##### 



Exhibit 13 National Bancshares Corporation
Annual Report to Security Holders
for the
fiscal year ended
December 31, 2004 (See Attached)




---



##### 



() Looking to the Future  ()




---



##### 



() DEAR SHAREHOLDERS
As the year 2004 came to a close, we experienced
growth in many areas of the Company. From the
financial perspective, National Bancshares reached
new highs in earnings and total assets. Net income of
over $2.9 million increased $267 thousand, or 10.1%,
above that of the previous year. This increase was
driven by growth in both net interest income and
non-interest income. A number of balance sheet totals
posted gains as well. Total assets reached over $308
million, growing $7.2 million, or 2.4%, above the
end of 2003. Total loans grew $9.7 million, or 5.2%,
while total deposits increased $5.7 million, or 2.3%,
above December 31, 2003. Cash dividends declared for the year 2004 amounted
to 61¢ per share. This is a 5.2% increase over the
previous year. This continues our long history of
increasing cash dividends for over 35 consecutive
years. The market value of our common stock
increased approximately 13.4% during the course of
2004. Our stock, which is traded on the OTC market,
is handled by a number of brokerage firms. A list of
these firms can be found on the OTC website,
www.otcbb.com. Just input our ticker symbol,
NBOH, and click on Depth/LII. As the competitive scene in the markets we serve
changed during the past year, we added sales staff
and continued the extensive training programs we
embarked upon in 2003. Responsibility lines were
shifted in the organization to support faster and more
effective decision-making and execution of customer
service. We will continue to change the organizational
 structure to meet the needs of a changing marketplace.
We are analyzing the service demands of our customers
on an ongoing basis to ensure we have the products
and services to meet their needs. Several new
products were recently unveiled with several more
to be introduced soon, including Online Bill Payment
which will enhance our online banking service. We
also continue to seek opportunities to expand our
service area either within our current markets or in
new geographic markets. During the past several years we have seen a number
of changes in the regulatory environment in which
we operate. This includes changes from how banking
regulators review and analyze banks to the Sarbanes-Oxley Act enacted in 2002. This congressionally mandated act imposes new regulatory requirements
on all SEC reporting companies. As an SEC filer,
we are bound by the provisions of this new law.
It requires extensive documentation and testing of
internal control procedures as well as a host of other
requirements. We estimate our cost of meeting the
requirements of this new law to be in excess of
$100,000. Hopefully, efficiencies and operational
cost savings will be identified in the process of
meeting these requirements. As we enter 2005 we see an improving business
environment and a better overall economy. The
Federal Open Market Committee gradually increased
short-term interest rates in 2004 to keep the economy
from growing too quickly and to control inflation.
Even though there has been upward pressure on energy
and food prices lately, the inflation outlook continues
to be moderate. Although short-term interest rates
have increased somewhat, long-term interest rates
have actually moved down slightly, resulting in a
flatter yield curve. If a flat yield curve is sustained
for an extended period of time, it can present a
challenge for banks to sustain their net interest margin.
We are optimistic as we enter 2005 and embrace the
opportunities this new year presents. We look forward
to keeping you, as shareholders, in a growing and
profitable community bank. Charles Dolezal
President and Chairman




---



##### 



FINANCIAL HIGHLIGHTS




Financial Position


|                         |  |      |             |  |      |            |             |        |  |  |       |   
|------------------------ |  | ---- | ----------- |  | ---- | ---------- | ----------- | ------ |  |  | ----- | --
|                         |  |      |             |  |      | Percentage |            
|(Year End Balances)      |  | 2004 |             |  | 2003 |            |             | Change | 
|                         |  |      |             |  |      |            |             |        | 
|Total Assets             |  | $    | 308,424,929 |  |      | $          | 301,249,375 |        |  |  | 2.38  | % 
|Deposits                 |  |      | 248,522,476 |  |      |            | 242,847,291 |        |  |  | 2.34  | % 
|Loans-Net                |  |      | 196,724,596 |  |      |            | 187,056,241 |        |  |  | 5.17  | % 
|Investment Securities    |  |      | 76,327,029  |  |      |            | 83,793,119  |        |  |  | (8.91 | )%
|Shareholders Equity     |  |      | 35,319,321  |  |      |            | 34,804,735  |        |  |  | 1.48  | % 
|                        
|Summary of Operations    |  |      |             |  |      |            |             |        |  |  |       |   
|Net Interest Income      |  | $    | 11,965,677  |  |      | $          | 11,303,793  |        |  |  | 5.86  | % 
|Net Income               |  |      | 2,910,740   |  |      |            | 2,643,551   |        |  |  | 10.11 | % 
|Regular Cash Dividends   |  |      | 1,363,038   |  |      |            | 1,296,004   |        |  |  | 5.17  | % 
|Net Income Per Share     |  |      | 1.30        |  |      |            | 1.18        |        |  |  | 10.17 | % 
|Cash Dividends Per Share |  |      | 0.61        |  |      |            | 0.58        |        |  |  | 5.17  | % 
|Book Value Per Share     |  |      | 15.81       |  |      |            | 15.58       |        |  |  | 1.48  | % 








1



---



##### 



SELECTED FINANCIAL DATA




|                                                    |  |                                           |             |  |      |   |             |      |  |   |             |  |  |      |             |  |  |   |             | 
|--------------------------------------------------- |  | ----------------------------------------- | ----------- |  | ---- | - | ----------- | ---- |  | - | ----------- |  |  | ---- | ----------- |  |  | - | ----------- | 
|                                                    |  | As of or For the Years Ended December 31, |            
|                                                    |  |                                           |            
|                                                    |  | 2004                                      |             |  | 2003 |   |             | 2002 |  |   | 2001        |  |  | 2000 |            
|                                                    |  |                                           |             |  |      |   |             |      |  |   |             |  |  |      |            
|Income Statement Data:                              |  |                                           |             |  |      |   |             |      |  |   |             |  |  |      |             |  |  |   |             | 
|Interest Income                                     |  | $                                         | 15,311,999  |  |      | $ | 15,043,809  |      |  | $ | 15,941,153  |  |  | $    | 13,556,747  |  |  | $ | 14,214,579  | 
|Interest Expense                                    |  |                                           | 3,346,322   |  |      |   | 3,740,016   |      |  |   | 4,927,774   |  |  |      | 4,954,357   |  |  |   | 5,410,266   | 
|                                                    |  |                                           |             |  |      |   |             |      |  |   |             |  |  |      |            
|Net Interest Income                                 |  |                                           | 11,965,677  |  |      |   | 11,303,793  |      |  |   | 11,013,379  |  |  |      | 8,602,390   |  |  |   | 8,804,313   | 
|Provision for Loan Losses                           |  |                                           | 177,500     |  |      |   | 245,000     |      |  |   | 1,569,402   |  |  |      | 40,000      |  |  |   | 62,500      | 
|                                                    |  |                                           |             |  |      |   |             |      |  |   |             |  |  |      |            
|Net Interest Income After Provision for Loan Losses |  |                                           | 11,788,177  |  |      |   | 11,058,793  |      |  |   | 9,443,977   |  |  |      | 8,562,390   |  |  |   | 8,741,813   | 
|Noninterest Income                                  |  |                                           | 1,895,313   |  |      |   | 1,532,020   |      |  |   | 1,458,031   |  |  |      | 1,145,238   |  |  |   | 849,467     | 
|Noninterest Expense                                 |  |                                           | 9,897,462   |  |      |   | 9,140,516   |      |  |   | 7,998,774   |  |  |      | 6,403,105   |  |  |   | 6,318,759   | 
|                                                    |  |                                           |             |  |      |   |             |      |  |   |             |  |  |      |            
|Income Before Income Taxes                          |  |                                           | 3,786,028   |  |      |   | 3,450,297   |      |  |   | 2,903,234   |  |  |      | 3,304,523   |  |  |   | 3,272,521   | 
|Income Tax Expense                                  |  |                                           | 875,288     |  |      |   | 806,746     |      |  |   | 648,460     |  |  |      | 777,320     |  |  |   | 717,250     | 
|                                                    |  |                                           |             |  |      |   |             |      |  |   |             |  |  |      |            
|Net Income                                          |  | $                                         | 2,910,740   |  |      | $ | 2,643,551   |      |  | $ | 2,254,774   |  |  | $    | 2,527,203   |  |  | $ | 2,555,271   | 
|                                                    |  |                                           |             |  |      |   |             |      |  |   |             |  |  |      |            
|Balance Sheet Data:                                 |  |                                           |             |  |      |   |             |      |  |   |             |  |  |      |             |  |  |   |             | 
|Cash and Due from Banks                             |  | $                                         | 11,756,454  |  |      | $ | 11,506,999  |      |  | $ | 10,010,654  |  |  | $    | 6,935,082   |  |  | $ | 7,077,797   | 
|Investment Securities                               |  |                                           | 76,327,029  |  |      |   | 83,793,119  |      |  |   | 70,806,397  |  |  |      | 60,843,655  |  |  |   | 68,021,052  | 
|Loans-Net                                           |  |                                           | 196,724,596 |  |      |   | 187,056,241 |      |  |   | 190,559,663 |  |  |      | 116,880,804 |  |  |   | 107,551,674 | 
|Deposits                                            |  |                                           | 248,522,476 |  |      |   | 242,847,291 |      |  |   | 239,297,227 |  |  |      | 159,519,295 |  |  |   | 162,013,585 | 
|Borrowings                                          |  |                                           | 21,679,242  |  |      |   | 20,140,702  |      |  |   | 21,211,964  |  |  |      | 5,741,697   |  |  |   | 8,010,869   | 
|Shareholders Equity                                |  |                                           | 35,319,321  |  |      |   | 34,804,735  |      |  |   | 33,190,050  |  |  |      | 30,922,188  |  |  |   | 28,939,329  | 
|Total Assets                                        |  |                                           | 308,424,929 |  |      |   | 301,249,375 |      |  |   | 296,502,555 |  |  |      | 197,763,446 |  |  |   | 200,792,706 | 
|Per Common Share Data:                              |  |                                           |             |  |      |   |             |      |  |   |             |  |  |      |             |  |  |   |             | 
|Net Income                                          |  | $                                         | 1.30        |  |      | $ | 1.18        |      |  | $ | 1.01        |  |  | $    | 1.13        |  |  | $ | 1.14        | 
|Cash Dividends                                      |  |                                           | 0.61        |  |      |   | 0.58        |      |  |   | 0.54        |  |  |      | 0.52        |  |  |   | 0.50        | 
|Book Value                                          |  |                                           | 15.81       |  |      |   | 15.58       |      |  |   | 14.85       |  |  |      | 13.93       |  |  |   | 12.92       | 
|Weighted Average Number of Shares Outstanding       |  |                                           | 2,234,488   |  |      |   | 2,234,488   |      |  |   | 2,228,510   |  |  |      | 2,230,013   |  |  |   | 2,240,534   | 




2



---



##### 



SELECTED FINANCIAL DATA


|                                                   |  |                                           |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|-------------------------------------------------- |  | ----------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                                   |  | As of or For the Years Ended December 31, |          
|                                                   |  |                                           |          
|                                                   |  | 2004                                      |           |   | 2003 |   |           | 2002 |  |   | 2001      |   |  | 2000 |          
|                                                   |  |                                           |           |   |      |   |           |      |  |   |           |   |  |      |          
|Selected Data:                                     |  |                                           |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Return on Average Equity                           |  |                                           | 8.29      | % |      |   | 7.58      | %    |  |   | 7.01      | % |  |      | 8.17      | % |  |   | 9.08      | %
|Return on Average Assets                           |  |                                           | 0.97      | % |      |   | 0.90      | %    |  |   | 0.85      | % |  |      | 1.27      | % |  |   | 1.30      | %
|Dividend Payout Percentage                         |  |                                           | 46.83     | % |      |   | 49.03     | %    |  |   | 53.40     | % |  |      | 45.85     | % |  |   | 43.82     | %
|Efficiency Ratio(1)                                |  |                                           | 71.41     | % |      |   | 71.21     | %    |  |   | 64.14     | % |  |      | 65.69     | % |  |   | 65.45     | %
|Full Time Equivalent Staff                         |  |                                           | 136       |   |      |   | 133       |      |  |   | 122       |   |  |      | 103       |   |  |   | 103       |  
|Average Total Assets to Full Time Equivalent Staff |  | $                                         | 2,214,226 |   |      | $ | 2,209,383 |      |  | $ | 2,166,827 |   |  | $    | 1,938,835 |   |  | $ | 1,902,022 |  
|Asset Quality Ratios:                              |  |                                           |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Allowance for Loan Losses to Ending Total Loans    |  |                                           | 0.89      | % |      |   | 0.85      | %    |  |   | 0.83      | % |  |      | 1.12      | % |  |   | 1.23      | %
|Net Loan Charge-offs to Average Loans              |  |                                           | 0.01      | % |      |   | 0.13      | %    |  |   | 0.89      | % |  |      | 0.06      | % |  |   | 0.03      | %
|Capital Ratios:                                    |  |                                           |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Average Equity to Average Assets                   |  |                                           | 11.65     | % |      |   | 11.86     | %    |  |   | 12.17     | % |  |      | 15.49     | % |  |   | 14.36     | %
|Leverage Ratio(2)                                  |  |                                           | 9.41      | % |      |   | 9.04      | %    |  |   | 8.61      | % |  |      | 14.98     | % |  |   | 14.53     | %
|Total Risk-Based Capital Ratio(2)                  |  |                                           | 13.73     | % |      |   | 13.59     | %    |  |   | 13.58     | % |  |      | 22.71     | % |  |   | 22.22     | %






|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|(1) | The efficiency ratio is calculated by dividing noninterest
    expenses by the sum of net interest income and non-interest
    income.
|(2) | Computed in accordance with Comptroller of the Currency and FDIC
    guidelines.                                                      



|               |  |          |           |  |              |           |           |        |        |   |        |  |  |           |           |  |           |   |         |  |  |   |      | 
|-------------- |  | -------- | --------- |  | ------------ | --------- | --------- | ------ | ------ | - | ------ |  |  | --------- | --------- |  | --------- | - | ------- |  |  | - | ---- | 
|               |  |          |           |  |              | Provision |           |        | Income |   |        |  |  | Basic and |          
|               |  |          |           |  |              | For       |           |        | Before |   |        |  |  | Diluted   |          
|               |  | Interest |           |  | Net Interest |           |           | Loan   |        |   | Income |  |  | Net       |           |  | Earnings  |  
|(Unaudited)    |  | Income   |           |  | Income       |           |           | Losses |        |   | Taxes  |  |  | Income    |           |  | Per Share |  
|               |  |          |           |  |              |           |           |        |        |   |        |  |  |           |           |  |           |  
|2004           |  |          |           |  |              |           |           |        |        |   |        |  |  |           |           |  |           |   |         |  |  |   |      | 
|First quarter  |  | $        | 3,776,566 |  |              | $         | 3,005,542 |        |        | $ | 47,500 |  |  | $         | 1,131,312 |  |           | $ | 829,998 |  |  | $ | 0.37 | 
|Second quarter |  |          | 3,786,272 |  |              |           | 2,925,382 |        |        |   | 85,000 |  |  |           | 861,227   |  |           |   | 656,179 |  |  |   | 0.29 | 
|Third quarter  |  |          | 3,813,203 |  |              |           | 2,951,300 |        |        |   | 45,000 |  |  |           | 764,954   |  |           |   | 593,893 |  |  |   | 0.27 | 
|Fourth quarter |  |          | 3,935,958 |  |              |           | 3,083,453 |        |        |   |       |  |  |           | 1,028,535 |  |           |   | 830,670 |  |  |   | 0.37 | 
|2003           |  |          |           |  |              |           |           |        |        |   |        |  |  |           |           |  |           |   |         |  |  |   |      | 
|First quarter  |  | $        | 3,974,571 |  |              | $         | 2,992,145 |        |        | $ | 35,000 |  |  | $         | 1,073,950 |  |           | $ | 806,646 |  |  | $ | 0.36 | 
|Second quarter |  |          | 3,926,619 |  |              |           | 2,926,329 |        |        |   | 50,000 |  |  |           | 1,076,993 |  |           |   | 799,626 |  |  |   | 0.36 | 
|Third quarter  |  |          | 3,744,193 |  |              |           | 2,839,220 |        |        |   | 70,000 |  |  |           | 826,683   |  |           |   | 636,946 |  |  |   | 0.28 | 
|Fourth quarter |  |          | 3,398,426 |  |              |           | 2,546,099 |        |        |   | 90,000 |  |  |           | 472,671   |  |           |   | 400,333 |  |  |   | 0.18 | 






3



---



##### 



FINANCIAL REVIEW




Forward Looking Statement






Financial Condition


Loans.









