Table One

SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)



                                          (Unaudited)                   (Unaudited)
                                       Three Months Ended             Six Months Ended
                                            June 30,                      June 30,                     Years ended December 31,
                                      2009           2008           2009           2008           2008           2007           2006
SUMMARY OF OPERATIONS
Total interest income               $   3,254      $   3,329      $   6,558      $   6,812      $  13,514      $  13,708      $  13,772
Total interest expense                  1,106          1,297          2,299          2,650          5,275          5,431          4,943
Net interest income                     2,148          2,032          4,259          4,162          8,239          8,277          8,829
Provision for loan losses                  10             -              10             -              -            (100 )           -
Total other income                        489            334            778            794          1,488          1,410          1,433
Total other expenses                    1,938          1,723          3,675          3,486          7,009          7,272          7,614
Income before income taxes                689            642          1,352          1,470          2,718          2,515          2,648
Net income                                546            511          1,070          1,148          2,206          2,036          2,144
PER SHARE DATA
Net income                          $    0.34      $    0.32      $    0.67      $    0.72      $    1.39      $    1.28      $    1.35
Cash dividends declared                  0.19           0.19           0.38           0.37           0.74           0.73           0.73
Book value per share                    18.32          17.14          18.32          17.14          18.08          17.12          15.90
AVERAGE BALANCE SHEET SUMMARY
Total loans, net                    $ 128,759      $ 119,643      $ 127,460      $ 120,155      $ 120,722      $ 120,409      $ 129,997
Investment securities                 111,941        108,460        110,795        105,869        108,114        109,278        109,533
Deposits - interest bearing           191,311        181,608        189,128        180,936        182,450        182,682        190,160
Stockholders' equity                   28,160         27,178         28,054         27,052         27,295         26,223         25,416
Total assets                          268,019        256,640        264,666        255,449        258,275        253,930        262,946
SELECTED RATIOS
Return on average assets                 0.82 %         0.80 %         0.82 %         0.90 %         0.85 %         0.80 %         0.82 %
Return on average equity                 7.78 %         7.56 %         7.69 %         8.53 %         8.08 %         7.76 %         8.44 %
Average equity to average assets        10.51 %        10.59 %        10.60 %        10.59 %        10.57 %        10.33 %         9.67 %
Dividend payout ratio                   55.88 %        59.38 %        56.72 %        51.39 %        53.24 %        57.03 %        54.07 %
Loan to Deposit ratio                   60.36 %        57.55 %        60.36 %        57.55 %        60.39 %        59.93 %        57.37 %




                                             (Unaudited)
                                              June 30,                              December 31,
                                        2009            2008            2008            2007            2006
BALANCE SHEET
Investments                           $ 117,018       $ 110,121       $ 112,366       $ 106,647       $ 110,894
Loans                                   129,212         119,705         124,635         121,739         120,709
Allowance for loan losses                (1,894 )        (1,945 )        (1,923 )        (2,043 )        (2,297 )
Other assets                             25,777          29,418          23,086          26,844          25,132

Total Assets                          $ 270,113       $ 257,299       $ 258,164       $ 253,187       $ 254,438

Deposits                              $ 214,053       $ 208,018       $ 206,385       $ 203,127       $ 210,409
Federal funds purchased and
repurchase agreements                    13,160           9,867          11,013          12,196          15,240
FHLB borrowings                          10,892          10,966          10,929           9,298           2,343
Other liabilities                         2,887           1,202           1,100           1,351           1,169
Stockholders' equity                     29,121          27,246          28,737          27,215          25,277

Total Liabilities and
Stockholders' equity                  $ 270,113       $ 257,299       $ 258,164       $ 253,187       $ 254,438

Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

Forward-Looking Information: Certain information contained in this report, which are not historical facts, may be forward-looking statements that involve risks and uncertainties. These statements are subject to important factors that could cause action results to differ materially from those contemplated by such statements, including without limitation, the effect of changing economic conditions, changes in interest rates, changes in lending activities, changes in state and federal regulations, and other external factors which may materially impact the Company's operational and financial performance.

Critical Accounting Policies: The Company's accounting policies are integral to understanding the results reported. The accounting policies are described in detail in Note 1 of the Consolidated Financial Statements. Our most complex accounting policies require management's judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. Detailed policies and control procedures have been established and are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.

Other Than Temporary Impairment of Equity Securities: Equity securities are evaluated periodically to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term "other than temporary" is not intended to indicate that the decline is permanent. It indicates that the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

Allowance for Loan Losses: Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Company's allowance for loan losses provides for probable losses based upon evaluations of known, and inherent risks in the loan portfolio. Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business environment; as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. For a full discussion of the Company's methodology of assessing the adequacy of the reserve for loan losses, refer to Note 1 of the Consolidated Financial Statements.

