Total stockholders` equity increased $2.5 million from $72.9 million at December31, 2008 to $75.5 million at June 30, 2009. The increase in stockholders` equitywas attributable to a decrease in net unrealized holding losses on available forsale securities aggregating $2.8 million (net of taxes), offset by net operatinglosses of $563,000 and stock repurchases of 11,243 shares at a cost of $68,000. The increase in deposits was due to branch expansion, marketing andpromotional initiatives and competitively priced deposit products. Total liabilities were $797.2 million at June 30, 2009 compared to $780.2million at December 31, 2008. Deposits increased $28.4 million, or 4.6%, whichincluded increases in NOW and money market accounts of $18.4 million,certificates of deposit of $5.9 million and noninterest-bearing deposits of $3.6million. Overall loanoriginations increased $10.8 million, or 13.5%, during the first half of 2009compared to the same period in 2008 due primarily to a decrease in marketinterest rates.

Available for sale securities increased as a result of thepurchase of predominately mortgage-backed securities, tax-exempt municipal bondsand U.S government and agency obligations. An increase inresidential mortgage loan originations of $40.9 million was partially offset byresidential mortgage loan sales of $26.8 million during 2009. The increase in net loans receivablerepresents an increase in commercial business loans and consumer loans offset bya decrease in construction and residential mortgage loans. Commercial businessloans increased as a result of the purchase of $21.8 million in USDA and SBAloans that are fully guaranteed by the U.S government. Contributing to the increase inassets were increases of $10.1 million in net loans receivable, $4.8 million incash and cash equivalents, $3.1 million in available for sale securities and$2.0 million in loans held for sale. Total assets increased $19.6 million, or 2.3%, to $872.7 million at June 30,2009 from $853.1 million at December 31, 2008.

Compensation costs increased asa result of additional salaries and benefits, loan origination commissions andrelated payroll taxes. Loan origination commissions increased due to higherresidential mortgage volume related to a decrease in market interest rates.Computer and electronic banking services expense rose as a result of increasedtelecommunication costs and transaction activity. The increase in the 2009 FDICassessment of $639,000 was attributable to the expiration of credits during2008, an increase in the assessment rate for 2009 and an FDIC-imposedindustry-wide five basis point special assessment totaling $393,000 that wasaccrued during the quarter ended June 30, 2009. Noninterest expenses increased $875,000 and $1.5 million for the three and sixmonths ended June 30, 2009, respectively compared to the same periods in 2008,primarily due to increases in the FDIC assessment, salaries and benefits andcomputer and electronic banking services. Net gain on the sale ofsecurities of $254,000 during 2009 resulted from the sale of primarilymortgage-backed securities and corporate debt securities, offset byother-than-temporary impairment charges on two pooled trust preferred securitiestotaling $150,000. Service feesdecreased as a result of a decrease in overdraft charges on certain depositproducts.

Wealth management fees were lower principally due to a decrease in themarket value of assets under management. For 2009, the Company reported netgains on the sale of loans of $382,000 resulting from the sale of $26.8 millionof fixed-rate longer-term residential mortgage loans, compared to net gains onthe sale of loans of $81,000 resulting from the sale of $6.6 million ofresidential mortgage loans for the same period in 2008. The decrease in other noninterestincome for the six months ended June 30, 2009 was primarily due to impairmentcharges of $336,000 that were recorded during the first quarter of 2009 toreduce the carrying value of the Bank`s investment in two small businessinvestment company limited partnerships. In addition, other noninterest incomefor 2008 included the recovery of $131,000 in administrative fees and expensesrelated to the Bank`s acquisition of certain assets and operations of the formerCircle Trust Company, which were previously deemed uncollectible.