4



---



##### 



FINANCIAL REVIEW




|                                       |  |                                            |             |   |      |  |     |      |  |   |             |   |  |      |     |   |   |   |             |   |  |  |     |   |  |   |             |   |   |  |     |   |  |   |             |   |  |  |     |  
|-------------------------------------- |  | ------------------------------------------ | ----------- | - | ---- |  | --- | ---- |  | - | ----------- | - |  | ---- | --- | - | - | - | ----------- | - |  |  | --- | - |  | - | ----------- | - | - |  | --- | - |  | - | ----------- | - |  |  | --- | -
|                                       |  | Loan Portfolio Composition at December 31, |            
|                                       |  |                                            |            
|                                       |  | 2004                                       |             |   | 2003 |  |     | 2002 |  |   | 2001        |   |  | 2000 |    
|                                       |  |                                            |             |   |      |  |     |      |  |   |             |   |  |      |    
|                                       |  | $                                          |             |   | %    |  |     | $    |  |   | %           |   |  | $    |     |   | % |   |             | $ |  |  | %   |   |  | $ |             |   | % | 
|                                       |  |                                            |             |   |      |  |     |      |  |   |             |   |  |      |     |   |   |   |             |   |  |  |     |   |  |   |             |   |   | 
|Type of Loan:                          |  |                                            |             |   |      |  |     |      |  |   |             |   |  |      |     |   |   |   |             |   |  |  |     |   |  |   |             |   |   |  |     |   |  |   |             |   |  |  |     |  
|Collateralized by real estate:         |  |                                            |             |   |      |  |     |      |  |   |             |   |  |      |     |   |   |   |             |   |  |  |     |   |  |   |             |   |   |  |     |   |  |   |             |   |  |  |     |  
|Commercial                             |  | $                                          | 47,080,983  |   |      |  | 24  | %    |  | $ | 39,349,045  |   |  |      | 21  | % |   | $ | 28,747,949  |   |  |  | 15  | % |  | $ | 23,933,475  |   |   |  | 20  | % |  | $ | 27,005,236  |   |  |  | 25  | %
|Residential                            |  |                                            | 97,694,011  |   |      |  | 49  | %    |  |   | 101,291,447 |   |  |      | 54  | % |   |   | 118,834,883 |   |  |  | 62  | % |  |   | 53,522,228  |   |   |  | 45  | % |  |   | 42,063,386  |   |  |  | 38  | %
|Home equity                            |  |                                            | 18,272,212  |   |      |  | 9   | %    |  |   | 14,008,018  |   |  |      | 7   | % |   |   | 12,555,738  |   |  |  | 6   | % |  |   | 9,426,924   |   |   |  | 8   | % |  |   | 8,612,004   |   |  |  | 8   | %
|Construction                           |  |                                            | 6,326,884   |   |      |  | 3   | %    |  |   | 5,131,685   |   |  |      | 3   | % |   |   | 2,065,964   |   |  |  | 1   | % |  |   | 4,769,337   |   |   |  | 4   | % |  |   | 1,011,188   |   |  |  | 1   | %
|                                       |  |                                            |             |   |      |  |     |      |  |   |             |   |  |      |     |   |   |   |             |   |  |  |     |   |  |   |             |   |   | 
|                                       |  |                                            | 169,374,090 |   |      |  | 85  | %    |  |   | 159,780,195 |   |  |      | 85  | % |   |   | 162,204,534 |   |  |  | 84  | % |  |   | 91,651,964  |   |   |  | 77  | % |  |   | 78,691,814  |   |  |  | 72  | %
|Other:                                 |  |                                            |             |   |      |  |     |      |  |   |             |   |  |      |     |   |   |   |             |   |  |  |     |   |  |   |             |   |   |  |     |   |  |   |             |   |  |  |     |  
|Consumer                               |  |                                            | 5,385,953   |   |      |  | 3   | %    |  |   | 4,828,644   |   |  |      | 3   | % |   |   | 4,847,264   |   |  |  | 3   | % |  |   | 5,224,468   |   |   |  | 5   | % |  |   | 7,151,394   |   |  |  | 7   | %
|Commercial                             |  |                                            | 21,196,523  |   |      |  | 10  | %    |  |   | 21,374,911  |   |  |      | 11  | % |   |   | 21,631,567  |   |  |  | 11  | % |  |   | 18,050,801  |   |   |  | 15  | % |  |   | 19,850,559  |   |  |  | 18  | %
|Credit cards  unsecured               |  |                                            | 1,363,725   |   |      |  | 1   | %    |  |   | 1,263,565   |   |  |      | 0   | % |   |   | 1,276,587   |   |  |  | 1   | % |  |   | 1,227,172   |   |   |  | 1   | % |  |   | 1,188,297   |   |  |  | 1   | %
|Other                                  |  |                                            | 1,673,031   |   |      |  | 1   | %    |  |   | 1,821,016   |   |  |      | 1   | % |   |   | 2,570,767   |   |  |  | 1   | % |  |   | 2,249,271   |   |   |  | 2   | % |  |   | 2,273,180   |   |  |  | 2   | %
|                                       |  |                                            |             |   |      |  |     |      |  |   |             |   |  |      |     |   |   |   |             |   |  |  |     |   |  |   |             |   |   | 
|Total Loans                            |  |                                            | 198,993,322 |   |      |  | 100 | %    |  |   | 189,068,331 |   |  |      | 100 | % |   |   | 192,530,719 |   |  |  | 100 | % |  |   | 118,403,676 |   |   |  | 100 | % |  |   | 109,155,244 |   |  |  | 100 | %
|Less:                                  |  |                                            |             |   |      |  |     |      |  |   |             |   |  |      |     |   |   |   |             |   |  |  |     |   |  |   |             |   |   |  |     |   |  |   |             |   |  |  |     |  
|Unearned and deferred income           |  |                                            | (505,428    | ) |      |  |     |      |  |   | (408,522    | ) |  |      |     |   |   |   | (366,856    | ) |  |  |     |   |  |   | (201,720    | ) |   |  |     |   |  |   | (260,446    | ) |  |  |     |  
|Allowance for loan losses              |  |                                            | (1,763,298  | ) |      |  |     |      |  |   | (1,603,568  | ) |  |      |     |   |   |   | (1,604,200  | ) |  |  |     |   |  |   | (1,321,152  | ) |   |  |     |   |  |   | (1,343,124  | ) |  |  |     |  
|                                       |  |                                            |             |   |      |  |     |      |  |   |             |   |  |      |     |   |   |   |             |   |  |  |     |   |  |   |             |   |   | 
|Net Loans                              |  | $                                          | 196,724,596 |   |      |  |     |      |  | $ | 187,056,241 |   |  |      |     |   |   | $ | 190,559,663 |   |  |  |     |   |  | $ | 116,880,804 |   |   |  |     |   |  | $ | 107,551,674 |   |  |  |     |  
|                                       |  |                                            |             |   |      |  |     |      |  |   |             |   |  |      |     |   |   |   |             |   |  |  |     |   |  |   |             |   |   | 
|Net loans as a percent of total assets |  |                                            | 63.78       | % |      |  |     |      |  |   | 62.09       | % |  |      |     |   |   |   | 64.22       | % |  |  |     |   |  |   | 59.10       | % |   |  |     |   |  |   | 53.56       | % |  |  |     |  








5



---



##### 



FINANCIAL REVIEW






|                               |              |                                              |            |            |              |   |            |            |  |   |            |            |  |   |             |            | 
|------------------------------ | ------------ | -------------------------------------------- | ---------- | ---------- | ------------ | - | ---------- | ---------- |  | - | ---------- | ---------- |  | - | ----------- | ---------- | 
|                               |              | Loan Portfolio Maturity at December 31, 2004 |           
|                               |              |                                              |           
|                               |              |                                              |            | 5 years or |              |   |           
|                               |              | 0 to 1 year*                                 |            |            | 1 to 5 years |   |            | more       |  |   | Total      |           
|                               |              |                                              |            |            |              |   |            |            |  |   |            |           
|Amount due:                    |              |                                              |            |            |              |   |            |            |  |   |            |            |  |   |             |           
|Collateralized by real estate: |              |                                              |            |            |              |   |            |            |  |   |            |            |  |   |             |           
|                               | Commercial   |                                              | $          | 7,482,271  |              |   | $          | 20,111,367 |  |   | $          | 19,487,345 |  |   | $           | 47,080,983 | 
|                               | Residential  |                                              |            | 10,737,584 |              |   |            | 36,544,612 |  |   |            | 50,411,815 |  |   |             | 97,694,011 | 
|                               | Home equity  |                                              |            |           |              |   |            | 54,262     |  |   |            | 18,217,950 |  |   |             | 18,272,212 | 
|                               | Construction |                                              |            | 1,944,313  |              |   |            | 1,653,942  |  |   |            | 2,728,629  |  |   |             | 6,326,884  | 
|Consumer loans                 |              |                                              | 2,035,231  |            |              |   | 3,333,327  |            |  |   | 17,395     |            |  |   | 5,385,953   |           
|Commercial                     |              |                                              | 6,495,624  |            |              |   | 6,939,158  |            |  |   | 7,761,741  |            |  |   | 21,196,523  |           
|Credit cards                   |              |                                              | 1,363,725  |            |              |   |           |            |  |   |           |            |  |   | 1,363,725   |           
|Other                          |              |                                              | 528,979    |            |              |   | 772,608    |            |  |   | 371,444    |            |  |   | 1,673,031   |           
|                               |              |                                              |            |            |              |   |            |            |  |   |            |           
|Total                          |              | $                                            | 30,587,727 |            |              | $ | 69,409,276 |            |  | $ | 98,996,319 |            |  | $ | 198,993,322 |           
|                               |              |                                              |            |            |              |   |            |            |  |   |            |           






|  |                                                                                           
|- | ------------------------------------------------------------------------------------------
|* | Loans due on demand and overdrafts are included in the amount
    due in one year or less.

|                               |              |            |            |            |                 |   |             |            |  |   |             |            | 
|------------------------------ | ------------ | ---------- | ---------- | ---------- | --------------- | - | ----------- | ---------- |  | - | ----------- | ---------- | 
|                               |              | Fixed Rate |            |            | Adjustable Rate |   |             | Total      | 
|                               |              |            |            |            |                 |   |             |            | 
|Collateralized by real estate: |              |            |            |            |                 |   |             |            |  |   |             |           
|                               | Commercial   |            | $          | 3,590,153  |                 |   | $           | 43,490,830 |  |   | $           | 47,080,983 | 
|                               | Residential  |            |            | 55,784,165 |                 |   |             | 41,909,846 |  |   |             | 97,694,011 | 
|                               | Home equity  |            |            |           |                 |   |             | 18,272,212 |  |   |             | 18,272,212 | 
|                               | Construction |            |            | 641,070    |                 |   |             | 5,685,814  |  |   |             | 6,326,884  | 
|Consumer loans                 |              |            | 5,053,069  |            |                 |   | 332,884     |            |  |   | 5,385,953   |           
|Commercial                     |              |            | 4,185,386  |            |                 |   | 17,011,137  |            |  |   | 21,196,523  |           
|Credit cards                   |              |            | 1,055,807  |            |                 |   | 307,918     |            |  |   | 1,363,725   |           
|Other                          |              |            | 1,673,031  |            |                 |   |            |            |  |   | 1,673,031   |           
|                               |              |            |            |            |                 |   |             |            | 
|Total                          |              | $          | 71,982,681 |            |                 | $ | 127,010,641 |            |  | $ | 198,993,322 |           
|                               |              |            |            |            |                 |   |             |            | 

Allowance for Loan Losses.





6



---



##### 



FINANCIAL REVIEW




Loans Analyzed Individually.





|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Passloans are loans that are considered satisfactory,
    with lower than average risk and low probability of serious
    financial deterioration on the borrowers part                                                                                                                                                                                                                                                                                                              |  | Watchloans are loans that are performing according to
    the terms of the loan agreement but that nevertheless require
    enhanced management supervision because of factors such as an
    unusual payment history or a weakened financial condition on the
    borrowers part                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Special-Mentionloans have more than average risk, with
    identified potential weaknesses that deserve managements
    close attention. Left uncorrected, the potential weaknesses
    could result in deterioration of repayment prospects. In the
    case of a commercial borrower for example, potential weaknesses
    could include adverse trends in the borrowers operations
    or adverse economic or market conditions that could affect the
    borrower in the future |  | Substandardloans are inadequately protected by the
    current financial condition and paying capacity of the borrower
    or by any collateral securing the loan. Substandard loans have a
    well-defined weakness or weaknesses jeopardizing collection of
    the debt in full, with a distinct possibility of loss if the
    weakness or weaknesses are not corrected. Although a loan may be
    classified substandard even if payments are not 90 days or
    more past due, if payments are 90 days or more past due the
    loan will be classified as substandard if not adequately
    collateralized, if not ranked even lower




7



---



##### 



FINANCIAL REVIEW


|                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Doubtfulloans have all the weaknesses inherent in those
    classified as substandard, with the added characteristic that
    existing facts, conditions, and values make collection or
    liquidation in full highly questionable and improbable. The
    possibility of loss is extremely high, but because of factors
    that could work to the borrowers advantage classification
    of the doubtful loan as loss is deferred |  | Loans classified as Lossare those considered
    uncollectible and of such little value that their continuance as
    assets without the establishment of a specific loss reserve is
    not warranted. When a bank classifies an asset as
    loss, the bank is required either to establish an
    allowance for losses equal to 100% of that portion of the asset
    so classified or to charge off that amount










|                        |                 |                                   |   |            |             |  |     |        |            |   |             |           |           |            |     |     |             |   |   |           |           |  |     |     |     |  
|----------------------- | --------------- | --------------------------------- | - | ---------- | ----------- |  | --- | ------ | ---------- | - | ----------- | --------- | --------- | ---------- | --- | --- | ----------- | - | - | --------- | --------- |  | --- | --- | --- | -
|                        |                 | Classified assets at December 31, |  
|                        |                 |                                   |  
|                        |                 | 2004                              |   |            | 2003        |  |     | 2002   |           
|                        |                 |                                   |   |            |             |  |     |        |           
|                        |                 |                                   |   | Percent of |             |  |     |        | Percent of |   |             |           |           | Percent of |    
|                        |                 | Amount                            |   |            | total loans |  |     | Amount |            |   | total loans |           |           | Amount     |     |     | total loans |  
|                        |                 |                                   |   |            |             |  |     |        |            |   |             |           |           |            |     |     |             |  
|Classified loans:       |                 |                                   |   |            |             |  |     |        |            |   |             |           |           |            |     |     |             |   |   |           |           |  |     |    
|                        | Special mention |                                   | $ | 6,189,953  |             |  |     | 3.1    | %          |   | $           | 3,126,131 |           |            |     | 1.7 | %           |   | $ | 2,333,281 |           |  |     | 1.2 | %  
|                        | Substandard     |                                   |   | 3,340,416  |             |  |     | 1.7    | %          |   |             | 3,994,474 |           |            |     | 2.1 | %           |   |   | 4,351,773 |           |  |     | 2.3 | %  
|                        | Doubtful        |                                   |   | 731,900    |             |  |     | 0.4    | %          |   |             | 383,495   |           |            |     | 0.2 | %           |   |   | 9,878     |           |  |     | 0.0 | %  
|                        | Loss            |                                   |   |           |             |  |     | 0.0    | %          |   |             |          |           |            |     | 0.0 | %           |   |   | 6,512     |           |  |     | 0.0 | %  
|                        |                 |                                   |   |            |             |  |     |        |            |   |             |           |           |            |     |     |             |  
|                        |                 | Total classified loans            |   | $          | 10,262,269  |  |     |        | 5.2        | % |             | $         | 7,504,100 |            |     |     | 4.0         | % |   | $         | 6,701,444 |  |     |     | 3.5 | %
|Other classified assets |                 |                                   |  |            |             |  | 0.0 | %      |            |   |            |           |           |            | 0.0 | %   |             |   |  |           |           |  | 0.0 | %  
|                        |                 |                                   |   |            |             |  |     |        |            |   |             |           |           |            |     |     |             |  
|                        |                 | Total classified assets           |   | $          | 10,262,269  |  |     |        | 5.2        | % |             | $         | 7,504,100 |            |     |     | 4.0         | % |   | $         | 6,701,444 |  |     |     | 3.5 | %
|                        |                 |                                   |   |            |             |  |     |        |            |   |             |           |           |            |     |     |             |  




8



---



##### 



FINANCIAL REVIEW


Pools of Homogenous Loans Analyzed under SFAS 5.




Changes in the Allowance for Loan Losses and Classified
Assets.









9



---



##### 



FINANCIAL REVIEW






|                                                                                   |                                |                         |           |             |        |   |           |             |         |   |            |             |           |      |           |             |        |   |           |             |        | 
|---------------------------------------------------------------------------------- | ------------------------------ | ----------------------- | --------- | ----------- | ------ | - | --------- | ----------- | ------- | - | ---------- | ----------- | --------- | ---- | --------- | ----------- | ------ | - | --------- | ----------- | ------ | 
|                                                                                   |                                | Year Ended December 31, |          
|                                                                                   |                                |                         |          
|                                                                                   |                                | 2004                    |           |             | 2003   |   |           | 2002        |         |   | 2001       |             |           | 2000 |          
|                                                                                   |                                |                         |           |             |        |   |           |             |         |   |            |             |           |      |          
|Loan loss allowance, beginning of period                                           |                                | $                       | 1,603,568 |             |        | $ | 1,604,200 |             |         | $ | 1,321,152  |             |           | $    | 1,343,124 |             |        | $ | 1,308,630 |            
|Loans charged off:                                                                 |                                |                         |           |             |        |   |           |             |         |   |            |             |           |      |           |             |        |   |           |            
|                                                                                   | Collateralized by real estate: |                         |           |             |        |   |           |             |         |   |            |             |           |      |           |             |        |   |           |             |       
|                                                                                   |                                | Commercial              |           |             |       |   |           |             |        |   |            |             |          |      |           |             | 20,007 |   |           |             |       | 
|                                                                                   |                                | Residential             |           |             | 24,003 |   |           |             |        |   |            |             |          |      |           |             |       |   |           |             |       | 
|                                                                                   |                                | Home equity             |           |             |       |   |           |             |        |   |            |             |          |      |           |             |       |   |           |             |       | 
|                                                                                   |                                | Construction            |           |             |       |   |           |             |        |   |            |             | 1,475,906 |      |           |             |       |   |           |             |       | 
|                                                                                   | Consumer                       |                         |           | 24,605      |        |   |           | 9,923       |         |   |            | 21,943      |           |      |           | 21,006      |        |   |           | 34,510      |       
|                                                                                   | Commercial                     |                         |           |            |        |   |           | 237,526     |         |   |            | 23,431      |           |      |           | 38,730      |        |   |           | 8,720       |       
|                                                                                   | Credit cards                   |                         |           | 20,154      |        |   |           | 20,036      |         |   |            | 24,706      |           |      |           | 6,439       |        |   |           | 13,507      |       
|                                                                                   | Other                          |                         |           |            |        |   |           |            |         |   |            |            |           |      |           |            |        |   |           |            |       
|                                                                                   |                                |                         |           |             |        |   |           |             |         |   |            |             |           |      |          
|                                                                                   |                                | Total loans charged off |           |             | 68,762 |   |           |             | 267,485 |   |            |             | 1,545,986 |      |           |             | 86,182 |   |           |             | 56,737 | 
|                                                                                   |                                |                         |           |             |        |   |           |             |         |   |            |             |           |      |          
|Recoveries of loans previously charged off:                                        |                                |                         |           |             |        |   |           |             |         |   |            |             |           |      |           |             |        |   |           |            
|                                                                                   | Collateralized by real estate: |                         |           |             |        |   |           |             |         |   |            |             |           |      |           |             |        |   |           |             |       
|                                                                                   |                                | Commercial              |           |             |       |   |           |             |        |   |            |             |          |      |           |             |       |   |           |             |       | 
|                                                                                   |                                | Residential             |           |             |       |   |           |             |        |   |            |             |          |      |           |             | 1,451  |   |           |             | 707    | 
|                                                                                   |                                | Home equity             |           |             |       |   |           |             |        |   |            |             |          |      |           |             |       |   |           |             |       | 
|                                                                                   |                                | Construction            |           |             |       |   |           |             |        |   |            |             |          |      |           |             |       |   |           |             |       | 
|                                                                                   | Consumer                       |                         |           | 1,772       |        |   |           | 8,840       |         |   |            | 12,151      |           |      |           | 20,937      |        |   |           | 24,986      |       
|                                                                                   | Commercial                     |                         |           | 41,230      |        |   |           | 7,320       |         |   |            | 2,300       |           |      |           | 1,218       |        |   |           | 2,002       |       
|                                                                                   | Credit cards                   |                         |           | 7,990       |        |   |           | 5,693       |         |   |            | 652         |           |      |           | 604         |        |   |           | 1,036       |       
|                                                                                   | Other                          |                         |           |            |        |   |           |            |         |   |            |            |           |      |           |            |        |   |           |            |       
|                                                                                   |                                |                         |           |             |        |   |           |             |         |   |            |             |           |      |          
|                                                                                   |                                | Total recoveries        |           |             | 50,992 |   |           |             | 21,853  |   |            |             | 15,103    |      |           |             | 24,210 |   |           |             | 28,731 | 
|                                                                                   |                                |                         |           |             |        |   |           |             |         |   |            |             |           |      |          
|Net loans recovered (charged off)                                                  |                                |                         | (17,770   | )           |        |   | (245,632  | )           |         |   | (1,530,883 | )           |           |      | (61,972   | )           |        |   | (28,006   | )          
|Provision charged to operations                                                    |                                |                         | 177,500   |             |        |   | 245,000   |             |         |   | 1,569,402  |             |           |      | 40,000    |             |        |   | 62,500    |            
|Allowance of acquired institution                                                  |                                |                         |          |             |        |   |          |             |         |   | 244,529    |             |           |      |          |             |        |   |          |            
|                                                                                   |                                |                         |           |             |        |   |           |             |         |   |            |             |           |      |          
|Loan loss allowance, end of period                                                 |                                | $                       | 1,763,298 |             |        | $ | 1,603,568 |             |         | $ | 1,604,200  |             |           | $    | 1,321,152 |             |        | $ | 1,343,124 |            
|                                                                                   |                                |                         |           |             |        |   |           |             |         |   |            |             |           |      |          
|Loans outstanding:                                                                 |                                |                         |           |             |        |   |           |             |         |   |            |             |           |      |           |             |        |   |           |            
|                                                                                   | Average                        |                         | $         | 194,032,000 |        |   | $         | 187,180,000 |         |   | $          | 172,159,000 |           |      | $         | 110,418,000 |        |   | $         | 104,856,000 |       
|                                                                                   | End of period                  |                         |           | 198,993,322 |        |   |           | 189,068,331 |         |   |            | 192,530,719 |           |      |           | 118,403,676 |        |   |           | 109,155,244 |       
|Ratio of allowance for loan losses to total loans outstanding at
    end of period |                                |                         | 0.89      | %           |        |   | 0.85      | %           |         |   | 0.83       | %           |           |      | 1.12      | %           |        |   | 1.23      | %          
|Net recoveries (charge offs) to average loans                                      |                                |                         | (0.01     | )%          |        |   | (0.13     | )%          |         |   | (0.89      | )%          |           |      | (0.06     | )%          |        |   | (0.03     | )%         