Goodwill and Other Intangible Assets: As discussed in Note 1 of the notes to the Consolidated Financial Statements, the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows were less than the recorded goodwill and other intangible assets balances, we would be required to take a charge against earnings to write down the assets to the lower value.

Deferred Tax Assets: The Company uses an estimate of future earnings to support its position that the benefit of the deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced. The deferred tax assets are described further in Note 1 of the Consolidated Financial Statements.

OVERVIEW

The Company reported net income of $1,069,819 or $.67 per share for the six months ended June 30, 2009 compared to $1,147,558 or $.72 per share for the same period during 2008. The decline in net income for the six months ended June 30, 2009 as compared to the same period in 2008 of $77,739 or 6.8% was primarily the result of increases in noninterest expenses and in the provision for loan losses combined with the decrease in noninterest income, offset in part by an increase in net interest income and a decrease in income tax expense. Noninterest expenses increased $189,288 or 5.4% during the six month period ended June 30, 2009 as compared to the same period in 2008 primarily due to the increases in other operating expenses, as well as increases in salary and employee benefits expense, and occupancy expenses. Noninterest income fell $15,603 or 2.0% primarily due to the decline in service charges and fees earned on deposit accounts combined with the decrease in other operating income, which were offset in part by the net change in the gains (losses) on sales of investment securities. Net interest income increased $97,342 or 2.3%, primarily due to the decrease in the interest expense paid on interest bearing liabilities combined with the increase in the interest earned on investment securities, offset in part by a decline in the interest and fees earned on loans. The ROA was .82% for the six months ended June 30, 2009 as compared to .90% for the same period of the prior year. For the six months ended June 30, 2009 compared to June 30, 2008, the ROE was 7.69% and 8.53%, respectively.

For the second quarter of 2009, net income was $546,225 or $.34 per share as compared to $511,217 or $.32 per share for the same period in 2008. The increase in earnings was primarily due to increases in noninterest income and net interest income, offset in part by the increases in noninterest expenses, the provision for loan losses and income taxes. Noninterest income increased $155,374 or 46.6% for the three months ended June 30, 2009 as compared to same period of the prior year and was due to the change in the net gains (losses) on sales of investment securities combined with the increase in other operating income, offset in part by the decreases in service charges and other fee income. Net interest income increased $116,620 or 5.7% and was primarily due to the decrease in the interest paid on interest bearing liabilities, offset in part by the decreases in the interest earned on federal funds sold, other interest income, and dividends. Noninterest expenses rose $214,747 or 12.5% during the three month period ended June 30, 2009 as compared to the same period in 2008 primarily due to the increases in other operating expenses and salary and employee benefits expenses.

Table One is a summary of Selected Financial Data of the Company and the sections that follow discuss in more detail the information in Table One.

Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

EARNINGS ANALYSIS - For the six months ended June 30, 2009

Net Interest Income

Net interest income, which is the primary source of earnings for the Company, is the difference between interest earned on loans and investments and interest paid on deposits and other liabilities. Changes in the volume and mix of earning assets and interest bearing liabilities combined with changes in market rates of interest greatly effect net interest income. Table Two presents the average balance sheets and an interest rate analysis for the six months ended June 30, 2009 and 2008 and the year ended December 31, 2008.

For the six months ended June 30, 2009, net interest income was $4,258,849, an increase of $97,342 or 2.3%, from the same period in 2008. Net interest income rose primarily due to the increase in average volume of earning assets offset in part by the decline in the taxable equivalent yield on earning assets. The average earning assets increased approximately $8.9 million or 3.7% from June 30, 2008 to 2009. The taxable equivalent net yield on earning assets decreased from 3.85% at June 30, 2008 to 3.80% at June 30, 2009.

Interest income on investment securities during the first six months of 2009 increased $77,936 or 3.0% as compared to the same period of the prior year. The increase in interest income on investment securities during the first six months of 2009 was primarily due to the rise in the average volume which was partially offset by a decline in the yields earned. The taxable equivalent yield on investment securities fell 6 basis points in 2009, from 5.39% at December 31, 2008 to 5.33% at June 30, 2009 and decreased 10 basis points from June 30, 2008. The average volume of investment securities have increased approximately $4.9 million or 4.7% since June 30, 2008.

