Interest expense decreased by 162000 or 12

In 2007, the Company realized a gain on securities sales of $11,000; nosecurities were sold in 2008.Non-interest expense decreased by $162,000, or 1.5 to $10.4 million in 2008compared to $10.6 million in the prior year, primarily due to a decrease instock based compensation and benefits and a decrease in professional services.The decrease in 2008 tax expense is attributable to lower pre-tax income levelsand an increase in positive permanent tax benefits.For the three month period ended December 31, 2008, the Company recorded netincome of $610,000 or $0.09 per diluted share compared to $666,000, or $0.09 perdiluted share for the same period in 2007. The decrease in quarterly earningswas attributable to a $150,000 increase in the loan loss provision and theaforementioned securities impairment charge of $265,000. Fourth quarter 2008 diluted earningsper share benefited from a reduction in average outstanding shares from7,461,986 in the same period of 2007 to 6,752,601, resulting from the Company's2007 and 2008 stock repurchase programs.Net interest income increased to $3.3 million for the quarter ended December 31,2008, an increase of $57,000 or 1.7 from the three months ended December 31,2007. Fourth quarter interest income decreased by $104,000 or 2.2 to $4.5million compared to $4.6 million in the fourth quarter of 2007. The decrease ininterest income is attributable to a decrease in yields on earning assets to5.86 for the fourth quarter of 2008 compared to 6.48 in the same period of2007. This was partially offset by an increase in the balance of average earningassets to $307.7 million in the fourth quarter of 2008 from $285.0 million inthe last quarter of 2007. Interest expense decreased by $162,000, or 12.0, to$1.2 million compared to $1.4 million in the same quarter of 2007.

This decreaseis due to decreases in rates paid on deposits and borrowings, consistent withcurrent market interest rates. Partially offsetting the rate decreases, averagedeposit balances increased to $176.8 million in the fourth quarter of 2008 from$171.7 million in the same period of 2007, while average borrowings for the 2008fourth quarter rose to $63.2 million from $37.4 million in the same quarter of2007 to provide funding for the Company's 2008 stock repurchases and loanoriginations. The average rate paid on borrowings decreased to 2.60 in thefourth quarter of 2008 from 4.46 in the same quarter of 2007 while the averagerate paid on deposits decreased to 1.89 from 2.04, respectively.The Company recorded a $200,000 provision for loan losses in the fourth quarterof 2008, as compared to a provision of $50,000 in the same period of 2007. Thisprovision was deemed appropriate to account for fourth quarter charge-offs of$148,000, as well as growth of the loan portfolio.Total non-interest income declined $291,000 from $535,000 for the quarter endedDecember 31, 2007 to $244,000 for the quarter ended December 31, 2008.

Asdiscussed above, the Company recorded a pre-tax impairment charge of $265,000 torecognize an other than temporary decline in the market value of an equitysecurity. Service charges and other income recorded in the fourth quarter of2008 decreased by $26,000 from the same period of 2007.Fourth quarter non-interest expense decreased $286,000, or 10.1, from 2007. Themajority of the decrease is related to decreases in stock based compensation andbenefits. Income tax expense for the fourth quarter of 2008 was $239,000compared to $280,000 in the same period of 2007.Total assets increased to $337.9 million at December 31, 2008 compared to $318.1million at December 31, 2007.