10



---



##### 



FINANCIAL REVIEW







|                               |              |                                                             |           |             |             |  |     |        |             |  |             |         |           |             |     |     |             |  |             |         |           |  |             |             |      |        |         |         |             |  |     |     |      |  |         |         |           |  |     |     |      | 
|------------------------------ | ------------ | ----------------------------------------------------------- | --------- | ----------- | ----------- |  | --- | ------ | ----------- |  | ----------- | ------- | --------- | ----------- | --- | --- | ----------- |  | ----------- | ------- | --------- |  | ----------- | ----------- | ---- | ------ | ------- | ------- | ----------- |  | --- | --- | ---- |  | ------- | ------- | --------- |  | --- | --- | ---- | 
|                               |              | Allocation of the Allowance for Loan Losses at December 31, |          
|                               |              |                                                             |          
|                               |              | 2004                                                        |           |             | 2003        |  |     | 2002   |             |  | 2001        |         |           | 2000        |    
|                               |              |                                                             |           |             |             |  |     |        |             |  |             |         |           |             |    
|                               |              |                                                             |           | Percent of  |             |  |     |        | Percent of  |  |             |         |           | Percent of  |     |     |             |  | Percent of  |         |           |  |             | Percent of  |     
|                               |              |                                                             |           | loans in    |             |  |     |        | loans in    |  |             |         |           | loans in    |     |     |             |  | loans in    |         |           |  |             | loans in    |     
|                               |              |                                                             |           | each        |             |  |     |        | each        |  |             |         |           | each        |     |     |             |  | each        |         |           |  |             | each        |     
|                               |              |                                                             |           | category to |             |  |     |        | category to |  |             |         |           | category to |     |     |             |  | category to |         |           |  |             | category to |     
|                               |              | Amount                                                      |           |             | total loans |  |     | Amount |             |  | total loans |         |           | Amount      |     |     | total loans |  |             | Amount  |           |  | total loans |             |      | Amount |         |         | total loans | 
|                               |              |                                                             |           |             |             |  |     |        |             |  |             |         |           |             |     |     |             |  |             |         |           |  |             |             |      |        |         |         |             | 
|Collateralized by real estate: |              |                                                             |           |             |             |  |     |        |             |  |             |         |           |             |     |     |             |  |             |         |           |  |             |             |      |        |         |         |             |  |     |     |      |  |         |         |           |  |     |    
|                               | Commercial   |                                                             | $         | 372,597     |             |  |     | 24%    |             |  | $           | 462,667 |           |             |     | 21% |             |  | $           | 277,776 |           |  |             | 15%         |      |        | $       | 171,388 |             |  |     | 20% |      |  | $       | 354,665 |           |  |     | 25% |     
|                               | Residential  |                                                             |           | 114,364     |             |  |     | 49%    |             |  |             | 56,624  |           |             |     | 54% |             |  |             | 258,377 |           |  |             | 62%         |      |        |         | 74,396  |             |  |     | 45% |      |  |         | 139,598 |           |  |     | 38% |     
|                               | Home equity  |                                                             |           | 12,755      |             |  |     | 9%     |             |  |             | 5,592   |           |             |     | 7%  |             |  |             | 14,623  |           |  |             | 6%          |      |        |         | 13,103  |             |  |     | 8%  |      |  |         | 52,900  |           |  |     | 8%  |     
|                               | Construction |                                                             |           |            |             |  |     | 3%     |             |  |             |        |           |             |     | 3%  |             |  |             | 40,789  |           |  |             | 1%          |      |        |         | 763,783 |             |  |     | 4%  |      |  |         | 6,067   |           |  |     | 1%  |     
|Consumer                       |              |                                                             | 16,293    |             |             |  | 3%  |        |             |  | 7,976       |         |           |             | 3%  |     |             |  | 20,497      |         |           |  | 3%          |             |      |        | 58,732  |         |             |  | 5%  |     |      |  | 95,309  |         |           |  | 7%  |    
|Commercial                     |              |                                                             | 1,226,638 |             |             |  | 10% |        |             |  | 964,121     |         |           |             | 11% |     |             |  | 967,182     |         |           |  | 11%         |             |      |        | 177,538 |         |             |  | 15% |     |      |  | 227,919 |         |           |  | 18% |    
|Credit cards                   |              |                                                             | 20,651    |             |             |  | 1%  |        |             |  | 21,760      |         |           |             | 0%  |     |             |  | 24,956      |         |           |  | 1%          |             |      |        | 51,691  |         |             |  | 1%  |     |      |  | 148,562 |         |           |  | 1%  |    
|Other                          |              |                                                             |          |             |             |  | 1%  |        |             |  |            |         |           |             | 1%  |     |             |  |            |         |           |  | 1%          |             |      |        |        |         |             |  | 2%  |     |      |  |        |         |           |  | 2%  |    
|Unallocated                    |              |                                                             |          |             |             |  | N/A |        |             |  | 84,828      |         |           |             | N/A |     |             |  |            |         |           |  | N/A         |             |      |        | 10,521  |         |             |  | N/A |     |      |  | 318,104 |         |           |  | N/A |    
|                               |              |                                                             |           |             |             |  |     |        |             |  |             |         |           |             |     |     |             |  |             |         |           |  |             |             |      |        |         |         |             | 
|                               |              | Total                                                       |           | $           | 1,763,298   |  |     |        | 100%        |  |             | $       | 1,603,568 |             |     |     | 100%        |  |             | $       | 1,604,200 |  |             |             | 100% |        |         | $       | 1,321,152   |  |     |     | 100% |  |         | $       | 1,343,124 |  |     |     | 100% | 
|                               |              |                                                             |           |             |             |  |     |        |             |  |             |         |           |             |     |     |             |  |             |         |           |  |             |             |      |        |         |         |             | 









11



---



##### 



FINANCIAL REVIEW


|                                           |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |             |         |         |   |             |         |         | 
|------------------------------------------ | ------------------------ | ------------------------------ | ----------- | ------- | --------- | - | ----------- | ------- | --------- | - | ----------- | --------- | --------- | ---- | ----------- | ------- | ------- | - | ----------- | ------- | ------- | 
|                                           |                          | Problem Assets at December 31, |            
|                                           |                          |                                |            
|                                           |                          | 2004                           |             |         | 2003      |   |             | 2002    |           |   | 2001        |           |           | 2000 |            
|                                           |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |            
|Collateralized by real estate:             |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |             |         |         |   |             |        
|Commercial:                                |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |             |         |         |   |             |        
|                                           | Non-accrual              |                                | $           |        |           |   | $           |        |           |   | $           |          |           |      | $           | 142,803 |         |   | $           | 93,007  |        
|                                           | Past due 90 days or more |                                |             |        |           |   |             |        |           |   |             |          |           |      |             |        |         |   |             | 105,616 |        
|Residential:                               |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |             |         |         |   |             |        
|                                           | Non-accrual              |                                |             | 394,970 |           |   |             | 567,590 |           |   |             | 171,482   |           |      |             | 103,152 |         |   |             | 40,137  |        
|                                           | Past due 90 days or more |                                |             | 51,549  |           |   |             | 28,577  |           |   |             | 76,752    |           |      |             | 71,942  |         |   |             |        |        
|Home equity:                               |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |             |         |         |   |             |        
|                                           | Non-accrual              |                                |             |        |           |   |             |        |           |   |             |          |           |      |             | 12,823  |         |   |             |        |        
|                                           | Past due 90 days or more |                                |             |        |           |   |             | 23,172  |           |   |             |          |           |      |             |        |         |   |             |        |        
|Construction:                              |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |             |         |         |   |             |        
|                                           | Non-accrual              |                                |             | 125,502 |           |   |             | 125,502 |           |   |             | 140,000   |           |      |             |        |         |   |             |        |        
|                                           | Past due 90 days or more |                                |             |        |           |   |             |        |           |   |             |          |           |      |             |        |         |   |             |        |        
|Not collateralized by real estate:         |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |             |         |         |   |             |        
|Consumer:                                  |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |             |         |         |   |             |        
|                                           | Non-accrual              |                                |             | 8,041   |           |   |             |        |           |   |             | 4,964     |           |      |             |        |         |   |             | 10,987  |        
|                                           | Past due 90 days or more |                                |             | 4,099   |           |   |             |        |           |   |             |          |           |      |             | 13,232  |         |   |             | 5,497   |        
|Commercial:                                |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |             |         |         |   |             |        
|                                           | Non-accrual              |                                |             | 899,082 |           |   |             | 677,777 |           |   |             | 1,841,922 |           |      |             |        |         |   |             |        |        
|                                           | Past due 90 days or more |                                |             |        |           |   |             |        |           |   |             | 252,331   |           |      |             | 58,749  |         |   |             |        |        
|Credit cards:                              |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |             |         |         |   |             |        
|                                           | Non-accrual              |                                |             |        |           |   |             | 8,988   |           |   |             |          |           |      |             |        |         |   |             |        |        
|                                           | Past due 90 days or more |                                |             |        |           |   |             |        |           |   |             | 5,690     |           |      |             | 4,012   |         |   |             | 980     |        
|                                           |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |            
|                                           |                          | Total problem loans            |             |         | 1,483,243 |   |             |         | 1,431,606 |   |             |           | 2,493,141 |      |             |         | 406,713 |   |             |         | 256,224 | 
|Other real estate owned                    |                          |                                | 46,000      |         |           |   |            |         |           |   |            |           |           |      |            |         |         |   |            |        
|                                           |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |            
|                                           |                          | Total problem assets           |             | $       | 1,529,243 |   |             | $       | 1,431,606 |   |             | $         | 2,493,141 |      |             | $       | 406,713 |   |             | $       | 256,224 | 
|                                           |                          |                                |             |         |           |   |             |         |           |   |             |           |           |      |            
|Loans outstanding, net                     |                          | $                              | 196,724,596 |         |           | $ | 187,056,241 |         |           | $ | 190,559,663 |           |           | $    | 116,880,804 |         |         | $ | 107,551,674 |        
|Problem loans to total net loans           |                          |                                | 0.75        | %       |           |   | 0.77        | %       |           |   | 1.31        | %         |           |      | 0.35        | %       |         |   | 0.24        | %      
|Problem loans to total assets              |                          |                                | 0.48        | %       |           |   | 0.48        | %       |           |   | 0.84        | %         |           |      | 0.21        | %       |         |   | 0.13        | %      
|Allowance for loan losses to total loans   |                          |                                | 0.89        | %       |           |   | 0.85        | %       |           |   | 0.83        | %         |           |      | 1.12        | %       |         |   | 1.23        | %      
|Allowance for loan losses to problem loans |                          |                                | 118.88      | %       |           |   | 112.01      | %       |           |   | 64.34       | %         |           |      | 324.84      | %       |         |   | 524.20      | %      

Securities.





12



---



##### 



FINANCIAL REVIEW




|                                   |                          |           |            |            |            |   |           |            |  |   |            |          |   |   |            |            | 
|---------------------------------- | ------------------------ | --------- | ---------- | ---------- | ---------- | - | --------- | ---------- |  | - | ---------- | -------- | - | - | ---------- | ---------- | 
|                                   |                          |           |            | Gross      |            |   | Gross     |            |  |  
|                                   |                          | Amortized |            |            | unrealized |   |           | unrealized |  |   |           
|                                   |                          | cost      |            |            | gains      |   |           | losses     |  |   | Fair Value |         
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|December 31, 2004                  |                          |           |            |            |            |   |           |            |  |   |            |          |   |   |            |           
|Available for Sale:                |                          |           |            |            |            |   |           |            |  |   |            |          |   |   |            |           
|U.S. Government and federal agency |                          | $         | 17,561,943 |            |            | $ | 227,251   |            |  | $ | (30,080    | )        |   | $ | 17,759,114 |           
|State and municipal                |                          |           | 2,861,927  |            |            |   | 129,113   |            |  |   |           |          |   |   | 2,991,040  |           
|Corporate bonds and notes          |                          |           | 37,146,122 |            |            |   | 1,157,837 |            |  |   | (86,103    | )        |   |   | 38,217,856 |           
|Mortgage backed                    |                          |           | 630,679    |            |            |   | 11,196    |            |  |   | (222       | )        |   |   | 641,653    |           
|Equity securities                  |                          |           | 785,897    |            |            |   | 66,422    |            |  |   |           |          |   |   | 852,319    |           
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|                                   | Total available for sale |           |            | 58,986,568 |            |   |           | 1,591,819  |  |   |            | (116,405 | ) |   |            | 60,461,982 | 
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|Held to Maturity:                  |                          |           |            |            |            |   |           |            |  |   |            |          |   |   |            |           
|State and municipal                |                          |           | 15,865,047 |            |            |   | 580,268   |            |  |   | (546       | )        |   |   | 16,444,769 |           
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|Total Investment Securities        |                          | $         | 74,851,615 |            |            | $ | 2,172,087 |            |  | $ | (116,951   | )        |   | $ | 76,906,751 |           
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|December 31, 2003                  |                          |           |            |            |            |   |           |            |  |   |            |          |   |   |            |           
|Available for Sale:                |                          |           |            |            |            |   |           |            |  |   |            |          |   |   |            |           
|U.S. Government and federal agency |                          | $         | 24,241,317 |            |            | $ | 730,120   |            |  | $ | (19,375    | )        |   | $ | 24,952,062 |           
|State and municipal                |                          |           | 2,261,802  |            |            |   | 175,194   |            |  |   |           |          |   |   | 2,436,996  |           
|Corporate bonds and notes          |                          |           | 34,981,032 |            |            |   | 1,924,041 |            |  |   | (79,437    | )        |   |   | 36,825,636 |           
|Mortgage backed                    |                          |           | 1,804,731  |            |            |   | 317,735   |            |  |   |           |          |   |   | 2,122,466  |           
|Equity securities                  |                          |           | 859,940    |            |            |   | 26,013    |            |  |   | (33,550    | )        |   |   | 852,403    |           
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|                                   | Total available for sale |           |            | 64,148,822 |            |   |           | 3,173,103  |  |   |            | (132,362 | ) |   |            | 67,189,563 | 
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|Held to Maturity:                  |                          |           |            |            |            |   |           |            |  |   |            |          |   |   |            |           
|State and municipal                |                          |           | 16,603,556 |            |            |   | 712,328   |            |  |   | (15,800    | )        |   |   | 17,300,084 |           
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|Total Investment Securities        |                          | $         | 80,752,378 |            |            | $ | 3,885,431 |            |  | $ | (148,162   | )        |   | $ | 84,489,647 |           
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|December 31, 2002                  |                          |           |            |            |            |   |           |            |  |   |            |          |   |   |            |           
|Available for Sale:                |                          |           |            |            |            |   |           |            |  |   |            |          |   |   |            |           
|U.S. Government and federal agency |                          | $         | 17,475,055 |            |            | $ | 970,519   |            |  | $ |           |          |   | $ | 18,445,574 |           
|State and municipal                |                          |           | 2,273,996  |            |            |   | 146,698   |            |  |   |           |          |   |   | 2,420,694  |           
|Corporate bonds and notes          |                          |           | 25,471,382 |            |            |   | 1,589,612 |            |  |   | (158,648   | )        |   |   | 26,902,346 |           
|Mortgage backed                    |                          |           | 2,299,690  |            |            |   | 274,316   |            |  |   | (317       | )        |   |   | 2,573,689  |           
|Equity securities                  |                          |           | 2,208,602  |            |            |   | 85,573    |            |  |   | (271,766   | )        |   |   | 2,022,409  |           
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|                                   | Total available for sale |           |            | 49,728,725 |            |   |           | 3,066,718  |  |   |            | (430,731 | ) |   |            | 52,364,712 | 
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|Held to Maturity:                  |                          |           |            |            |            |   |           |            |  |   |            |          |   |   |            |           
|State and municipal                |                          |           | 18,441,685 |            |            |   | 688,144   |            |  |   | (144,264   | )        |   |   | 18,985,565 |           
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         
|Total Investment Securities        |                          | $         | 68,170,410 |            |            | $ | 3,754,862 |            |  | $ | (574,995   | )        |   | $ | 71,350,277 |           
|                                   |                          |           |            |            |            |   |           |            |  |   |            |         