Interest and fees on loans decreased $151,327 or 3.8%, from the same period in 2008 due to the decline in the average yield on loans, offset in part by the increase in the average loan volume. The taxable equivalent yield on loans fell 46 basis points in 2009 from 6.87% at December 31, 2008 to 6.41% at June 30, 2009 and fell 63 basis points from June 30, 2008. The average loan volume increased approximately $7.3 million or 6.1% since June 30, 2008.

During the six months ended June 30, 2009, interest expense fell $351,181 or 13.2% as compared to the same period in 2008. The decrease in the average yield paid on interest bearing liabilities, partially offset by an increase in the average volume of interest bearing liabilities primarily contributed to the decrease in interest expense during the six month period ended June 30, 2009. The average yield paid on interest bearing liabilities fell 39 basis points from 2.58% at December 31, 2008 to 2.19% at June 30, 2009 and decreased 45 basis points since June 30, 2008.

Noninterest Income

Noninterest income decreased $15,603 or 2.0% for the six months ended June 30, 2009 as compared to same period of the prior year. The decrease in noninterest income was primarily due to the decline in service charges and other fee income combined with the decrease in other operating income, partially offset by the increase in the net gains on sales of investment securities.

Service charges and other fees represent the major component of noninterest income. These charges are earned from assessments made on checking and savings accounts. Service charges and other fee income fell $79,701 in the first six months of 2009 as compared to the same period in 2008, down 19.3%, from 2008. Approximately $70,500 of the decrease related primarily to the decline in overdraft charges.

Other operating income represents fees from safe deposit box rentals, sales of checkbooks, sales of cashiers' checks and money orders, utility collections, ATM charges and card fees, home equity credit line fees, credit life commissions, credit card fees and commissions and various other charges and fees related to normal customer banking relationships. For the six month period ended June 30, 2009, other operating income decreased $2,464 or .9% compared to the same period in 2008. The decrease in other operating income during the six month period ended June 30, 2009 as compared to the same period in the prior year was primarily due to the decrease in the earnings related to the cash surrender value of the bank owned life insurance on its key officers and declines in other miscellaneous income, offset in part by an increase in ATM fees.

The net gains (losses) on investment securities increased $66,562 or 59.4% for the six month period ended June 30, 2009 as compared to the same period in 2008. The increase in net gains (losses) on sales of investment securities was primarily attributable to sales recorded by the Company and its subsidiary bank. The Company's subsidiary bank sold approximately $6.8 million of investment securities during the second quarter of 2009 to take advantage of reinvestment opportunities within the current market interest rate environment. A net gain was recorded related to those sales of investment securities and amounted to $187,023. During the first quarter of 2008, the Company's subsidiary bank sold approximately $6.9 million of investment securities to take advantage of reinvestment opportunities within the current market interest rate environment. A net gain was recorded related to those sales of investment securities and amounted to $112,713. The Company accounted for securities gains of $187,361 and securities losses of $8,809 during the six month period ended June 30, 2009 and securities gains of $114,512 and securities losses of $2,522 during the six month period ended June 30, 2008.

Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

Table Two Average Balance Sheets and Interest Rate Analysis (dollars in thousands)

The following table presents an average balance sheet, interest earned on interest bearing assets, interest paid on interest bearing liabilities, average interest rates and interest differentials for the six months ended June 30, 2009 and 2008 and the year ended December 31, 2008. Average balance sheet information for the periods ended June 30, 2009 and 2008 and December 31, 2008 was compiled using the daily averages. Loan fees and unearned discounts were included in income for average rate calculation purposes. Average yields on investment securities available for sale have been calculated based on amortized cost. Non-accrual loans were included in the average balance computations; however, no interest was included in income subsequent to the non-accrual status classification.

                                                            (Unaudited)                                                                                                        (Unaudited)
                                                     For the six months ended                                                                                           For the six months ended
                                                           June 30, 2009                                          December 31, 2008                                           June 30, 2008
                                            Average                               Average             Average                              Average             Average                               Average
                                            Volume                Interest         Rate               Volume                Interest        Rate               Volume                Interest         Rate
ASSETS:
Investment securities:
U.S. Treasury and U. S. Government
agencies                                  $    25,529           $         576        4.55 %         $    23,179           $      1,169        5.04 %         $    22,520           $         594        5.30 %
Mortgage backed securities                     63,376                   1,654        5.26 %              63,200                  3,296        5.22 %              61,214                   1,585        5.21 %
States and political subdivisions              20,114                     400        4.01 %              20,412                    797        3.90 %              21,300                     414        3.91 %
Other securities                                1,776                      48        5.45 %               1,323                     73        5.52 %                 835                      22        5.30 %

