Net interest margin increased slightly from 2.18% in the first quarterof 2008 to 2.21% in the first quarter of 2009. Significantly affecting netinterest income and net interest margin in the first quarter of 2009 was thereversal and non-recognition of interest income on nonaccrual loans whichtotaled approximately 51 basis points of total net interest margin. We recorded a $2.5 million provision for loan losses in the first quarter of2009, based upon management’s review of the risks inherent in the loanportfolio and the level of our allowance for loan losses. In addition, netcharge-offs for the first quarter of 2009 totaled $1.5 million, or 1.50% oftotal average loans on an annualized basis. Total nonaccruing loans and loanspast due 90 days or more and still accruing interest totaled $30.4 million, or7.21% of total loans at March 31, 2009 compared to $17.6 million, or 4.32% atDecember 31, 2008. The allowance for loan losses at March 31, 2009 was $8.3million, or 1.97%, versus $7.3 million, or 1.80% at December 31, 2008.Inaddition to the nonaccrual loans stated above, as of March 31, 2009,restructured loans, within the meaning of SFAS No.

15, “Accounting by Debtorsand Creditors for Troubled Debt Restructurings”, increased to $15.4 millionfrom $8.2 million at December 31, 2008.Noninterest income was $1.2 million for the first quarter of 2009, decreasing$1.9 million, or 62.1%, from the first quarter of 2008. The decrease wasprimarily related to smaller gains recorded in fair market value of assets andliabilities as measured under Statement of Financial Accounting Standards(SFAS 159) recorded in the first quarter of 2009 compared to the first quarterof 2008. The increases recorded during both quarterly periods have beenlargely attributable to the fair value of the subordinated debenture connectedwith the issuance of trust preferred securities. The net change in fair valueassociated with all instruments recorded under SFAS 159 totaled $232,000 forthe first quarter of 2009, versus $2.1 million for the first quarter of 2008.The dramatic widening of market credit spreads for trust preferred securitiesexperienced in the fourth quarter of 2007 increased the relative fair value ofthis financial liability dramatically.

Changes in credit spreads are noteasily predictable and may cause adverse changes in the fair value of thisinstrument and a possible loss of income in the future. Fiduciary income was$83,000 for the first quarter of 2009, decreasing $25,000 or 23.1%, from thefirst quarter of 2008 as a result of market declines in assessable assets heldunder management. Deposit service charge income of $95,000 decreased $37,000,or 28.0%, from the first quarter of 2008 from lower overdraft activity.Mortgage banking income comprised primarily of gains on the sale ofresidential mortgages was $471,000 for the first quarter of 2009. The increaseof $21,000, or 4.7%, from the first quarter of 2008 was reflective of growthin the secondary sales of government FHA and FNMA mortgages. Net realizedgains from the sale of securities was $128,000 for the first quarter of 2009and was attributable to restructuring activities in the available for salesecurity portfolio.

Noninterest expense was $3.8 million for the first quarter of 2009, increasing$317,000 or 8.9% from the first quarter of 2008. The majority of the increasein total noninterest expense was recorded in other operating expense and wasattributable to an increase of $275,000 in write downs on other real estateowned and other repossessed collateral over the respective quarterly periods.Salaries, benefits and payroll taxes totaled $1.9 million for the firstquarter of 2009, compared to $1.8 million for the first quarter of 2008, anincrease of $100,000 increase or 5.5%.This increase was due to expandedactivity and related commissions in the Bank’s mortgage banking subsidiary. At March 31, 2009, the Corporation’s assets totaled $556.6 million, relativelyunchanged from December 31, 2008. Total loans of $421.6 million increased$14.5 million, or 3.6%, from December 31, 2008.