13



---



##### 



FINANCIAL REVIEW




|                                   |                          |                       |           |           |                |   |            |                |            |   |                |            |            |                             |            |           |           |   |            |            |            |   |            |            |            | 
|---------------------------------- | ------------------------ | --------------------- | --------- | --------- | -------------- | - | ---------- | -------------- | ---------- | - | -------------- | ---------- | ---------- | --------------------------- | ---------- | --------- | --------- | - | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                   |                          | December 31, 2004     |          
|                                   |                          |                       |          
|                                   |                          | One year or           |           |           | More than one  |   |            | More than five |            |   | More than ten  |            |            |                            
|                                   |                          | less                  |           |           | to five years  |   |            | to ten years   |            |   | years          |            |            | Total investment securities |           
|                                   |                          |                       |           |           |                |   |            |                |            |   |                |            |            |                             |           
|                                   |                          | Carrying Value        |           |           | Carrying Value |   |            | Carrying Value |            |   | Carrying Value |            |            | Carrying Value              |            |           | Market    |  
|                                   |                          | Average Yield         |           |           | Average Yield  |   |            | Average Yield  |            |   | Average Yield  |            |            | Average Yield               |            |           | value     |  
|                                   |                          |                       |           |           |                |   |            |                |            |   |                |            |            |                             |            |           |           |  
|Available for Sale:                |                          |                       |           |           |                |   |            |                |            |   |                |            |            |                             |            |           |           |   |            |            |            |   |            |           
|U.S. Government and federal agency |                          | $                     |          |           |                | $ | 4,995,625  |                |            | $ | 12,665,861     |            |            | $                           | 97,628     |           |           | $ | 17,759,114 |            |            | $ | 17,759,114 |           
|                                   |                          |                       |           |           |                |   | 4.07       | %              |            |   | 5.10           | %          |            |                             | 7.20       | %         |           |   | 4.82       | %          |            |   |            |           
|State and municipal                |                          |                       |          |           |                |   | 267,877    |                |            |   | 214,644        |            |            |                             | 2,508,519  |           |           |   | 2,991,040  |            |            |   | 2,991,040  |           
|                                   |                          |                       |           |           |                |   | 3.00       | %              |            |   | 4.95           | %          |            |                             | 5.10       | %         |           |   | 4.90       | %          |            |   |            |           
|Corporate bonds and notes          |                          |                       | 3,168,375 |           |                |   | 22,156,227 |                |            |   | 12,893,254     |            |            |                             |           |           |           |   | 38,217,856 |            |            |   | 38,217,856 |           
|                                   |                          |                       | 7.03      | %         |                |   | 5.22       | %              |            |   | 5.29           | %          |            |                             |            |           |           |   | 5.39       | %          |            |   |            |           
|Mortgage-backed                    |                          |                       | 25,659    |           |                |   | 58,993     |                |            |   |               |            |            |                             | 557,001    |           |           |   | 641,653    |            |            |   | 641,653    |           
|                                   |                          |                       | 9.38      | %         |                |   | 9.34       | %              |            |   |                |            |            |                             | 6.17       | %         |           |   | 6.52       | %          |            |   |            |           
|                                   |                          |                       |           |           |                |   |            |                |            |   |                |            |            |                             |            |           |           |  
|                                   |                          | Total debt securities |           |           | 3,194,034      |   |            |                | 27,478,722 |   |                |            | 25,773,759 |                             |            |           | 3,163,148 |   |            | $          | 59,609,663 |   |            |            | 59,609,663 | 
|                                   |                          |                       | 7.05      | %         |                |   | 5.00       | %              |            |   | 5.19           | %          |            |                             | 5.35       | %         |           |   | 5.21       | %          |            |   |            |           
|Equity securities                  |                          |                       |          |           |                |   |           |                |            |   |               |            |            |                             | 852,319    |           |           |   | 852,319    |            |            |   | 852,319    |           
|                                   |                          |                       |           |           |                |   |            |                |            |   |                |            |            |                             | 3.34       | %         |           |   | 3.34       | %          |            |   |            |           
|                                   |                          |                       |           |           |                |   |            |                |            |   |                |            |            |                             |            |           |           |  
|                                   | Total available for sale |                       |           | 3,194,034 |                |   |            | 27,478,722     |            |   |                | 25,773,759 |            |                             |            | 4,015,467 |           |   |            | 60,461,982 |            |   |            | 60,461,982 |           
|                                   |                          |                       | 7.05      | %         |                |   | 5.00       | %              |            |   | 5.19           | %          |            |                             | 4.92       | %         |           |   | 5.18       | %          |            |   |            |           
|                                   |                          |                       |           |           |                |   |            |                |            |   |                |            |            |                             |            |           |           |  
|Held to Maturity:                  |                          |                       |           |           |                |   |            |                |            |   |                |            |            |                             |            |           |           |   |            |            |            |   |            |           
|State and municipal                |                          |                       | 803,221   |           |                |   | 1,806,015  |                |            |   | 4,718,549      |            |            |                             | 8,537,262  |           |           |   | 15,865,047 |            |            |   | 16,444,769 |           
|                                   |                          |                       | 6.74      | %         |                |   | 4.54       | %              |            |   | 4.22           | %          |            |                             | 4.34       | %         |           |   | 4.44       | %          |            |   |            |           
|                                   |                          |                       |           |           |                |   |            |                |            |   |                |            |            |                             |            |           |           |  
|Total investment securities        |                          | $                     | 3,997,255 |           |                | $ | 29,284,737 |                |            | $ | 30,492,308     |            |            | $                           | 12,552,729 |           |           | $ | 76,327,029 |            |            | $ | 76,906,751 |           
|                                   |                          |                       | 6.99      | %         |                |   | 4.97       | %              |            |   | 5.04           | %          |            |                             | 4.53       | %         |           |   | 5.03       | %          |            |   |            |           
|                                   |                          |                       |           |           |                |   |            |                |            |   |                |            |            |                             |            |           |           |  

Federal Bank Stock.


Deposits.





14



---



##### 



FINANCIAL REVIEW


|                              |       |                           |           |            |       |  |      |       |  
|----------------------------- | ----- | ------------------------- | --------- | ---------- | ----- |  | ---- | ----- | -
|                              |       | Maturity of Time Deposits |          
|                              |       | of $100,000 or More at    |          
|                              |       | December 31, 2004         |          
|                              |       |                           |          
|                              |       |                           |           | Percent of |      
|Time Remaining to Maturity    |       | Amount                    |           |            | Total | 
|                              |       |                           |           |            |       | 
|Three months or less          |       | $                         | 2,062,736 |            |       |  | 19.8 | %    
|Over three through 12 months  |       |                           | 4,030,963 |            |       |  | 38.8 | %    
|Over one year through 3 years |       |                           | 3,658,376 |            |       |  | 35.2 | %    
|Over 3 years                  |       |                           | 643,050   |            |       |  | 6.2  | %    
|                              |       |                           |           |            |       | 
|                              | Total |                           | $         | 10,395,125 |       |  |      | 100.0 | %
|                              |       |                           |           |            |       | 



Liquidity and Capital Resources.









15



---



##### 



FINANCIAL REVIEW




|                               |              |       |            |            |            |  |           |            |            |  |            |            |            | 
|------------------------------ | ------------ | ----- | ---------- | ---------- | ---------- |  | --------- | ---------- | ---------- |  | ---------- | ---------- | ---------- | 
|                               |              | 2004  |            |            | 2003       |  |           | 2002       |           
|                               |              |       |            |            |            |  |           |            |           
|Collateralized by real estate: |              |       |            |            |            |  |           |            |            |  |            |           
|                               | Commercial   |       | $          | 16,762,865 |            |  | $         | 11,406,806 |            |  | $          | 7,424,626  |           
|                               | Residential  |       |            | 32,957,745 |            |  |           | 42,976,105 |            |  |            | 33,609,861 |           
|                               | Home equity  |       |            | 3,275,547  |            |  |           | 2,288,240  |            |  |            | 1,696,849  |           
|                               | Construction |       |            | 3,005,128  |            |  |           | 2,567,017  |            |  |            | 968,832    |           
|Consumer                       |              |       | 4,660,673  |            |            |  | 3,447,668 |            |            |  | 3,315,190  |           
|Commercial                     |              |       | 12,212,238 |            |            |  | 9,478,041 |            |            |  | 11,786,741 |           
|Credit cards                   |              |       | 389,700    |            |            |  | 504,700   |            |            |  | 291,900    |           
|Other                          |              |       | 333,052    |            |            |  | 317,891   |            |            |  | 948,473    |           
|                               |              |       |            |            |            |  |           |            |           
|                               |              | Total |            | $          | 73,596,948 |  |           | $          | 72,986,468 |  |            | $          | 60,042,472 | 
|                               |              |       |            |            |            |  |           |            |           



|                                      |  |                         |           |   |      |   |           |      |  |   |           |  
|------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                      |  | Year Ended December 31, |          
|                                      |  |                         |          
|                                      |  | 2004                    |           |   | 2003 |   |           | 2002 | 
|                                      |  |                         |           |   |      |   |           |      | 
|Balance at year end                   |  | $                       | 3,888,235 |   |      | $ | 2,786,848 |      |  | $ | 3,006,221 |  
|Average balance outstanding           |  |                         | 3,140,013 |   |      |   | 2,845,520 |      |  |   | 3,919,776 |  
|Maximum month-end balance             |  |                         | 4,847,337 |   |      |   | 3,385,869 |      |  |   | 4,775,461 |  
|Weighted-average rate at year end     |  |                         | 0.69      | % |      |   | 0.10      | %    |  |   | 0.15      | %
|Weighted-average rate during the year |  |                         | 0.36      | % |      |   | 0.13      | %    |  |   | 0.17      | %






16



---



##### 



FINANCIAL REVIEW


Contractual Obligations.


|                                        |       |                       |            |             |      |   |            |             |           |   |             |            |  |         |           |           |  |   |            |            | 
|--------------------------------------- | ----- | --------------------- | ---------- | ----------- | ---- | - | ---------- | ----------- | --------- | - | ----------- | ---------- |  | ------- | --------- | --------- |  | - | ---------- | ---------- | 
|                                        |       | Payment due by period |           
|                                        |       |                       |           
|                                        |       |                       |            | Less than 1 |      |   |            |             | More than |  
|Contractual Obligations                 |       | Total                 |            |             | year |   |            | 1 - 3 years |           |   | 3 - 5 years |            |  | 5 years |          
|                                        |       |                       |            |             |      |   |            |             |           |   |             |            |  |         |          
|Time Deposits                           |       | $                     | 71,634,489 |             |      | $ | 40,750,381 |             |           | $ | 26,226,954  |            |  | $       | 4,657,154 |           |  | $ |           |           
|Long-term obligations                   |       |                       | 17,000,000 |             |      |   |           |             |           |   |            |            |  |         |          |           |  |   | 17,000,000 |           
|Information system contract obligations |       |                       | 3,315,000  |             |      |   | 780,000    |             |           |   | 1,560,000   |            |  |         | 975,000   |           |  |   |           |           
|Operating lease obligations             |       |                       | 140,298    |             |      |   | 47,774     |             |           |   | 52,224      |            |  |         | 31,200    |           |  |   | 9,100      |           
|                                        |       |                       |            |             |      |   |            |             |           |   |             |            |  |         |          
|                                        | Total |                       | $          | 92,089,787  |      |   | $          | 41,578,155  |           |   | $           | 27,839,178 |  |         | $         | 5,663,354 |  |   | $          | 17,009,100 | 
|                                        |       |                       |            |             |      |   |            |             |           |   |             |            |  |         |          

Off-Balance Sheet and Contingent Liabilities.


|                        |       |                                   |            |            |          |   |            |            |  |   |            |            | 
|----------------------- | ----- | --------------------------------- | ---------- | ---------- | -------- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                        |       | Expiration of Funding Commitments |           
|                        |       |                                   |           
|                        |       | One year                          |            |            | Over one |   |            |           
|                        |       | and less                          |            |            | year     |   |            | Total      | 
|                        |       |                                   |            |            |          |   |            |            | 
|Unused loan commitments |       | $                                 | 23,794,873 |            |          | $ | 22,268,027 |            |  | $ | 46,062,900 |           
|Letters of credit       |       |                                   | 436,000    |            |          |   |           |            |  |   | 436,000    |           
|                        |       |                                   |            |            |          |   |            |            | 
|                        | Total |                                   | $          | 24,230,873 |          |   | $          | 22,268,027 |  |   | $          | 46,498,900 | 
|                        |       |                                   |            |            |          |   |            |            | 







Shareholders Equity.





17



---



##### 



FINANCIAL REVIEW




Interest-Rate Sensitivity.







18



---



##### 



FINANCIAL REVIEW












19



---



##### 



FINANCIAL REVIEW







|                                                                 |                         |                                    |             |            |             |   |             |            |            |   |            |            |             |       |            |            |            |   |            |            |             | 
|---------------------------------------------------------------- | ----------------------- | ---------------------------------- | ----------- | ---------- | ----------- | - | ----------- | ---------- | ---------- | - | ---------- | ---------- | ----------- | ----- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ----------- | 
|                                                                 |                         | Maturing or Repricing Periods      |            
|                                                                 |                         |                                    |            
|                                                                 |                         | Within                             |             |            | 4 - 12      |   |             | 1 - 5      |            |   | Over 5     |            |             |      
|                                                                 |                         | 3 Months                           |             |            | Months      |   |             | Years      |            |   | Years      |            |             | Total |           
|                                                                 |                         |                                    |             |            |             |   |             |            |            |   |            |            |             |       |           
|Interest-earning assets:                                         |                         |                                    |             |            |             |   |             |            |            |   |            |            |             |       |            |            |            |   |            |           
|Fed funds sold                                                   |                         | $                                  | 6,070,000   |            |             | $ |            |            |            | $ |           |            |             | $     |           |            |            | $ | 6,070,000  |           
|Investment securities                                            |                         |                                    | 3,637,286   |            |             |   | 6,837,746   |            |            |   | 32,535,960 |            |             |       | 33,316,037 |            |            |   | 76,327,029 |           
|Federal bank stock                                               |                         |                                    |            |            |             |   |            |            |            |   |           |            |             |       | 2,877,850  |            |            |   | 2,877,850  |           
|Loans held for sale                                              |                         |                                    |            |            |             |   |            |            |            |   |           |            |             |       | 57,000     |            |            |   | 57,000     |           
|Loans collateralized by real estate:                             |                         |                                    |             |            |             |   |             |            |            |   |            |            |             |       |            |            |            |   |            |           
|                                                                 | Commercial (1)          |                                    |             | 11,818,174 |             |   |             | 10,167,195 |            |   |            | 24,780,153 |             |       |            | 315,461    |            |   |            | 47,080,983 |            
|                                                                 | Residential (1)         |                                    |             | 9,443,948  |             |   |             | 19,000,197 |            |   |            | 42,594,450 |             |       |            | 26,655,416 |            |   |            | 97,694,011 |            
|                                                                 | Home equity (1)         |                                    |             | 18,272,212 |             |   |             |           |            |   |            |           |             |       |            |           |            |   |            | 18,272,212 |            
|                                                                 | Construction (1)        |                                    |             | 4,017,002  |             |   |             | 590,338    |            |   |            | 1,282,319  |             |       |            | 437,225    |            |   |            | 6,326,884  |            
|Consumer loans (1)                                               |                         |                                    | 610,278     |            |             |   | 1,573,654   |            |            |   | 3,200,676  |            |             |       | 1,345      |            |            |   | 5,385,953  |           
|Commercial (1)                                                   |                         |                                    | 15,729,511  |            |             |   | 2,186,662   |            |            |   | 3,280,350  |            |             |       |           |            |            |   | 21,196,523 |           
|Credit cards (1)                                                 |                         |                                    | 340,929     |            |             |   | 1,022,796   |            |            |   |           |            |             |       |           |            |            |   | 1,363,725  |           
|Other (1)                                                        |                         |                                    | 404,696     |            |             |   | 334,130     |            |            |   | 644,723    |            |             |       | 289,482    |            |            |   | 1,673,031  |           
|                                                                 |                         |                                    |             |            |             |   |             |            |            |   |            |            |             |       |           
|                                                                 |                         | Total interest-earning assets      |             | $          | 70,344,036  |   |             | $          | 41,712,718 |   |            | $          | 108,318,631 |       |            | $          | 63,949,816 |   |            | $          | 284,325,201 | 
|                                                                 |                         |                                    |             |            |             |   |             |            |            |   |            |            |             |       |           
|Interest-bearing liabilities:                                    |                         |                                    |             |            |             |   |             |            |            |   |            |            |             |       |            |            |            |   |            |           
|                                                                 | Interest-bearing demand |                                    | $           | 34,620,180 |             |   | $           |           |            |   | $          |           |             |       | $          |           |            |   | $          | 34,620,180 |            
|                                                                 | Money market            |                                    |             | 6,154,833  |             |   |             |           |            |   |            |           |             |       |            |           |            |   |            | 6,154,833  |            
|                                                                 | Savings                 |                                    |             | 88,543,284 |             |   |             |           |            |   |            |           |             |       |            |           |            |   |            | 88,543,284 |            
|                                                                 | Time                    |                                    |             | 12,906,286 |             |   |             | 27,882,735 |            |   |            | 30,839,729 |             |       |            | 5,739      |            |   |            | 71,634,489 |            
|                                                                 | Short-term borrowings   |                                    |             | 4,679,242  |             |   |             |           |            |   |            |           |             |       |            |           |            |   |            | 4,679,242  |            
|                                                                 | Other borrowings        |                                    |             |           |             |   |             |           |            |   |            |           |             |       |            | 17,000,000 |            |   |            | 17,000,000 |            
|                                                                 |                         |                                    |             |            |             |   |             |            |            |   |            |            |             |       |           
|                                                                 |                         | Total interest-bearing liabilities |             | $          | 146,903,825 |   |             | $          | 27,882,735 |   |            | $          | 30,839,729  |       |            | $          | 17,005,739 |   |            | $          | 222,632,028 | 
|                                                                 |                         |                                    |             |            |             |   |             |            |            |   |            |            |             |       |           
|Interest-sensitivity gap                                         |                         | $                                  | (76,559,789 | )          |             | $ | 13,829,983  |            |            | $ | 77,478,902 |            |             | $     | 46,944,077 |            |            | $ | 61,693,173 |           
|Cumulative interest sensitivity gap                              |                         | $                                  | (76,559,789 | )          |             | $ | (62,729,806 | )          |            | $ | 14,749,096 |            |             | $     | 61,693,173 |            |            |   |            |           
|Cumulative interest sensitivity gap as a percent of total equity |                         |                                    | -216.76     | %          |             |   | -177.61     | %          |            |   | 41.76      | %          |             |       | 174.67     | %          |            |   |            |           
|Cumulative interest sensitivity gap as a percent of total assets |                         |                                    | -24.82      | %          |             |   | -20.34      | %          |            |   | 4.78       | %          |             |       | 20.00      | %          |            |   |            |           






|    |                                                                                              
|--- | ---------------------------------------------------------------------------------------------
|(1) | For purposes of the gap analysis, loans are not reduced by the
    allowance for loan losses.






