | $ | 39,000 |   |
|                                  |   |           |    |   |                  |   |   |                  |   |   |                 |   |   |   |   |   |
| Exercisable      at December 31, 2007 |   |           | 373,043 |   |                  | $      | 8.24   |                  |   |   | 4.7                  |   |   | $ | 39,000 |   |

----

|                                                          |   |   |    |   | Weighted      Average |   |
|---------------------------------------------------------------|--------|--------|---------|--------|-----------------------|--------|
|                                                          |   |   |    |   | Grant      Date       |   |
|                                                          |   | Shares |    |   | Fair      Value       |   |
| Unvested      stock options:                                  |   |   |    |   |                  |   |
| Outstanding      at January 1, 2006                           |   |   | -       |   |                  | $      | - |   |
| Granted                                                       |   |   | 70,548  |   |                  | $      | 3.38 |   |
| Exercised/forfeited                                           |   |   | -       |   |                  | $      | - |   |
|     Outstanding      at December 31, 2006 |   |   | 70,548  |   |                  | $      | 3.38 |   |
| Granted                                                       |   |   | 83,881  |   |                  | $      | 2.53 |   |
| Vested                                                        |   |   | (6,804  | )      |                  | $      | 3.38 |   |
| Exercised/forfeited                                           |   |   | (2,500  | )      |                  | $      | 3.61 |   |
|     Outstanding      at December 31, 2007 |   |   | 145,125 |   |                  | $      | 2.97 |   |

----

----

|                                           | Carrying      Value                                                                                                                   | Fair      Value                                                                                                                 |
|------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
| Financial      Assets:                         |                                                                                                                                  |                                                                                                                            |
| Cash      and due from banks                   |  $             11,554,000                                       |  $            11,554,000                                       |
| Federal      funds sold                        |  $                  234,000            |  $                 234,000            |
| Investment      securities, held-to-maturity   |  $               6,854,000                            |  $              6,797,000                            |
| Investment      securities, available-for-sale |  $             48,095,000                                       |  $            48,095,000                                       |
| Restricted      stock                          |  $               2,229,000                            |  $              2,229,000                            |
| Loans      held for sale                       |  $                    38,000 |  $                   38,000 |
| Loans,      net of allowance for loan losses   |  $           309,319,000                                                  |  $          305,332,000                                                  |
| Accrued      interest receivable               |  $               1,910,000                            |  $              1,910,000                            |
| Financial      Liabilities:                    |                                                                                                                                  |                                                                                                                            |
| Noninterest-bearing      demand deposits       |  $             37,246,000                                       |  $             37,246,000                                 |
| Interest-bearing      deposits                 |  $           311,712,000                                                  |  $           312,347,000                                            |
| Borrowed      funds                            |  $             16,686,000                                       |  $              16,685,000                           |
| Accrued      interest payable                  |  $                  613,000            |  $                  613,000      |

----

|                                           | Carrying      Value                                                                                                        | Fair      Value                                                                                                            |
|------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|
| Financial      Assets:                         |                                                                                                                       |                                                                                                                       |
| Cash      and due from banks                   |  $             16,064,000                            |  $            16,064,000                                  |
| Federal      funds sold                        |  $               6,878,000                 |  $              6,878,000                       |
| Investment      securities, held-to-maturity   |  $               9,292,000                 |  $              9,087,000                       |
| Investment      securities, available-for-sale |  $             47,526,000                            |  $            47,526,000                                  |
| Restricted      stock                          |  $               1,436,000                 |  $              1,436,000                       |
| Loans      held for sale                       |  $               1,618,000                 |  $              1,618,000                       |
| Loans,      net of allowance for loan losses   |  $           241,523,000                                       |  $          236,952,000                                             |
| Accrued      interest receivable               |  $               1,551,000                 |  $              1,551,000                       |
| Financial      Liabilities:                    |                                                                                                                       |                                                                                                                       |
| Noninterest-bearing      demand deposits       |  $             39,021,000                            |  $             39,021,000                            |
| Interest-bearing      deposits                 |  $           256,269,000                                       |  $           250,306,000                                       |
| Borrowed      funds                            |  $               5,885,000                 |  $               5,863,000                 |
| Accrued      interest payable                  |  $                  534,000 |  $                  534,000 |