Total Investment securities:                  110,795                   2,678        4.87 %             108,114                  5,335        4.93 %             105,869                   2,615        4.97 %
Interest bearing deposits                       2,252                       1        0.09 %               3,631                     69        1.90 %               3,979                      49        2.48 %
Federal funds sold                              6,626                       1        0.03 %               8,566                    141        1.65 %               8,492                      97        2.30 %
Loans, net of unearned income                 127,460                   3,871        6.12 %             120,722                  7,917        6.56 %             120,155                   4,023        6.73 %
Other earning assets                            1,460                       7        0.97 %               1,349                     52        3.85 %               1,248                      28        4.51 %

Total earning assets                          248,593                   6,558        5.32 %             242,382                 13,514        5.58 %             239,743                   6,812        5.71 %
Other assets                                   17,970                                                    17,816                                                   17,712
Allowance for loan losses                      (1,897 )                                                  (1,923 )                                                 (2,006 )

Total Assets                              $   264,666                                               $   258,275                                              $   255,449

LIABILITIES
Time deposits                             $    94,493           $       1,669        3.56 %         $    94,845           $      3,979        4.20 %         $    95,462           $       2,051        4.32 %
Savings deposits                               58,246                     238        0.82 %              52,738                    458        0.87 %              51,335                     207        0.81 %
Interest bearing demand deposits               36,389                      64        0.35 %              34,867                    151        0.43 %              34,139                      66        0.39 %
Federal funds purchased and
repurchase agreements                          11,629                      56        0.97 %              12,090                    173        1.43 %              11,661                      88        1.52 %
FHLB and other long-term borrowings            10,911                     272        5.03 %              10,209                    514        5.03 %               9,463                     238        5.06 %

Total interest bearing liabilities            211,668                   2,299        2.19 %             204,749                  5,275        2.58 %             202,060                   2,650        2.64 %
Demand deposits                                23,924                                                    24,839                                                   24,864
Other liabilities                               1,020                                                     1,392                                                    1,473

Total Liabilities                             236,612                                                   230,980                                                  228,397
STOCKHOLDERS' EQUITY                           28,054                                                    27,295                                                   27,052

Total Liabilities and Stockholders'
Equity                                    $   264,666                                               $   258,275                                              $   255,449

Net yield on earning assets                                     $       4,259        3.45 %                               $      8,239        3.40 %                               $       4,162        3.49 %

The fully taxable equivalent basis of interest income from obligations of states and political subdivisions has been determined using a combined Federal and State corporate income tax rate of 40% for the six months ended June 30, 2009 and 2008, and the year ended December 31, 2008, respectively. The effect of this adjustment is presented below.

Investment securities                     $   110,795           $       2,926        5.33 %         $   108,114           $      5,829        5.39 %         $   105,869           $       2,858        5.43 %
Loans                                         127,460                   4,052        6.41 %             120,722                  8,289        6.87 %             120,155                   4,205        7.04 %

Total earning assets                      $   248,593           $       6,987        5.67 %         $   242,382           $     14,380        5.93 %         $   239,743           $       7,237        6.07 %

Taxable equivalent net yield on
earning assets                                                  $       4,688        3.80 %                               $      9,105        3.76 %                               $       4,587        3.85 %

Management's Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

EARNINGS ANALYSIS - For the six months ended June 30, 2009 (Continued)

Noninterest Expense

Noninterest expense increased $189,288 or 5.4% for the six months ended June 30, 2009 as compared to same period of the prior year. The increase in noninterest expense was primarily due to increases in and other operating expenses, occupancy expenses and salary and employee benefits expenses.

Other operating expense increased $141,855, or 13.6%, compared to the same period of the prior year. The increase in other operating expenses was primarily due to a rise in the regulatory assessment and deposit insurance expenses which increased $183,592 or 359.9% during the six month period ended June 30, 2009 as compared to the same period in 2008. In addition to the Bank's regular insurance assessment as of June 30, 2009, the Federal Deposit Insurance Corporation (FDIC) imposed a 5 basis point special assessment on each insured depository institution's assets minus Tier 1 Capital and caps the special assessment at 10 basis points times the bank's assessment base for the second quarter 2009 risk-based assessment. An additional special assessment in 2009 of up to 5 basis points later in 2009 is probable, but the amount is uncertain. The FDIC board may vote to impose such an additional special assessment if they estimate that the Deposit Insurance Fund reserve ratio will fall to a level that the board believes would adversely affect public confidence or to a level that will be close to or below zero.

. . .