20



---



##### 



FINANCIAL REVIEW















21



---



##### 



FINANCIAL REVIEW




|                       |  |                        |     |   |      |  |      |   |  |   |      |   |  |  |       |  
|---------------------- |  | ---------------------- | --- | - | ---- |  | ---- | - |  | - | ---- | - |  |  | ----- | -
|                       |  | Effect of a Change in  |    
|                       |  | Interest Rates on Net  |    
|                       |  | Income Over a 12-Month |    
|                       |  | Period                 |    
|                       |  |                        |    
|(Dollars in thousands) |  | 2004                   |     |   | 2003 | 
|                       |  |                        |     |   |      | 
|+ 200 basis points     |  | $                      | 42  |   |      |  | 1.4  | % |  | $ | (364 | ) |  |  | -11.8 | %
|+ 100 basis points     |  | $                      | 5   |   |      |  | 0.2  | % |  | $ | (239 | ) |  |  | -7.7  | %
|- 100 basis points     |  | $                      | (18 | ) |      |  | -0.6 | % |  | $ | 6    |   |  |  | 0.2   | %



Results of Operations









22



---



##### 



FINANCIAL REVIEW









23



---



##### 



FINANCIAL REVIEW


Average Balances, Interest Rates and Yields.


|                                                                                     |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |         |        |  |   |        |       |  |  |        |      |  
|------------------------------------------------------------------------------------ | ------------------------- | ----------------------- | ------- | ------ | -------- | - | ------- | -------------- |  | ------- | ------- | ----- | - | -------- | ------- | ------ | -------------- | ------- | ------ | ------- |  |  | -------- | ---- | - | -------------- | ------- | ------ |  | - | ------ | ----- |  |  | ------ | ---- | -
|                                                                                     |                           | Year Ended December 31, |        
|                                                                                     |                           |                         |        
|                                                                                     |                           | 2004                    |         |        | 2003     |   |         | 2002           | 
|                                                                                     |                           |                         |         |        |          |   |         |                | 
|                                                                                     |                           | Daily                   |         |        |          |   | Daily   |                |  |         |         | Daily |   |          |        
|                                                                                     |                           | Average                 |         |        |          |   | Average |                |  | Average |         |       |   |          | Average |        |                | Average |        |         |  |  | Average  |     
|(Dollars in Thousands)                                                               |                           | Balance                 |         |        | Interest |   |         | Yield/cost (3) |  |         | Balance |       |   | Interest |         |        | Yield/cost (3) |         |        | Balance |  |  | Interest |      |   | Yield/cost (3) |        
|                                                                                     |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |        
|Assets                                                                               |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |         |        |  |   |        |       |  |  |        |     
|Interest earning assets:                                                             |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |         |        |  |   |        |       |  |  |        |     
|Investment securities:                                                               |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |         |        |  |   |        |       |  |  |        |     
|                                                                                     | Taxable                   |                         | $       | 59,265 |          |   | $       | 3,186          |  |         |         | 5.56  | % |          | $       | 55,445 |                |         | $      | 3,124   |  |  |          | 5.94 | % |                | $       | 46,075 |  |   | $      | 2,893 |  |  |        | 6.52 | %
|                                                                                     | Nontaxable                |                         |         | 19,807 |          |   |         | 1,401          |  |         |         | 7.13  | % |          |         | 19,742 |                |         |        | 1,421   |  |  |          | 7.26 | % |                |         | 15,826 |  |   |        | 1,288 |  |  |        | 8.19 | %
|                                                                                     | (tax equivalent basis)    |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |         |        |  |   |        |       |  |  |        |      |  
|Federal funds sold                                                                   |                           |                         | 4,983   |        |          |   | 75      |                |  |         | 1.51    | %     |   |          | 8,233   |        |                |         | 86     |         |  |  | 1.04     | %    |   |                | 8,614   |        |  |   | 136    |       |  |  | 1.58   | %   
|Interest bearing deposits                                                            |                           |                         | 437     |        |          |   | 27      |                |  |         | 6.18    | %     |   |          | 998     |        |                |         | 62     |         |  |  | 6.21     | %    |   |                | 1,434   |        |  |   | 88     |       |  |  | 6.14   | %   
|Net loans (including nonaccrual loans)                                               |                           |                         | 194,032 |        |          |   | 11,099  |                |  |         | 5.72    | %     |   |          | 187,180 |        |                |         | 10,834 |         |  |  | 5.79     | %    |   |                | 172,159 |        |  |   | 11,974 |       |  |  | 6.96   | %   
|                                                                                     |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |        
|Total interest earning assets                                                        |                           |                         | 278,524 |        |          |   | 15,788  |                |  |         | 5.67    | %     |   |          | 271,598 |        |                |         | 15,527 |         |  |  | 5.72     | %    |   |                | 244,108 |        |  |   | 16,379 |       |  |  | 6.71   | %   
|                                                                                     |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |        
|All other assets                                                                     |                           |                         | 22,611  |        |          |   |         |                |  |         |         |       |   |          | 22,250  |        |                |         |        |         |  |  |          |      |   |                | 20,245  |        |  |   |        |       |  |  |        |     
|                                                                                     |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |        
|Total Assets                                                                         |                           | $                       | 301,135 |        |          |   |         |                |  |         |         |       |   | $        | 293,848 |        |                |         |        |         |  |  |          |      |   | $              | 264,353 |        |  |   |        |       |  |  |        |     
|                                                                                     |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |        
|Liabilities and Shareholders Equity                                                 |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |         |        |  |   |        |       |  |  |        |     
|Interest bearing liabilities:                                                        |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |         |        |  |   |        |       |  |  |        |     
|Deposits:                                                                            |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |         |        |  |   |        |       |  |  |        |     
|                                                                                     | Interest bearing checking |                         | $       | 37,743 |          |   | $       | 114            |  |         |         | 0.30  | % |          | $       | 35,072 |                |         | $      | 207     |  |  |          | 0.59 | % |                | $       | 32,431 |  |   | $      | 366   |  |  |        | 1.13 | %
|                                                                                     | Savings                   |                         |         | 89,428 |          |   |         | 650            |  |         |         | 0.73  | % |          |         | 84,620 |                |         |        | 844     |  |  |          | 1.00 | % |                |         | 68,618 |  |   |        | 1,348 |  |  |        | 1.96 | %
|                                                                                     | Time, $100,000 and over   |                         |         | 11,991 |          |   |         | 282            |  |         |         | 2.35  | % |          |         | 11,286 |                |         |        | 362     |  |  |          | 3.21 | % |                |         | 12,895 |  |   |        | 464   |  |  |        | 3.60 | %
|                                                                                     | Time, other               |                         |         | 64,427 |          |   |         | 1,427          |  |         |         | 2.21  | % |          |         | 70,699 |                |         |        | 1,603   |  |  |          | 2.27 | % |                |         | 68,125 |  |   |        | 2,207 |  |  |        | 3.24 | %
|Other funds purchased                                                                |                           |                         | 20,737  |        |          |   | 873     |                |  |         | 4.21    | %     |   |          | 20,342  |        |                |         | 724    |         |  |  | 3.56     | %    |   |                | 17,432  |        |  |   | 543    |       |  |  | 3.11   | %   
|                                                                                     |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |        
|Total interest bearing liabilities                                                   |                           |                         | 224,326 |        |          |   | 3,346   |                |  |         | 1.49    | %     |   |          | 222,019 |        |                |         | 3,740  |         |  |  | 1.68     | %    |   |                | 199,501 |        |  |   | 4,928  |       |  |  | 2.47   | %   
|                                                                                     |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |        
|Demand deposits                                                                      |                           |                         | 38,749  |        |          |   |         |                |  |         |         |       |   |          | 33,807  |        |                |         |        |         |  |  |          |      |   |                | 29,675  |        |  |   |        |       |  |  |        |     
|Other liabilities                                                                    |                           |                         | 2,966   |        |          |   |         |                |  |         |         |       |   |          | 3,165   |        |                |         |        |         |  |  |          |      |   |                | 3,004   |        |  |   |        |       |  |  |        |     
|Shareholders equity                                                                 |                           |                         | 35,094  |        |          |   |         |                |  |         |         |       |   |          | 34,857  |        |                |         |        |         |  |  |          |      |   |                | 32,173  |        |  |   |        |       |  |  |        |     
|                                                                                     |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |        
|Total Liabilities and Shareholders Equity                                           |                           | $                       | 301,135 |        |          |   |         |                |  |         |         |       |   | $        | 293,848 |        |                |         |        |         |  |  |          |      |   | $              | 264,353 |        |  |   |        |       |  |  |        |     
|                                                                                     |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |        
|Net interest income (tax equivalent basis)                                           |                           |                         |         |        |          | $ | 12,442  |                |  |         |         |       |   |          |         |        |                | $       | 11,787 |         |  |  |          |      |   |                |         |        |  | $ | 11,451 |       |  |  |        |     
|                                                                                     |                           |                         |         |        |          |   |         |                |  |         |         |       |   |          |         |        |                |         |        |         |  |  |          |      |   |                |        
|Interest rate spread (1)                                                             |                           |                         |         |        |          |   |         |                |  |         | 4.18    | %     |   |          |         |        |                |         |        |         |  |  | 4.04     | %    |   |                |         |        |  |   |        |       |  |  | 4.24   | %   
|Net yield on interest-earning assets (2)                                             |                           |                         |         |        |          |   |         |                |  |         | 4.47    | %     |   |          |         |        |                |         |        |         |  |  | 4.34     | %    |   |                |         |        |  |   |        |       |  |  | 4.69   | %   
|Ratio of average interest-earning assets to average
    interest-bearing liabilities |                           |                         |         |        |          |   |         |                |  |         | 124.16  | %     |   |          |         |        |                |         |        |         |  |  | 122.33   | %    |   |                |         |        |  |   |        |       |  |  | 122.36 | %   






|    |                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Interest rate spread represents the difference between the
    average yield on interest-earning assets and the average cost of
    interest-bearing liabilities.
|   
|(2) | Net yield on interest-earning assets represents net interest
    income as a percentage of average interest-earning assets.                                      
|   
|(3) | Average yields are computed using annualized interest income and
    expense for the periods.                                                                    




24



---



##### 



FINANCIAL REVIEW


Rate/Volume Analysis.


|                                                       |                           |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |   |        |      |        |   |        |      |        |  
|------------------------------------------------------ | ------------------------- | --------------------------------------------- | --- | ---- | ---------------------------- | - | ---- | ------ | ---- | - | ------ | ---- | ---- | ---- | ----- | --- | ------ | - | ------ | ---- | ------ | - | ------ | ---- | ------ | -
|                                                       |                           | Changes in net interest                       |     |      | Changes in net interest      |  
|                                                       |                           | income for the year ended                     |     |      | income for the year ended    |  
|                                                       |                           | December 31, 2004                             |     |      | December 31, 2003            |  
|                                                       |                           |                                               |     |      |                              |  
|                                                       |                           | 2004 versus 2003 Increase                     |     |      | 2003 versus 2002 Increase    |  
|                                                       |                           | (Decrease) Due to Changes In                  |     |      | (Decrease) Due to Changes In |  
|                                                       |                           |                                               |     |      |                              |  
|                                                       |                           |                                               |     | Net  |                              |   |      |        | Net  |  
|(Dollars in thousands)                                 |                           | Volume                                        |     |      | Rate                         |   |      | Change |      |   | Volume |      |      | Rate |       |     | Change |  
|                                                       |                           |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |  
|Interest Income                                        |                           |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |   |        |      |        |   |        |     
|Investment securities:                                 |                           |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |   |        |      |        |   |        |     
|                                                       | Taxable                   |                                               | $   | 215  |                              |   | $    | (153   | )    |   | $      | 62   |      |      | $     | 588 |        |   | $      | (357 | )      |   | $      | 231  |       
|                                                       | Nontaxable                |                                               |     | 5    |                              |   |      | (25    | )    |   |        | (20  | )    |      |       | 319 |        |   |        | (186 | )      |   |        | 133  |       
|                                                       | (tax equivalent basis)*   |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |   |        |      |        |   |        |      |       
|Federal funds sold                                     |                           |                                               | (34 | )    |                              |   | 23   |        |      |   | (11    | )    |      |      | (6    | )   |        |   | (44    | )    |        |   | (50    | )   
|Interest bearing deposits                              |                           |                                               | (35 | )    |                              |   | 0    |        |      |   | (35    | )    |      |      | (27   | )   |        |   | 1      |      |        |   | (26    | )   
|Loans (including nonaccrual loans)                     |                           |                                               | 397 |      |                              |   | (132 | )      |      |   | 265    |      |      |      | 1,045 |     |        |   | (2,185 | )    |        |   | (1,140 | )   
|                                                       |                           |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |  
|                                                       |                           | Total interest Income (tax equivalent basis)* |     | $    | 548                          |   |      | $      | (287 | ) |        | $    | 261  |      |       | $   | 1,919  |   |        | $    | (2,771 | ) |        | $    | (852   | )
|                                                       |                           |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |  
|Interest Expense                                       |                           |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |   |        |      |        |   |        |     
|Deposits                                               |                           |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |   |        |      |        |   |        |     
|                                                       | Interest bearing checking |                                               | $   | 16   |                              |   | $    | (109   | )    |   | $      | (93  | )    |      | $     | 30  |        |   | $      | (189 | )      |   | $      | (159 | )     
|                                                       | Savings                   |                                               |     | 48   |                              |   |      | (242   | )    |   |        | (194 | )    |      |       | 314 |        |   |        | (818 | )      |   |        | (504 | )     
|                                                       | Time, $100,000 and over   |                                               |     | 23   |                              |   |      | (103   | )    |   |        | (80  | )    |      |       | (58 | )      |   |        | (44  | )      |   |        | (102 | )     
|                                                       | Time, other               |                                               |     | (142 | )                            |   |      | (34    | )    |   |        | (176 | )    |      |       | 83  |        |   |        | (687 | )      |   |        | (604 | )     
|Other funds purchased                                  |                           |                                               | 14  |      |                              |   | 135  |        |      |   | 149    |      |      |      | 91    |     |        |   | 90     |      |        |   | 181    |     
|                                                       |                           |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |  
|                                                       |                           | Total interest expense                        |     | $    | (41                          | ) |      | $      | (353 | ) |        | $    | (394 | )    |       | $   | 460    |   |        | $    | (1,648 | ) |        | $    | (1,188 | )
|                                                       |                           |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |  
|Changes in net interest income (tax equivalent basis)* |                           | $                                             | 589 |      |                              | $ | 66   |        |      | $ | 655    |      |      | $    | 1,459 |     |        | $ | (1,123 | )    |        | $ | 336    |     
|                                                       |                           |                                               |     |      |                              |   |      |        |      |   |        |      |      |      |       |     |        |  






|  |                                                            
|- | -----------------------------------------------------------
|* | Tax equivalence based on highest statutory tax rates of 34%








25



---



##### 



FINANCIAL REVIEW




Critical Accounting Policies




Allowance for Loan Losses.


Valuation of Securities.





26



---



##### 



FINANCIAL REVIEW




New Accounting Pronouncements


Effect of Newly Issued But Not Yet Effective Accounting
Standards:









27



---



##### 



CONSOLIDATED BALANCE SHEETS


December 31, 2004 and 2003


|                                                                                                              |                                         |                                 |             |             |             |   |             |             |             | 
|------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------------------------------- | ----------- | ----------- | ----------- | - | ----------- | ----------- | ----------- | 
|                                                                                                              |                                         | 2004                            |             |             | 2003        |  
|                                                                                                              |                                         |                                 |             |             |             |  
|ASSETS                                                                                                        |                                         |                                 |             |             |             |   |             |            
|Cash and due from banks                                                                                       |                                         | $                               | 11,756,454  |             |             | $ | 11,506,999  |            
|Federal funds sold                                                                                            |                                         |                                 | 6,070,000   |             |             |   |            |            
|                                                                                                              |                                         |                                 |             |             |             |  
|                                                                                                              |                                         | Total cash and cash equivalents |             |             | 17,826,454  |   |             |             | 11,506,999  | 
|Interest-bearing time deposits with other banks                                                               |                                         |                                 |            |             |             |   | 999,048     |            
|Securities available for sale                                                                                 |                                         |                                 | 60,461,982  |             |             |   | 67,189,563  |            
|Securities held to maturity (fair value: 2004 
    $16,444,769; 2003  $17,300,084)                          |                                         |                                 | 15,865,047  |             |             |   | 16,603,556  |            
|Federal bank stock                                                                                            |                                         |                                 | 2,877,850   |             |             |   | 2,771,350   |            
|Loans held for sale                                                                                           |                                         |                                 | 57,000      |             |             |   |            |            
|Loans, net of allowance for loan losses: 2004 
    $1,763,298; 2003  $1,603,568                             |                                         |                                 | 196,724,596 |             |             |   | 187,056,241 |            
|Premises and equipment, net                                                                                   |                                         |                                 | 4,366,780   |             |             |   | 4,737,018   |            
|Foreclosed assets                                                                                             |                                         |                                 | 46,000      |             |             |   |            |            
|Goodwill                                                                                                      |                                         |                                 | 4,722,775   |             |             |   | 4,722,775   |            
|Identified intangible assets                                                                                  |                                         |                                 | 1,386,577   |             |             |   | 1,654,086   |            
|Accrued interest receivable                                                                                   |                                         |                                 | 1,615,798   |             |             |   | 1,622,090   |            
|Other assets                                                                                                  |                                         |                                 | 2,474,070   |             |             |   | 2,386,649   |            
|                                                                                                              |                                         |                                 |             |             |             |  
|                                                                                                              |                                         | $                               | 308,424,929 |             |             | $ | 301,249,375 |            
|                                                                                                              |                                         |                                 |             |             |             |  
|                                                                                                             
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                          |                                         |                                 |             |             |             |   |             |            
|Deposits
    Noninterest-bearing                                                                              |                                         | $                               | 47,569,690  |             |             | $ | 38,821,286  |            
|                                                                                                              | Interest-bearing                        |                                 |             | 200,952,786 |             |   |             | 204,026,005 |            
|                                                                                                              |                                         |                                 |             |             |             |  
|                                                                                                              |                                         | Total deposits                  |             |             | 248,522,476 |   |             |             | 242,847,291 | 
|Repurchase agreements                                                                                         |                                         |                                 | 3,888,235   |             |             |   | 2,786,848   |            
|Federal Reserve note account                                                                                  |                                         |                                 | 791,007     |             |             |   | 319,563     |            
|Federal Home Loan Bank advances                                                                               |                                         |                                 | 17,000,000  |             |             |   | 17,034,291  |            
|Accrued expenses and other liabilities                                                                        |                                         |                                 | 2,903,890   |             |             |   | 3,456,647   |            
|                                                                                                              |                                         |                                 |             |             |             |  
|                                                                                                              |                                         | Total liabilities               |             |             | 273,105,608 |   |             |             | 266,444,640 | 
|Shareholders equity
    Common stock, no par value; 6,000,000 shares authorized;
    2,289,528 shares issued |                                         |                                 | 11,447,640  |             |             |   | 11,447,640  |            
|                                                                                                              | Additional paid-in capital              |                                 |             | 4,689,800   |             |   |             | 4,689,800   |            
|                                                                                                              | Retained earnings                       |                                 |             | 19,397,601  |             |   |             | 17,849,899  |            
|                                                                                                              | Treasury stock, at cost (55,040 shares) |                                 |             | (1,189,493  | )           |   |             | (1,189,493  | )          
|                                                                                                              | Accumulated other comprehensive income  |                                 |             | 973,773     |             |   |             | 2,006,889   |            
|                                                                                                              |                                         |                                 |             |             |             |  
|                                                                                                              |                                         | Total shareholders equity      |             |             | 35,319,321  |   |             |             | 34,804,735  | 
|                                                                                                              |                                         |                                 |             |             |             |  
|                                                                                                              |                                         | $                               | 308,424,929 |             |             | $ | 301,249,375 |            
|                                                                                                              |                                         |                                 |             |             |             |  