----

| Note      18. | Quarterly      Financial Data (unaudited) |
|---------------|-------------------------------------------|

|                                            |   | Three      Months Ended |      |
|-------------------------------------------------|--------|-------------------------|-----------|
|                                            |   | December      31,       |      |   | September      30, |   |   | June      30, |   |   | March      31, |   |
| 2007                                            |   |                    |      |   |   |   |   |   |   |   |   |   |
| Interest      income                            |   | $                       | 6,476,000 |   |   | $ | 6,774,000 |   |   | $ | 6,943,000 |   |   | $ | 5,641,000 |   |
| Interest      expense                           |   |                    | 3,291,000 |   |   |   | 3,533,000 |   |   |   | 3,646,000 |   |   |   | 2,733,000 |   |
| Net      interest income                        |   |                    | 3,185,000 |   |   |   | 3,241,000 |   |   |   | 3,297,000 |   |   |   | 2,908,000 |   |
| Provision      for loan losses                  |   |                    | 300,000   |   |   |   | - |   |   |   | 45,000 |   |   |   | 56,000 |   |
| Income      before income tax expense (benefit) |   |                    | (774,000  | ) |   |   | (142,000 | ) |   |   | 10,000 |   |   |   | (63,000 | ) |
| Income      tax expense (benefit)               |   |                    | (215,000  | ) |   |   | (48,000 | ) |   |   | 8,000 |   |   |   | (14,000 | ) |
| Net      income (loss)                          |   |                    | (364,000  | ) |   |   | (94,000 | ) |   |   | 2,000 |   |   |   | (49,000 | ) |
|                                            |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss) per common share:        |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                           |   | $                       | (0.06     | ) |   | $ | (0.02 | ) |   | $ | 0.00 |   |   | $ | (0.01 | ) |
| Diluted                                         |   | $                       | (0.06     | ) |   | $ | (0.02 | ) |   | $ | 0.00 |   |   | $ | (0.01 | ) |
|                                            |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                            |   | Three      Months Ended |      |
|-------------------------------------------------|--------|-------------------------|-----------|
|                                            |   | December      31,       |      |   | September      30, |   |   | June      30, |   |   | March      31, |   |
| 2006                                            |   |                    |      |   |   |   |   |   |   |   |   |   |
| Interest      income                            |   | $                       | 5,641,000 |   |   | $ | 5,606,000 |   |   | $ | 5,666,000 |   |   | $ | 5,633,000 |   |
| Interest      expense                           |   |                    | 2,735,000 |   |   |   | 2,635,000 |   |   |   | 2,541,000 |   |   |   | 2,441,000 |   |
| Net      interest income                        |   |                    | 2,906,000 |   |   |   | 2,971,000 |   |   |   | 3,125,000 |   |   |   | 3,192,000 |   |
| Provision      for loan losses                  |   |                    | 470,000   |   |   |   | 45,000 |   |   |   | 45,000 |   |   |   | 45,000 |   |
| Income      before income tax expense (benefit) |   |                    | (382,000  | ) |   |   | 482,000 |   |   |   | 474,000 |   |   |   | 616,000 |   |
| Income      tax expense (benefit)               |   |                    | (145,000  | ) |   |   | 183,000 |   |   |   | 180,000 |   |   |   | 234,000 |   |
| Net      income (loss)                          |   |                    | (237,000  | ) |   |   | 299,000 |   |   |   | 294,000 |   |   |   | 382,000 |   |
|                                            |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss) per common share:        |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                           |   | $                       | (0.04     | ) |   | $ | 0.06 |   |   | $ | 0.05 |   |   | $ | 0.08 |   |
| Diluted                                         |   | $                       | (0.05     | ) |   | $ | 0.06 |   |   | $ | 0.05 |   |   | $ | 0.08 |   |
|                                            |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| Balance      Sheet                                    |   |              |       |
|-------------------------------------------------------|--------|-------------------|------------|
|                                                  |   | December      31, |       |
|                                                  |   | 2007              |       |
| Assets                                                |   |              |       |
| Due      from bank subsidiary                         |   | $                 | 1,478,000  |   |
| Investment      in subsidiary                         |   |              | 48,031,000 |   |
| Other      assets                                     |   |              | 31,000     |   |
| Total      assets                                     |   | $                 | 49,540,000 |   |
|                                                  |   |              |       |   |
| Liabilities      and Shareholders' Equity             |   |              |       |   |
| Subordinated      debentures                          |   | $                 | 6,186,000  |   |
| Other      liabilities                                |   |              | 46,000     |   |
| Shareholders’      equity                       |   |              | 43,308,000 |   |
| Total      liabilities and shareholders’ equity |   | $                 | 49,540,000 |   |
|                                                  |   |              |       |   |

