Third Quarter Report September 30, 2015

Third Quarter Report September 30, 2015

Dear Shareholders:

Net income totaled $412,000, or $0.82 per share, for the quarter ended September 30, 2015. Earnings increased 29% during the third quarter of 2015 compared with third quarter 2014 when net income totaled $319,000, or $0.64 per share. Net interest income increased $83,000 compared with the third quarter of 2014 primarily due to an increase in interest earned on loans of $115,000 offset by a $31,000 reduction in income from investment securities. Noninterest income increased by $50,000 during the third quarter compared with the same time period last year due to a $93,000 securities gain, which was offset by a $47,000 reduction in fee income. Noninterest expense also decreased $18,000 during the third quarter of 2015 compared with third quarter 2014.

Year-to-date net income totaled $1,083,000, or $2.15 per share compared with $1,009,000, or $2.02 per share, for the first nine months of 2014. Net interest income increased $71,000 year-to-date, and noninterest income increased $110,000 year-to-date. Noninterest expense also increased by $110,000 in 2015 compared with the first nine months of 2014.

Deposits have also increased $4.9 million during 2015 although some of this growth may be temporary. Loan growth has continued at a robust pace in 2015 with $3 million growth in the third quarter and $11.8 million growth through the first nine months of the year. Lending activity has been achieved with solid production in both commercial and residential lending as well as maintaining a sound risk management framework with minimal delinquency and few watch list credits. I am also pleased to report that Rachel A. Staley was elected Loan Operations Officer by the Board of Directors in recognition of her lending and operational contributions.

A $0.47 per share third quarter dividend was paid October 1 bringing the year-to-date dividend payout ratio to a healthy 65% of earnings. Also, please mark your calendars for the Annual Meeting of Shareholders scheduled for April 12, 2016.

On behalf of the Board of Directors and employees, thank you for your support and loyalty.

Sincerely,

Nelson L. Person

President & CEO