28



---



##### 



CONSOLIDATED STATEMENTS OF INCOME


Years ended December 31, 2004, 2003 and 2002


|                                                       |                                       |            |                                    |           |           |            |            |           |           |            |            |           |           |            | 
|------------------------------------------------------ | ------------------------------------- | ---------- | ---------------------------------- | --------- | --------- | ---------- | ---------- | --------- | --------- | ---------- | ---------- | --------- | --------- | ---------- | 
|                                                       |                                       | 2004       |                                    |           | 2003      |            |            | 2002      |          
|                                                       |                                       |            |                                    |           |           |            |            |           |          
|Interest and dividend income
    Loans, including fees |                                       | $          | 11,098,476                         |           |           | $          | 10,833,688 |           |           | $          | 11,974,356 |          
|                                                       | Federal funds sold                    |            |                                    | 75,138    |           |            |            | 85,635    |           |            |            | 136,263   |          
|                                                       | Securities:                           |            |                                    |           |           |            |            |           |           |            |            |           |          
|                                                       |                                       | Taxable    |                                    |           | 3,213,539 |            |            |           | 3,186,618 |            |            |           | 2,980,610 |           
|                                                       |                                       | Nontaxable |                                    |           | 924,846   |            |            |           | 937,868   |            |            |           | 849,924   |           
|                                                       |                                       |            |                                    |           |           |            |            |           |          
|                                                       |                                       |            | Total interest and dividend income |           |           | 15,311,999 |            |           |           | 15,043,809 |            |           |           | 15,941,153 | 
|Interest expense
    Deposits                          |                                       |            | 2,473,832                          |           |           |            | 3,016,172  |           |           |            | 4,384,154  |          
|                                                       | Short-term borrowings                 |            |                                    | 15,037    |           |            |            | 6,996     |           |            |            | 13,551    |          
|                                                       | Federal Home Loan Bank advances       |            |                                    | 857,453   |           |            |            | 716,848   |           |            |            | 530,069   |          
|                                                       |                                       |            |                                    |           |           |            |            |           |          
|                                                       |                                       |            | Total interest expense             |           |           | 3,346,322  |            |           |           | 3,740,016  |            |           |           | 4,927,774  | 
|                                                       |                                       |            |                                    |           |           |            |            |           |          
|Net interest income                                    |                                       |            | 11,965,677                         |           |           |            | 11,303,793 |           |           |            | 11,013,379 |          
|Provision for loan losses                              |                                       |            | 177,500                            |           |           |            | 245,000    |           |           |            | 1,569,402  |          
|                                                       |                                       |            |                                    |           |           |            |            |           |          
|Net interest income after provision for loan losses    |                                       |            | 11,788,177                         |           |           |            | 11,058,793 |           |           |            | 9,443,977  |          
|Noninterest income
    Checking account fees           |                                       |            | 790,928                            |           |           |            | 752,833    |           |           |            | 754,341    |          
|                                                       | Gain on sale of loans                 |            |                                    | 67,379    |           |            |            | 115,982   |           |            |            | 8,409     |          
|                                                       | Securities gains, net                 |            |                                    | 432,915   |           |            |            | 72,290    |           |            |            | 182,324   |          
|                                                       | Other                                 |            |                                    | 604,091   |           |            |            | 590,915   |           |            |            | 512,957   |          
|                                                       |                                       |            |                                    |           |           |            |            |           |          
|                                                       |                                       |            | Total noninterest income           |           |           | 1,895,313  |            |           |           | 1,532,020  |            |           |           | 1,458,031  | 
|Noninterest expense
    Salaries and employee benefits |                                       |            | 5,351,230                          |           |           |            | 4,844,909  |           |           |            | 4,338,987  |          
|                                                       | Data processing                       |            |                                    | 970,492   |           |            |            | 794,932   |           |            |            | 738,643   |          
|                                                       | Net occupancy                         |            |                                    | 410,276   |           |            |            | 404,489   |           |            |            | 345,858   |          
|                                                       | Depreciation  furniture and fixtures |            |                                    | 363,391   |           |            |            | 353,601   |           |            |            | 327,634   |          
|                                                       | Franchise tax                         |            |                                    | 355,469   |           |            |            | 321,824   |           |            |            | 302,880   |          
|                                                       | Maintenance and repairs               |            |                                    | 262,777   |           |            |            | 267,261   |           |            |            | 238,735   |          
|                                                       | Amortization of intangibles           |            |                                    | 267,509   |           |            |            | 275,647   |           |            |            | 145,227   |          
|                                                       | Dues, subscriptions and fees          |            |                                    | 262,079   |           |            |            | 213,721   |           |            |            | 158,810   |          
|                                                       | Marketing                             |            |                                    | 181,526   |           |            |            | 199,242   |           |            |            | 130,342   |          
|                                                       | Other                                 |            |                                    | 1,472,713 |           |            |            | 1,464,890 |           |            |            | 1,271,658 |          
|                                                       |                                       |            |                                    |           |           |            |            |           |          
|                                                       |                                       |            | Total noninterest expense          |           |           | 9,897,462  |            |           |           | 9,140,516  |            |           |           | 7,998,774  | 
|                                                       |                                       |            |                                    |           |           |            |            |           |          
|Income before income taxes                             |                                       |            | 3,786,028                          |           |           |            | 3,450,297  |           |           |            | 2,903,234  |          
|Income tax expense                                     |                                       |            | 875,288                            |           |           |            | 806,746    |           |           |            | 648,460    |          
|                                                       |                                       |            |                                    |           |           |            |            |           |          
|Net income                                             |                                       | $          | 2,910,740                          |           |           | $          | 2,643,551  |           |           | $          | 2,254,774  |          
|                                                       |                                       |            |                                    |           |           |            |            |           |          
|Weighted average common shares outstanding             |                                       |            | 2,234,488                          |           |           |            | 2,234,488  |           |           |            | 2,228,510  |          
|                                                       |                                       |            |                                    |           |           |            |            |           |          
|Basic and diluted earnings per common share            |                                       | $          | 1.30                               |           |           | $          | 1.18       |           |           | $          | 1.01       |          
|                                                       |                                       |            |                                    |           |           |            |            |           |          






29



---



##### 



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY


Years ended December 31, 2004, 2003 and 2002


|                                                                   |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |   |           |            |   |   |            |            |           | 
|------------------------------------------------------------------ | --------------------------------- | -------------------------- | ---------- | ---------- | ------- | - | --------- | -------- |  | ----------- | ---------- | --------- |  | ------------- | ---------- | - | ------------- | - | --------- | ---------- | - | - | ---------- | ---------- | --------- | 
|                                                                   |                                   |                            |            |            |         |   |           |          |  | Accumulated |            |           | 
|                                                                   |                                   |                            |            | Additional |         |   |           |          |  |             | Other      |           |  | Total         |           
|                                                                   |                                   | Common                     |            |            | Paid-In |   |           | Retained |  |             | Treasury   |           |  | Comprehensive |            |   | Shareholders |  
|                                                                   |                                   | Stock                      |            |            | Capital |   |           | Earnings |  |             | Stock      |           |  | Income        |            |   | Equity        |  
|                                                                   |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |  
|Balance at January 1, 2002                                         |                                   | $                          | 11,447,640 |            |         | $ | 4,689,800 |          |  | $           | 15,620,935 |           |  | $             | (1,620,484 | ) |               | $ | 784,297   |            |   | $ | 30,922,188 |           
|Comprehensive income:                                              |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |   |           |            |   |   |            |           
|                                                                   | Net income                        |                            |            |            |         |   |           |          |  |             |            | 2,254,774 |  |               |            |   |               |   |           |            |   |   |            | 2,254,774  |          
|                                                                   | Other comprehensive income        |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |   |           | 955,454    |   |   |            | 955,454    |          
|                                                                   |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |  
|                                                                   |                                   | Total comprehensive income |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |   |           |            |   |   |            |            | 3,210,228 | 
|Cash dividends declared ($.54 per share)                           |                                   |                            |            |            |         |   |           |          |  |             | (1,203,946 | )         |  |               |            |   |               |   |           |            |   |   | (1,203,946 | )         
|Shares issued under dividend reinvestment plan
    (14,295 shares) |                                   |                            |            |            |         |   |           |          |  |             | (169,411   | )         |  |               | 430,991    |   |               |   |           |            |   |   | 261,580    |           
|                                                                   |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |  
|Balance at December 31, 2002                                       |                                   |                            | 11,447,640 |            |         |   | 4,689,800 |          |  |             | 16,502,352 |           |  |               | (1,189,493 | ) |               |   | 1,739,751 |            |   |   | 33,190,050 |           
|Comprehensive income:                                              |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |   |           |            |   |   |            |           
|                                                                   | Net income                        |                            |            |            |         |   |           |          |  |             |            | 2,643,551 |  |               |            |   |               |   |           |            |   |   |            | 2,643,551  |          
|                                                                   | Other comprehensive income        |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |   |           | 267,138    |   |   |            | 267,138    |          
|                                                                   |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |  
|                                                                   |                                   | Total comprehensive income |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |   |           |            |   |   |            |            | 2,910,689 | 
|Cash dividends declared ($.58 per share)                           |                                   |                            |            |            |         |   |           |          |  |             | (1,296,004 | )         |  |               |            |   |               |   |           |            |   |   | (1,296,004 | )         
|                                                                   |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |  
|Balance at December 31, 2003                                       |                                   |                            | 11,447,640 |            |         |   | 4,689,800 |          |  |             | 17,849,899 |           |  |               | (1,189,493 | ) |               |   | 2,006,889 |            |   |   | 34,804,735 |           
|Comprehensive income:                                              |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |   |           |            |   |   |            |           
|                                                                   | Net income                        |                            |            |            |         |   |           |          |  |             |            | 2,910,740 |  |               |            |   |               |   |           |            |   |   |            | 2,910,740  |          
|                                                                   | Other comprehensive income (loss) |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |   |           | (1,033,116 | ) |   |            | (1,033,116 | )        
|                                                                   |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |  
|                                                                   |                                   | Total comprehensive income |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |   |           |            |   |   |            |            | 1,877,624 | 
|Cash dividends declared ($.61 per share)                           |                                   |                            |            |            |         |   |           |          |  |             | (1,363,038 | )         |  |               |            |   |               |   |           |            |   |   | (1,363,038 | )         
|                                                                   |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |  
|Balance at December 31, 2004                                       |                                   | $                          | 11,447,640 |            |         | $ | 4,689,800 |          |  | $           | 19,397,601 |           |  | $             | (1,189,493 | ) |               | $ | 973,773   |            |   | $ | 35,319,321 |           
|                                                                   |                                   |                            |            |            |         |   |           |          |  |             |            |           |  |               |            |   |               |  






30



---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS


Years ended December 31, 2004, 2003 and 2002


|                                        |                                                                               |                                                     |            |            |             |   |            |            |             |   |            |            |             |  
|--------------------------------------- | ----------------------------------------------------------------------------- | --------------------------------------------------- | ---------- | ---------- | ----------- | - | ---------- | ---------- | ----------- | - | ---------- | ---------- | ----------- | -
|                                        |                                                                               | 2004                                                |            |            | 2003        |   |            | 2002       |            
|                                        |                                                                               |                                                     |            |            |             |   |            |            |            
|Cash flows from operating activities    |                                                                               |                                                     |            |            |             |   |            |            |             |   |            |           
|                                        | Net income                                                                    |                                                     | $          | 2,910,740  |             |   | $          | 2,643,551  |             |   | $          | 2,254,774  |            
|                                        | Adjustments to reconcile net income to net cash from operating
    activities |                                                     |            |            |             |   |            |            |             |   |            |            |            
|                                        |                                                                               | Provision for loan losses                           |            |            | 177,500     |   |            |            | 245,000     |   |            |            | 1,569,402   |  
|                                        |                                                                               | Depreciation, amortization and accretion            |            |            | 810,553     |   |            |            | 514,317     |   |            |            | 238,144     |  
|                                        |                                                                               | Federal Home Loan Bank stock dividend               |            |            | (106,500    | ) |            |            | (81,900     | ) |            |            | (64,300     | )
|                                        |                                                                               | Origination of mortgage loans held for sale         |            |            | (3,030,007  | ) |            |            |            |   |            |            |            |  
|                                        |                                                                               | Proceeds from sales of mortgage loans held for sale |            |            | 3,014,578   |   |            |            |            |   |            |            |            |  
|                                        |                                                                               | Gain on sale of loans                               |            |            | (67,379     | ) |            |            | (115,982    | ) |            |            | (8,409      | )
|                                        |                                                                               | Net security gains                                  |            |            | (432,915    | ) |            |            | (72,290     | ) |            |            | (182,324    | )
|                                        |                                                                               | Change in other assets and liabilities              |            |            | (98,212     | ) |            |            | 140,078     |   |            |            | (771,589    | )
|                                        |                                                                               |                                                     |            |            |             |   |            |            |            
|                                        |                                                                               | Net cash from operating activities                  |            |            | 3,178,358   |   |            |            | 3,272,774   |   |            |            | 3,035,698   |  
|Cash flows from investing activities    |                                                                               |                                                     |            |            |             |   |            |            |             |   |            |           
|                                        | Net change in interest-bearing deposits with other banks                      |                                                     |            | 999,048    |             |   |            | (1,863     | )           |   |            | 996,826    |            
|                                        | Securities held to maturity                                                   |                                                     |            |            |             |   |            |            |             |   |            |            |            
|                                        |                                                                               | Proceeds from maturities and repayments             |            |            | 2,752,943   |   |            |            | 2,412,599   |   |            |            | 3,610,036   |  
|                                        |                                                                               | Purchases                                           |            |            | (2,076,438  | ) |            |            | (636,911    | ) |            |            | (7,917,091  | )
|                                        | Securities available for sale                                                 |                                                     |            |            |             |   |            |            |             |   |            |            |            
|                                        |                                                                               | Proceeds from maturities and repayments             |            |            | 14,335,787  |   |            |            | 8,442,092   |   |            |            | 9,881,758   |  
|                                        |                                                                               | Proceeds from sales                                 |            |            | 4,615,918   |   |            |            | 2,071,143   |   |            |            | 5,317,609   |  
|                                        |                                                                               | Purchases                                           |            |            | (13,322,070 | ) |            |            | (24,668,182 | ) |            |            | (13,587,788 | )
|                                        | Purchase of Federal bank stock                                                |                                                     |            |           |             |   |            |           |             |   |            | (450,550   | )          
|                                        | Cash paid for acquisition, net of cash received                               |                                                     |            |           |             |   |            |           |             |   |            | (1,123,425 | )          
|                                        | Capital expenditures                                                          |                                                     |            | (179,559   | )           |   |            | (461,306   | )           |   |            | (580,424   | )          
|                                        | Proceeds from sale of loans                                                   |                                                     |            |           |             |   |            | 5,432,154  |             |   |            | 1,195,026  |            
|                                        | Net change in loans to customers                                              |                                                     |            | (9,891,855 | )           |   |            | (2,057,750 | )           |   |            | 4,558,543  |            
|                                        |                                                                               |                                                     |            |            |             |   |            |            |            
|                                        |                                                                               | Net cash from investing activities                  |            |            | (2,766,226  | ) |            |            | (9,468,024  | ) |            |            | 1,900,520   |  
|Cash flow from financing activities     |                                                                               |                                                     |            |            |             |   |            |            |             |   |            |           
|                                        | Net change in deposits                                                        |                                                     |            | 5,675,185  |             |   |            | 3,550,064  |             |   |            | 5,782,993  |            
|                                        | Net change in short-term borrowings                                           |                                                     |            | 1,572,831  |             |   |            | (899,810   | )           |   |            | 472,331    |            
|                                        | Repayments of Federal Home Loan Bank advances                                 |                                                     |            |           |             |   |            |           |             |   |            | (4,207,807 | )          
|                                        | Dividends paid                                                                |                                                     |            | (1,340,693 | )           |   |            | (1,273,659 | )           |   |            | (1,179,743 | )          
|                                        | Dividends reinvested                                                          |                                                     |            |           |             |   |            |           |             |   |            | 261,580    |            
|                                        |                                                                               |                                                     |            |            |             |   |            |            |            
|                                        |                                                                               | Net cash from financing activities                  |            |            | 5,907,323   |   |            |            | 1,376,595   |   |            |            | 1,129,354   |  
|                                        |                                                                               |                                                     |            |            |             |   |            |            |            
|Net change in cash and cash equivalents |                                                                               |                                                     | 6,319,455  |            |             |   | (4,818,655 | )          |             |   | 6,065,572  |           
|Beginning cash and cash equivalents     |                                                                               |                                                     | 11,506,999 |            |             |   | 16,325,654 |            |             |   | 10,260,082 |           
|                                        |                                                                               |                                                     |            |            |             |   |            |            |            
|Ending cash and cash equivalents        |                                                                               | $                                                   | 17,826,454 |            |             | $ | 11,506,999 |            |             | $ | 16,325,654 |           
|                                        |                                                                               |                                                     |            |            |             |   |            |            |            
|Supplemental cash flow information:     |                                                                               |                                                     |            |            |             |   |            |            |             |   |            |           
|                                        | Interest paid                                                                 |                                                     | $          | 3,356,077  |             |   | $          | 3,817,233  |             |   | $          | 4,964,995  |            
|                                        | Income taxes paid                                                             |                                                     |            | 1,035,000  |             |   |            | 940,000    |             |   |            | 591,091    |            
|                                        | Supplemental noncash disclosures:                                             |                                                     |            |            |             |   |            |            |             |   |            |            |            
|                                        | Transfer from loans to foreclosed assets                                      |                                                     | $          | 46,000     |             |   | $          |           |             |   | $          |           |            






