51 rom 358000 in 2007 to 435000 in 2008

The yield on earning assets was 6.80 in 2008and 7.08 in 2007. A erageinterest-bearing deposits were $111.1 million through the year ended December31, 2008, and represented an increase o $12.5 million or 12.68 o er thea erage 2007 le el o $98.6 million. Cumulati ely, a erage interest bearing undingsources (deposit and purchased unds) grew to $121.1 million in 2008, which was$8.7 million, or 7.74 greater than the 2007 le el o $112.4 million. Interestexpense or all interest bearing liabilities amounted to $3.9 million in 2008,which was 2.50 or $100,000 less than the 2007 le el o $4.0 million. The decrease inthe net interest margin has been primarily credited to the cyclical nature o the deposit sector which is adjusting steadily lower as issues mature andre-price. A large segment o the loan port olio is prime based and, as such,adjusts immediately, causing short-term margin pressure. The growth in interestspread, a more orward looking indicator, points to margin stabilization andexpansion as the deposit cycle continues and urther reduces cost o unds.

Thiswill be urther ostered by the Bank's in estment port olio, which wasreorganized in the second quarter to include extremely attracti e, in estmentgrade corporate debt issues. or the year ended December 31, 2008, noninterest income, exclusi e o securities transactions, grew to $1.61 million, representing a 3.21 increaseo er the 2007 le el o $1.56 million. Ser ice charges on deposits grew 2.66during the year and ended with a re enue increase o $22,000 to $850,000. Incomegenerated by the Bank's ixed rate mortgage department rose $77,000 or 21.51 rom $358,000 in 2007 to $435,000 in 2008. Income generated on bank-owned li einsurance increased $6,000 to $128,000 during 2008, while other income declined$48,000 rom $248,000 on December 31, 2007 to $200,000 on December 31, 2008.This 19.35 dip in other income stems primarily rom di ering gains and lossesrecognized on sales or donation o certain ixed assets and other real estateowned during the 2008 and 2007 periods. The Bank sold its Ettrick locationduring 2007, realizing a gain o $57,000 on the transaction.

Noninterest expense in the 2008 iscalyear amounted to $5.89 million compared to the 2007 le el o $5.51 million. Theincrease is directly related to expansionary acti ities occurring in the ranchise. The largest component o noninterest expense is salaries andbene its. Salaries and bene its expense or the year ended December 31, 2008grew $140,000 or 4.13 to $3.53 million. Personnel expenses increased with theaddition o the ull ser ice o ice in Prince George, the addition o a ulltime inancial ser ices in estment ad isor and nominal annual increases inbene its costs. Occupancy and urniture and equipment costs grew $102,000 o erthe 2007 le el to $865,000.

Other o erhead costs increased $130,000 or 9.56during 2008 to $1.49 million. Liles, President and Chie Executi e O icer, stated, "Last year, my ourth quarter comments began with 'This year has been a di icult period orthe banking industry.' Little did anyone oresee the turmoil yet to come incredit markets o the entire world. We ha e seen once goliaths o industrybrought to their knees because o an inability to access needed short termliquidity. Ne er be ore ha e we witnessed a period when irtually no one wouldlend to anyone. ortunately, our local community has been less impacted, and ourlending philosophy has ne er been to in est in subprime loans. This is not toimply we do not eel the e ects o the global credit crisis, and our le el o impaired loans has risen as certain borrowers struggle through this period.