| Statement      of Operations                    |   |                   |     |
|-------------------------------------------------|--------|------------------------|----------|
|                                            |   | Period                 |     |
|                                            |   | March      16, 2007    |     |
|                                            |   | Through                |     |
|                                            |   | December      31, 2007 |     |
| Income                                          |   |                   |     |
| Dividends      from subsidiaries                |   | $                      | 604,000  |   |
| Total      income                               |   |                   | 604,000  |   |
|                                            |   |                   |     |   |
| Expenses                                        |   |                   |     |   |
| Interest      on subordinated debentures        |   |                   | 278,000  |   |
| Other      expenses                             |   |                   | 355,000  |   |
| Total      expenses                             |   |                   | 633,000  |   |
|                                            |   |                   |     |   |
|                                            |   |                   |     |   |
| Loss      before income tax benefit             |   |                   | (29,000  | ) |
| Income      tax benefit                         |   |                   | (27,000  | ) |
| Equity      in undistributed loss of subsidiary |   |                   | (503,000 | ) |
|                                            |   |                   |     |   |
| Net      loss                                   |   | $                      | (505,000 | ) |
|                                            |   |                   |     |   |

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| Statement      of Cash Flows                                                                |   |                   |       |
|---------------------------------------------------------------------------------------------|--------|------------------------|------------|
|                                                                                        |   | Period                 |       |
|                                                                                        |   | March      16, 2007    |       |
|                                                                                        |   | Through                |       |
|                                                                                        |   | December      31, 2007 |       |
| Cash      Flows From Operating Activities                                                   |   |                   |       |
| Net      loss                                                                               |   | $                      | (505,000   | ) |
| Adjustments      to reconcile net income to net cash provided by operating      activities: |   |                   |       |   |
| Stock      compensation                                                                     |   |                   | 20,000     |   |
| Equity      in undistributed loss of subsidiary                                             |   |                   | 503,000    |   |
| Changes      in operating assets and liabilities:                                           |   |                   |       |   |
| Increase      in accrued interest receivable and other assets                               |   |                   | (31,000    | ) |
| Increase      in accrued interest payable and other accrued liabilities                     |   |                   | 46,000     |   |
| Net      cash provided by operating activities                                              |   |                   | 33,000     |   |
|                                                                                        |   |                   |       |   |
| Cash      Flows From Investing Activities                                                   |   |                   |       |   |
| Payments      for investment in subsidiaries                                                |   |                   | (4,407,000 | ) |
| Net      cash used in investing activities                                                  |   |                   | (4,407,000 | ) |
|                                                                                        |   |                   |       |   |
| Cash      Flows From Financing Activities                                                   |   |                   |       |   |
| Dividends      paid                                                                         |   |                   | (334,000   | ) |
| Proceeds      from issuance of subordinated debentures                                      |   |                   | 6,186,000  |   |
| Net      cash provided by financing activities                                              |   |                   | 5,852,000  |   |
|                                                                                        |   |                   |       |   |
| Increase      in cash and cash equivalents                                                  |   |                   | 1,478,000  |   |
|                                                                                        |   |                   |       |   |
| Cash      and Cash Equivalents, beginning                                                   |   |                   | -          |   |
|                                                                                        |   |                   |       |   |
| Cash      and Cash Equivalents, ending                                                      |   | $                      | 1,478,000  |   |
|                                                                                        |   |                   |       |   |

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