31



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002


NOTE 1  SUMMARY OF SIGNIFICANT 
 ACCOUNTING POLICIES


Nature of Operations and Principles of
Consolidation:




Segments:


Use of Estimates:


Cash Flows:


Securities:








Loans Held for
Sale:









32



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002




NOTE 1  SUMMARY OF SIGNIFICANT 
 ACCOUNTING POLICIES (Continued)






Loans:






Allowance for Loan
Losses:






Servicing Rights:









33



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002




NOTE 1  SUMMARY OF SIGNIFICANT 
 ACCOUNTING POLICIES (Continued)








Foreclosed Assets:


Premises and Equipment:


Bank Owned Life
Insurance:


Goodwill and Other Intangible
Assets:






Long-term Assets:


Repurchase
Agreements:


Benefit Plans:


Income Taxes:









34



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002




NOTE 1  SUMMARY OF SIGNIFICANT 
 ACCOUNTING POLICIES (Continued)




Loan Commitments and Related Financial
Instruments:


Earnings Per Common
Share:


Comprehensive
Income:


Loss Contingencies:


Restrictions on Cash:


Dividend
Restriction:


Fair Value of Financial
Instruments:


Effect of Newly Issued But Not Yet Effective Accounting
Standards:






Reclassifications:









35



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002


NOTE 2  ACQUISITION






NOTE 3  SECURITIES




|     |                                    |                       |   |            |            |  |            |           |           |  |   |         |          |  
|---- | ---------------------------------- | --------------------- | - | ---------- | ---------- |  | ---------- | --------- | --------- |  | - | ------- | -------- | -
|     |                                    |                       |   | Gross      |            |  | Gross      |          
|     |                                    |                       |   | Unrealized |            |  | Unrealized |          
|     |                                    | Fair Value            |   |            | Gains      |  |            | Losses    |          
|     |                                    |                       |   |            |            |  |            |           |          
|2004 |                                    |                       |   |            |            |  |            |           |           |  |   |        
|     | U.S. Government and federal agency |                       | $ | 17,759,114 |            |  | $          | 227,251   |           |  | $ | (30,080 | )       
|     | State and municipal                |                       |   | 2,991,040  |            |  |            | 129,113   |           |  |   |        |         
|     | Corporate bond and notes           |                       |   | 38,217,856 |            |  |            | 1,157,837 |           |  |   | (86,103 | )       
|     | Mortgage backed                    |                       |   | 641,653    |            |  |            | 11,196    |           |  |   | (222    | )       
|     |                                    |                       |   |            |            |  |            |           |          
|     |                                    | Total debt securities |   |            | 59,609,663 |  |            |           | 1,525,397 |  |   |         | (116,405 | )
|     | Equity securities                  |                       |   | 852,319    |            |  |            | 66,422    |           |  |   |        |         
|     |                                    |                       |   |            |            |  |            |           |          
|     |                                    | Total                 |   | $          | 60,461,982 |  |            | $         | 1,591,819 |  |   | $       | (116,405 | )
|     |                                    |                       |   |            |            |  |            |           |          
|2003 |                                    |                       |   |            |            |  |            |           |           |  |   |        
|     | U.S. Government and federal agency |                       | $ | 24,952,062 |            |  | $          | 730,120   |           |  | $ | (19,375 | )       
|     | State and municipal                |                       |   | 2,436,996  |            |  |            | 175,194   |           |  |   |        |         
|     | Corporate bond and notes           |                       |   | 36,825,636 |            |  |            | 1,924,041 |           |  |   | (79,437 | )       
|     | Mortgage backed                    |                       |   | 2,122,466  |            |  |            | 317,735   |           |  |   |        |         
|     |                                    |                       |   |            |            |  |            |           |          
|     |                                    | Total debt securities |   |            | 66,337,160 |  |            |           | 3,147,090 |  |   |         | (98,812  | )
|     | Equity securities                  |                       |   | 852,403    |            |  |            | 26,013    |           |  |   | (33,550 | )       
|     |                                    |                       |   |            |            |  |            |           |          
|     |                                    | Total                 |   | $          | 67,189,563 |  |            | $         | 3,173,103 |  |   | $       | (132,362 | )
|     |                                    |                       |   |            |            |  |            |           |          








36



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002




NOTE 3  SECURITIES (Continued)




|     |                     |          |   |            |              |  |       |              |  |  |            |         |   |  |   |            | 
|---- | ------------------- | -------- | - | ---------- | ------------ |  | ----- | ------------ |  |  | ---------- | ------- | - |  | - | ---------- | 
|     |                     |          |   | Gross      |              |  | Gross |              |  | 
|     |                     | Carrying |   |            | Unrecognized |  |       | Unrecognized |  |  |           
|     |                     | Amount   |   |            | Gains        |  |       | Losses       |  |  | Fair Value |        
|     |                     |          |   |            |              |  |       |              |  |  |            |        
|2004 |                     |          |   |            |              |  |       |              |  |  |            |         |   |  |   |           
|     | State and municipal |          | $ | 15,865,047 |              |  | $     | 580,268      |  |  | $          | (546    | ) |  | $ | 16,444,769 | 
|     |                     |          |   |            |              |  |       |              |  |  |            |        
|2003 |                     |          |   |            |              |  |       |              |  |  |            |         |   |  |   |           
|     | State and municipal |          | $ | 16,603,556 |              |  | $     | 712,328      |  |  | $          | (15,800 | ) |  | $ | 17,300,084 | 
|     |                     |          |   |            |              |  |       |              |  |  |            |        



|             |  |      |           |  |      |   |           |      |  |   |           | 
|------------ |  | ---- | --------- |  | ---- | - | --------- | ---- |  | - | --------- | 
|             |  | 2004 |           |  | 2003 |   |           | 2002 | 
|             |  |      |           |  |      |   |           |      | 
|Proceeds     |  | $    | 4,615,918 |  |      | $ | 2,071,143 |      |  | $ | 5,317,609 | 
|Gross gains  |  |      | 459,992   |  |      |   | 234,331   |      |  |   | 227,679   | 
|Gross losses |  |      | 27,077    |  |      |   | 162,041   |      |  |   | 45,355    | 





|                           |       |                    |            |            |                  |   |           |            |  |   |           |            | 
|-------------------------- | ----- | ------------------ | ---------- | ---------- | ---------------- | - | --------- | ---------- |  | - | --------- | ---------- | 
|                           |       | Available for Sale |            |            | Held to Maturity |  
|                           |       |                    |            |            |                  |  
|                           |       |                    |            | Carrying   |                  |   |          
|                           |       | Fair Value         |            |            | Amount           |   |           | Fair Value | 
|                           |       |                    |            |            |                  |   |           |            | 
|Due in one year or less    |       | $                  | 3,194,034  |            |                  | $ | 803,221   |            |  | $ | 819,893   |           
|Due from one to five years |       |                    | 27,478,722 |            |                  |   | 1,806,015 |            |  |   | 1,894,970 |           
|Due from five to ten years |       |                    | 25,773,759 |            |                  |   | 4,718,549 |            |  |   | 4,866,893 |           
|Due after ten years        |       |                    | 3,163,148  |            |                  |   | 8,537,262 |            |  |   | 8,863,013 |           
|                           |       |                    |            |            |                  |   |           |            | 
|                           | Total |                    | $          | 59,609,663 |                  |   | $         | 15,865,047 |  |   | $         | 16,444,769 | 
|                           |       |                    |            |            |                  |   |           |            | 








37



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002




NOTE 3  SECURITIES (Continued)




|                              |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |   |            |  |  |   |          |  
|----------------------------- |  | ------------------- | ---------- | ---------- | ----------------- | - | -------- | ---------- | ---------- | - | --------- |  |  | ---------- | ------- | - | ---- | - | ---------- |  |  | - | -------- | -
|                              |  | Less than 12 Months |            |            | 12 Months or More |   |          | Total      |           
|                              |  |                     |            |            |                   |   |          |            |           
|                              |  |                     |            | Unrealized |                   |   |          |            | Unrealized |   |           |  |  | Unrealized |        
|Description of Securities     |  | Fair Value          |            |            | Loss              |   |          | Fair Value |            |   | Loss      |  |  | Fair Value |         |   | Loss |  
|                              |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |  
|2004                          |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |   |            |  |  |   |          |  
|Available for sale            |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |   |            |  |  |   |          |  
|Government and federal agency |  | $                   | 5,062,320  |            |                   | $ | (30,302  | )          |            | $ |          |  |  | $          |        |   |      | $ | 5,062,320  |  |  | $ | (30,302  | )
|Corporate bonds and notes     |  |                     | 9,094,417  |            |                   |   | (77,876  | )          |            |   | 494,063   |  |  |            | (8,227  | ) |      |   | 9,588,480  |  |  |   | (86,103  | )
|                              |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |  
|Total temporarily impaired    |  | $                   | 14,156,737 |            |                   | $ | (108,178 | )          |            | $ | 494,063   |  |  | $          | (8,227  | ) |      | $ | 14,650,800 |  |  | $ | (116,405 | )
|                              |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |  
|Held to maturity              |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |   |            |  |  |   |          |  
|State and municipal           |  | $                   | 315,051    |            |                   | $ | (546     | )          |            | $ |          |  |  | $          |        |   |      | $ | 315,051    |  |  | $ | (546     | )
|                              |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |  
|2003                          |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |   |            |  |  |   |          |  
|Available for sale            |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |   |            |  |  |   |          |  
|Government and federal agency |  | $                   | 1,979,375  |            |                   | $ | (19,375  | )          |            | $ |          |  |  | $          |        |   |      | $ | 1,979,375  |  |  | $ | (19,375  | )
|Corporate bonds and notes     |  |                     | 10,645,436 |            |                   |   | (79,437  | )          |            |   |          |  |  |            |        |   |      |   | 10,645,436 |  |  |   | (79,437  | )
|Equity securities             |  |                     |           |            |                   |   |         |            |            |   | 213,642   |  |  |            | (33,550 | ) |      |   | 213,642    |  |  |   | (33,550  | )
|                              |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |  
|Total temporarily impaired    |  | $                   | 12,624,811 |            |                   | $ | (98,812  | )          |            | $ | 213,642   |  |  | $          | (33,550 | ) |      | $ | 12,838,453 |  |  | $ | (132,362 | )
|                              |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |  
|Held to maturity              |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |   |            |  |  |   |          |  
|State and municipal           |  | $                   | 316,346    |            |                   | $ | (1,832   | )          |            | $ | 1,720,120 |  |  | $          | (13,968 | ) |      | $ | 2,036,466  |  |  | $ | (15,800  | )
|                              |  |                     |            |            |                   |   |          |            |            |   |           |  |  |            |         |   |      |  












38



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002


NOTE 4  LOANS




|                               |                              |       |             |            |             |  |             |             |             | 
|------------------------------ | ---------------------------- | ----- | ----------- | ---------- | ----------- |  | ----------- | ----------- | ----------- | 
|                               |                              | 2004  |             |            | 2003        | 
|                               |                              |       |             |            |             | 
|Collateralized by real estate: |                              |       |             |            |             |  |             |            
|                               | Commercial                   |       | $           | 47,080,983 |             |  | $           | 39,349,045  |            
|                               | Residential                  |       |             | 97,694,011 |             |  |             | 101,291,447 |            
|                               | Home equity                  |       |             | 18,272,212 |             |  |             | 14,008,018  |            
|                               | Construction                 |       |             | 6,326,884  |             |  |             | 5,131,685   |            
|                               |                              |       |             |            |             | 
|                               |                              |       | 169,374,090 |            |             |  | 159,780,195 |            
|Other:                         |                              |       |             |            |             |  |             |            
|                               | Consumer                     |       |             | 5,385,953  |             |  |             | 4,828,644   |            
|                               | Commercial                   |       |             | 21,196,523 |             |  |             | 21,374,911  |            
|                               | Credit cards                 |       |             | 1,363,725  |             |  |             | 1,263,565   |            
|                               | Other                        |       |             | 1,673,031  |             |  |             | 1,821,016   |            
|                               |                              |       |             |            |             | 
|                               |                              |       | 198,993,322 |            |             |  | 189,068,331 |            
|                               | Unearned and deferred income |       |             | (505,428   | )           |  |             | (408,522    | )          
|                               | Allowance for loan losses    |       |             | (1,763,298 | )           |  |             | (1,603,568  | )          
|                               |                              |       |             |            |             | 
|                               |                              | Total |             | $          | 196,724,596 |  |             | $           | 187,056,241 | 
|                               |                              |       |             |            |             | 



|                                  |  |      |           |   |      |   |           |      |  |   |            |  
|--------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | ---------- | -
|                                  |  | 2004 |           |   | 2003 |   |           | 2002 | 
|                                  |  |      |           |   |      |   |           |      | 
|Beginning balance                 |  | $    | 1,603,568 |   |      | $ | 1,604,200 |      |  | $ | 1,321,152  |  
|Provision for loan losses         |  |      | 177,500   |   |      |   | 245,000   |      |  |   | 1,569,402  |  
|Loans charged-off                 |  |      | (68,762   | ) |      |   | (267,485  | )    |  |   | (1,545,986 | )
|Recoveries                        |  |      | 50,992    |   |      |   | 21,853    |      |  |   | 15,103     |  
|Allowance of acquired institution |  |      |          |   |      |   |          |      |  |   | 244,529    |  
|                                  |  |      |           |   |      |   |           |      | 
|Ending balance                    |  | $    | 1,763,298 |   |      | $ | 1,603,568 |      |  | $ | 1,604,200  |  
|                                  |  |      |           |   |      |   |           |      | 





|                                                           |  |      |         |  |      |   |         | 
|---------------------------------------------------------- |  | ---- | ------- |  | ---- | - | ------- | 
|                                                           |  | 2004 |         |  | 2003 |  
|                                                           |  |      |         |  |      |  
|Year-end loans with no allocated allowance for loan losses |  | $    | 125,502 |  |      | $ | 125,502 | 
|Year-end loans with allocated allowance for loan losses    |  |      | 597,615 |  |      |   | 251,081 | 
|Amount of the allowance for loan losses allocated          |  |      | 256,060 |  |      |   | 100,000 | 

|                                             |  |      |         |  |      |   |         |      |  |   |         | 
|-------------------------------------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                                             |  | 2004 |         |  | 2003 |   |         | 2002 | 
|                                             |  |      |         |  |      |   |         |      | 
|Average of impaired loans during the year    |  | $    | 395,646 |  |      | $ | 837,670 |      |  | $ | 571,240 | 
|Interest income recognized during impairment |  |      | 190     |  |      |   | 362     |      |  |   | 26,104  | 
|Cash-basis interest income recognized        |  |      | 190     |  |      |   | 362     |      |  |   | 26,104  | 










39



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002


NOTE 5  PREMISES AND EQUIPMENT




|                                  |  |      |            |   |      |   |            |  
|--------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                  |  | 2004 |            |   | 2003 |  
|                                  |  |      |            |   |      |  
|Land                              |  | $    | 1,114,306  |   |      | $ | 1,114,306  |  
|Buildings                         |  |      | 5,448,017  |   |      |   | 5,418,947  |  
|Furniture, fixtures and equipment |  |      | 4,598,765  |   |      |   | 4,525,832  |  
|                                  |  |      |            |   |      |  
|                                  |  |      | 11,161,088 |   |      |   | 11,059,085 |  
|Less: Accumulated depreciation    |  |      | (6,794,308 | ) |      |   | (6,322,067 | )
|                                  |  |      |            |   |      |  
|                                  |  | $    | 4,366,780  |   |      | $ | 4,737,018  |  
|                                  |  |      |            |   |      |  








NOTE 6  INTANGIBLE ASSETS




|                             |                                   |          |   |           |              |  |       |          |           |  |              |           |           |  |   |         |         | 
|---------------------------- | --------------------------------- | -------- | - | --------- | ------------ |  | ----- | -------- | --------- |  | ------------ | --------- | --------- |  | - | ------- | ------- | 
|                             |                                   | 2004     |   |           | 2003         | 
|                             |                                   |          |   |           |              | 
|                             |                                   | Gross    |   |           |              |  | Gross |          |           | 
|                             |                                   | Carrying |   |           | Accumulated  |  |       | Carrying |           |  | Accumulated  |          
|                             |                                   | Amount   |   |           | Amortization |  |       | Amount   |           |  | Amortization |          
|                             |                                   |          |   |           |              |  |       |          |           |  |              |          
|Amortized intangible assets: |                                   |          |   |           |              |  |       |          |           |  |              |           |           |  |   |        
|                             | Core deposit intangibles          |          | $ | 1,063,104 |              |  | $     | 340,857  |           |  | $            | 1,063,104 |           |  | $ | 220,261 |        
|                             | Customer relationship intangibles |          |   | 728,266   |              |  |       | 208,076  |           |  |              | 728,266   |           |  |   | 104,038 |        
|                             | Branch acquisition intangible     |          |   | 759,338   |              |  |       | 615,198  |           |  |              | 759,338   |           |  |   | 572,323 |        
|                             |                                   |          |   |           |              |  |       |          |           |  |              |          
|                             |                                   | Total    |   | $         | 2,550,708    |  |       | $        | 1,164,131 |  |              | $         | 2,550,708 |  |   | $       | 896,622 | 
|                             |                                   |          |   |           |              |  |       |          |           |  |              |          





|     |  |   |         | 
|---- |  | - | ------- | 
|2005 |  | $ | 249,964 | 
|2006 |  |   | 245,978 | 
|2007 |  |   | 237,008 | 
|2008 |  |   | 231,360 | 
|2009 |  |   | 224,928 | 

NOTE 7  DEPOSITS




|                            |  |      |             |  |      |   |             | 
|--------------------------- |  | ---- | ----------- |  | ---- | - | ----------- | 
|                            |  | 2004 |             |  | 2003 |  
|                            |  |      |             |  |      |  
|Demand, noninterest-bearing |  | $    | 47,569,690  |  |      | $ | 38,821,286  | 
|Demand, interest-bearing    |  |      | 40,775,013  |  |      |   | 38,922,973  | 
|Savings                     |  |      | 88,543,284  |  |      |   | 86,636,381  | 
|Time, $100,000 and over     |  |      | 10,395,125  |  |      |   | 11,210,884  | 
|Time, other                 |  |      | 61,239,364  |  |      |   | 67,255,767  | 
|                            |  |      |             |  |      |  
|                            |  | $    | 248,522,476 |  |      | $ | 242,847,291 | 
|                            |  |      |             |  |      |  








40



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002


NOTE 7  DEPOSITS (Continued)




|                    |  |   |            | 
|------------------- |  | - | ---------- | 
|2005                |  | $ | 40,750,381 | 
|2006                |  |   | 19,324,589 | 
|2007                |  |   | 6,902,365  | 
|2008                |  |   | 4,490,874  | 
|2009 and thereafter |  |   | 166,280    | 
|                    |  |   |           
|                    |  | $ | 71,634,489 | 
|                    |  |   |           

NOTE 8  FEDERAL HOME LOAN BANK ADVANCES




|                                                                                                                                                |       |      |            |            |      |   |            |            | 
|----------------------------------------------------------------------------------------------------------------------------------------------- | ----- | ---- | ---------- | ---------- | ---- | - | ---------- | ---------- | 
|                                                                                                                                                |       | 2004 |            |            | 2003 |  
|                                                                                                                                                |       |      |            |            |      |  
|Maturity in 2010, fixed rate at 6.26%, convertible to variable
    rate if 3-month LIBOR is at or above predetermined conversion
    rate level |       | $    | 1,000,000  |            |      | $ | 1,000,000  |           
|Maturities in 2010 and 2011, fixed rate at 4.60% to 5.79%                                                                                       |       |      | 16,000,000 |            |      |   | 16,034,291 |           
|                                                                                                                                                |       |      |            |            |      |  
|                                                                                                                                                | Total |      | $          | 17,000,000 |      |   | $          | 17,034,291 | 
|                                                                                                                                                |       |      |            |            |      |  





|     |  |      |              |   |  |   |            | 
|---- |  | ---- | ------------ | - |  | - | ---------- | 
|     |  | Rate |              |   | 
|     |  |      |              |   | 
|2010 |  |      | 5.00 to 6.26 | % |  | $ | 11,000,000 | 
|2011 |  |      | 4.60 to 5.12 | % |  |   | 6,000,000  | 
|     |  |      |              |   |  |  
|     |  |      |              |   |  | $ | 17,000,000 | 
|     |  |      |              |   |  |  

NOTE 9  REPURCHASE AGREEMENTS




|                                          |  |      |           |   |      |   |           |  
|----------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                          |  | 2004 |           |   | 2003 |  
|                                          |  |      |           |   |      |  
|Average balance during the year           |  | $    | 3,140,013 |   |      | $ | 2,845,520 |  
|Average interest rate during the year     |  |      | 0.36      | % |      |   | 0.13      | %
|Maximum month-end balance during the year |  |      | 4,847,337 |   |      |   | 3,385,869 |  
|Weighted average rate at year-end         |  |      | 0.69      | % |      |   | 0.10      | %

NOTE 10  BENEFIT PLANS















41



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002




NOTE 10  BENEFIT PLANS (Continued)




NOTE 11  INCOME TAXES




|                                     |                                        |       |            |         |           |   |            |           |           | 
|------------------------------------ | -------------------------------------- | ----- | ---------- | ------- | --------- | - | ---------- | --------- | --------- | 
|                                     |                                        | 2004  |            |         | 2003      |  
|                                     |                                        |       |            |         |           |  
|Deferred tax assets:                 |                                        |       |            |         |           |   |            |          
|                                     | Bad debts                              |       | $          | 439,392 |           |   | $          | 385,083   |          
|                                     | Deferred loan fees                     |       |            | 169,132 |           |   |            | 136,631   |          
|                                     | Core deposit intangibles               |       |            | 35,616  |           |   |            | 38,251    |          
|                                     | Deferred compensation                  |       |            | 248,315 |           |   |            | 207,369   |          
|                                     | Investment in financial stock fund     |       |            | 2,591   |           |   |            | 19,900    |          
|                                     | Other                                  |       |            | 37      |           |   |            |          |          
|                                     |                                        |       |            |         |           |  
|                                     |                                        | Total |            |         | 895,083   |   |            |           | 787,234   | 
|                                     |                                        |       |            |         |           |  
|Deferred tax liabilities:            |                                        |       |            |         |           |   |            |          
|                                     | Securities accretion                   |       |            | 51,227  |           |   |            | 57,305    |          
|                                     | Depreciation                           |       |            | 246,889 |           |   |            | 258,360   |          
|                                     | Federal Home Loan Bank stock dividends |       |            | 426,530 |           |   |            | 397,290   |          
|                                     | Prepaid expenses                       |       |            | 32,069  |           |   |            |          |          
|                                     | Mortgage servicing rights              |       |            | 8,598   |           |   |            |          |          
|                                     | Purchase accounting adjustments        |       |            | 646,226 |           |   |            | 717,083   |          
|                                     | Unrealized securities gains            |       |            | 501,640 |           |   |            | 1,033,851 |          
|                                     |                                        |       |            |         |           |  
|                                     |                                        | Total |            |         | 1,913,179 |   |            |           | 2,463,889 | 
|                                     |                                        |       |            |         |           |  
|Net deferred tax asset (liabilities) |                                        | $     | (1,018,096 | )       |           | $ | (1,676,655 | )        
|                                     |                                        |       |            |         |           |  





|                  |       |      |           |         |      |   |          |         |  |   |         |         | 
|----------------- | ----- | ---- | --------- | ------- | ---- | - | -------- | ------- |  | - | ------- | ------- | 
|                  |       | 2004 |           |         | 2003 |   |          | 2002    | 
|                  |       |      |           |         |      |   |          |         | 
|Currently payable |       | $    | 1,001,636 |         |      | $ | 961,331  |         |  | $ | 474,567 |        
|Deferred          |       |      | (126,348  | )       |      |   | (154,585 | )       |  |   | 173,893 |        
|                  |       |      |           |         |      |   |          |         | 
|                  | Total |      | $         | 875,288 |      |   | $        | 806,746 |  |   | $       | 648,460 | 
|                  |       |      |           |         |      |   |          |         | 








42



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002


NOTE 11  INCOME TAXES (Continued)




|                              |  |                          |    |   |        |   |           |      |  |  |        |   |  |      |           |   |        |  |    |   |  |   |          |  
|----------------------------- |  | ------------------------ | -- | - | ------ | - | --------- | ---- |  |  | ------ | - |  | ---- | --------- | - | ------ |  | -- | - |  | - | -------- | -
|                              |  | Years Ended December 31, |   
|                              |  |                          |   
|                              |  | 2004                     |    |   | 2003   |   |           | 2002 | 
|                              |  |                          |    |   |        |   |           |      | 
|                              |  | Rate                     |    |   | Amount |   |           | Rate |  |  | Amount |   |  | Rate |           |   | Amount | 
|                              |  |                          |    |   |        |   |           |      |  |  |        |   |  |      |           |   |        | 
|Tax at federal statutory rate |  |                          | 34 | % |        | $ | 1,287,250 |      |  |  | 34     | % |  | $    | 1,173,101 |   |        |  | 34 | % |  | $ | 987,100  |  
|Tax-exempt income             |  |                          | (9 | ) |        |   | (319,108  | )    |  |  | (10    | ) |  |      | (331,423  | ) |        |  | (9 | ) |  |   | (300,078 | )
|Other                         |  |                          | (2 | ) |        |   | (92,854   | )    |  |  | (1     | ) |  |      | (34,932   | ) |        |  | (1 | ) |  |   | (38,562  | )
|                              |  |                          |    |   |        |   |           |      |  |  |        |   |  |      |           |   |        | 
|Income tax expense            |  |                          | 23 | % |        | $ | 875,288   |      |  |  | 23     | % |  | $    | 806,746   |   |        |  | 24 | % |  | $ | 648,460  |  
|                              |  |                          |    |   |        |   |           |      |  |  |        |   |  |      |           |   |        | 




NOTE 12  RELATED PARTY TRANSACTIONS




|                  |  |   |            |  
|----------------- |  | - | ---------- | -
|Beginning balance |  | $ | 3,376,994  |  
|New loans         |  |   | 2,551,796  |  
|Repayments        |  |   | (1,569,453 | )
|                  |  |   |           
|Ending balance    |  | $ | 4,359,337  |  
|                  |  |   |           





NOTE 13  REGULATORY MATTERS















43



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002


NOTE 13  REGULATORY
MATTERS (Continued)




|                                       |              |                        |   |          |          |             |                   |                   |                   |  |       |        |  |        |  |      |       |  |   |        |  |  |  |       |  
|-------------------------------------- | ------------ | ---------------------- | - | -------- | -------- | ----------- | ----------------- | ----------------- | ----------------- |  | ----- | ------ |  | ------ |  | ---- | ----- |  | - | ------ |  |  |  | ----- | -
|                                       |              |                        |   |          |          |             |                   | To Be Well        |                  
|                                       |              |                        |   |          |          | For Capital |                   |                   | Capitalized Under | 
|                                       |              |                        |   | Adequacy |          |             | Prompt Corrective |                  
|                                       |              | Actual                 |   |          | Purposes |             |                   | Action Provisions |                  
|                                       |              |                        |   |          |          |             |                   |                   |                  
|                                       |              | Amount                 |   |          | Ratio    |             |                   | Amount            |                   |  | Ratio |        |  | Amount |  |      | Ratio | 
|                                       |              |                        |   |          |          |             |                   |                   |                   |  |       |        |  |        |  |      |       | 
|                                       |              | (Dollars in thousands) |  
|2004                                   |              |                        |   |          |          |             |                   |                   |                   |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|Total capital to risk-weighted assets  |              |                        |   |          |          |             |                   |                   |                   |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                       | Consolidated |                        | $ | 30,029   |          |             |                   | 13.73             | %                 |  | $     | 17,496 |  |        |  | 8.00 | %     |  | $ | 21,870 |  |  |  | 10.00 | %
|                                       | Bank         |                        |   | 28,776   |          |             |                   | 13.19             |                   |  |       | 17,452 |  |        |  | 8.00 |       |  |   | 21,815 |  |  |  | 10.00 |  
|Tier 1 capital to risk-weighted assets |              |                        |   |          |          |             |                   |                   |                   |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                       | Consolidated |                        |   | 28,236   |          |             |                   | 12.91             |                   |  |       | 8,748  |  |        |  | 4.00 |       |  |   | 13,122 |  |  |  | 6.00  |  
|                                       | Bank         |                        |   | 27,001   |          |             |                   | 12.38             |                   |  |       | 8,726  |  |        |  | 4.00 |       |  |   | 13,089 |  |  |  | 6.00  |  
|Tier 1 capital to average assets       |              |                        |   |          |          |             |                   |                   |                   |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                       | Consolidated |                        |   | 28,236   |          |             |                   | 9.41              |                   |  |       | 12,008 |  |        |  | 4.00 |       |  |   | 15,010 |  |  |  | 5.00  |  
|                                       | Bank         |                        |   | 27,001   |          |             |                   | 9.01              |                   |  |       | 11,984 |  |        |  | 4.00 |       |  |   | 14,981 |  |  |  | 5.00  |  
|2003                                   |              |                        |   |          |          |             |                   |                   |                   |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|Total capital to risk-weighted assets  |              |                        |   |          |          |             |                   |                   |                   |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                       | Consolidated |                        | $ | 28,013   |          |             |                   | 13.59             | %                 |  | $     | 16,487 |  |        |  | 8.00 | %     |  | $ | 20,609 |  |  |  | 10.00 | %
|                                       | Bank         |                        |   | 26,902   |          |             |                   | 13.09             |                   |  |       | 16,435 |  |        |  | 8.00 |       |  |   | 20,544 |  |  |  | 10.00 |  
|Tier 1 capital to risk-weighted assets |              |                        |   |          |          |             |                   |                   |                   |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                       | Consolidated |                        |   | 26,398   |          |             |                   | 12.81             |                   |  |       | 8,243  |  |        |  | 4.00 |       |  |   | 12,365 |  |  |  | 6.00  |  
|                                       | Bank         |                        |   | 25,298   |          |             |                   | 12.31             |                   |  |       | 8,218  |  |        |  | 4.00 |       |  |   | 12,327 |  |  |  | 6.00  |  
|Tier 1 capital to average assets       |              |                        |   |          |          |             |                   |                   |                   |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                       | Consolidated |                        |   | 26,398   |          |             |                   | 9.04              |                   |  |       | 11,685 |  |        |  | 4.00 |       |  |   | 14,607 |  |  |  | 5.00  |  
|                                       | Bank         |                        |   | 25,298   |          |             |                   | 8.68              |                   |  |       | 11,657 |  |        |  | 4.00 |       |  |   | 14,571 |  |  |  | 5.00  |  




NOTE 14  LOAN COMMITMENTS AND RELATED
ACTIVITIES






|                       |  |      |            |  |      |   |            | 
|---------------------- |  | ---- | ---------- |  | ---- | - | ---------- | 
|                       |  | 2004 |            |  | 2003 |  
|                       |  |      |            |  |      |  
|Unused lines of credit |  | $    | 46,062,900 |  |      | $ | 46,316,300 | 
|Letters of credit      |  |      | 436,000    |  |      |   | 821,000    | 










44



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002


NOTE 15  FAIR VALUES OF FINANCIAL
INSTRUMENTS




|                      |                                 |          |   |              |       |  |   |              |   |  |       |              |   |  |   |              |  
|--------------------- | ------------------------------- | -------- | - | ------------ | ----- |  | - | ------------ | - |  | ----- | ------------ | - |  | - | ------------ | -
|                      |                                 | 2004     |   |              | 2003  | 
|                      |                                 |          |   |              |       | 
|                      |                                 | Carrying |   |              | Fair  |  |   | Carrying     |   |  | Fair  |             
|                      |                                 | Amount   |   |              | Value |  |   | Amount       |   |  | Value |             
|                      |                                 |          |   |              |       |  |   |              |   |  |       |             
|Financial assets      |                                 |          |   |              |       |  |   |              |   |  |       |              |   |  |   |             
|                      | Cash and cash equivalents       |          | $ | 17,826,454   |       |  | $ | 17,826,000   |   |  | $     | 11,506,999   |   |  | $ | 11,507,000   |  
|                      | Interest-bearing time deposits  |          |   |             |       |  |   |             |   |  |       | 999,048      |   |  |   | 999,000      |  
|                      | Securities available for sale   |          |   | 60,461,982   |       |  |   | 60,462,000   |   |  |       | 67,189,563   |   |  |   | 67,190,000   |  
|                      | Securities held to maturity     |          |   | 15,865,047   |       |  |   | 16,445,000   |   |  |       | 16,603,556   |   |  |   | 17,300,000   |  
|                      | Federal bank stock              |          |   | 2,877,850    |       |  |   | 2,878,000    |   |  |       | 2,771,350    |   |  |   | 2,771,000    |  
|                      | Loans, net                      |          |   | 196,724,596  |       |  |   | 197,410,000  |   |  |       | 187,056,241  |   |  |   | 187,116,000  |  
|                      | Loans held for sale             |          |   | 57,000       |       |  |   | 57,000       |   |  |       |             |   |  |   |             |  
|                      | Accrued interest receivable     |          |   | 1,615,798    |       |  |   | 1,616,000    |   |  |       | 1,622,090    |   |  |   | 1,622,000    |  
|Financial liabilities |                                 |          |   |              |       |  |   |              |   |  |       |              |   |  |   |             
|                      | Deposits                        |          |   | (248,522,476 | )     |  |   | (248,184,000 | ) |  |       | (242,847,291 | ) |  |   | (243,461,000 | )
|                      | Short-term borrowings           |          |   | (4,679,242   | )     |  |   | (4,679,000   | ) |  |       | (3,106,411   | ) |  |   | (3,106,000   | )
|                      | Federal Home Loan Bank advances |          |   | (17,000,000  | )     |  |   | (18,153,000  | ) |  |       | (17,034,291  | ) |  |   | (18,373,000  | )
|                      | Accrued interest payable        |          |   | (445,036     | )     |  |   | (445,000     | ) |  |       | (454,790     | ) |  |   | (455,000     | )







|          |                                  
|--------- | ---------------------------------
|NOTE 16  | OTHER COMPREHENSIVE INCOME (LOSS)



|                                                                 |  |      |            |   |      |   |          |      |  |   |           |  
|---------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | -------- | ---- |  | - | --------- | -
|                                                                 |  | 2004 |            |   | 2003 |   |          | 2002 | 
|                                                                 |  |      |            |   |      |   |          |      | 
|Unrealized holding gains (loss) on available-for-sale securities |  | $    | (1,132,412 | ) |      | $ | 477,045  |      |  | $ | 1,629,982 |  
|Reclassification adjustment for gains later recognized in income |  |      | (432,915   | ) |      |   | (72,290  | )    |  |   | (182,324  | )
|                                                                 |  |      |            |   |      |   |          |      | 
|Net unrealized gains (loss)                                      |  |      | (1,565,327 | ) |      |   | 404,755  |      |  |   | 1,447,658 |  
|Tax effect (benefit)                                             |  |      | 532,211    |   |      |   | (137,617 | )    |  |   | (492,204  | )
|                                                                 |  |      |            |   |      |   |          |      | 
|Other comprehensive income (loss)                                |  | $    | (1,033,116 | ) |      | $ | 267,138  |      |  | $ | 955,454   |  
|                                                                 |  |      |            |   |      |   |          |      | 








45



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002


NOTE 17  PARENT COMPANY ONLY CONDENSED
FINANCIAL INFORMATION




BALANCE SHEETS


|                                     |                               |                                            |   |            |            |  |   |            |            | 
|------------------------------------ | ----------------------------- | ------------------------------------------ | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                     |                               | December 31,                               |  
|                                     |                               |                                            |  
|                                     |                               | 2004                                       |   |            | 2003       | 
|                                     |                               |                                            |   |            |            | 
|Assets                              
|                                     | Cash                          |                                            | $ | 1,023,529  |            |  | $ | 781,087    |           
|                                     | Investment in Bank subsidiary |                                            |   | 34,057,410 |            |  |   | 33,704,009 |           
|                                     | Securities available for sale |                                            |   | 608,233    |            |  |   | 660,711    |           
|                                     |                               |                                            |   |            |            | 
|                                     |                               | Total assets                               |   | $          | 35,689,172 |  |   | $          | 35,145,807 | 
|                                     |                               |                                            |   |            |            | 
|Liabilities and shareholders equity
|                                     | Dividends payable             |                                            | $ | 357,518    |            |  | $ | 335,173    |           
|                                     | Other liabilities             |                                            |   | 12,333     |            |  |   | 5,899      |           
|                                     | Shareholders equity          |                                            |   | 35,319,321 |            |  |   | 34,804,735 |           
|                                     |                               |                                            |   |            |            | 
|                                     |                               | Total liabilities and shareholders equity |   | $          | 35,689,172 |  |   | $          | 35,145,807 | 
|                                     |                               |                                            |   |            |            | 

STATEMENTS OF INCOME


|                                                                                       |                                |                          |           |           |           |  |           |           |         |  |             |            |            | 
|-------------------------------------------------------------------------------------- | ------------------------------ | ------------------------ | --------- | --------- | --------- |  | --------- | --------- | ------- |  | ----------- | ---------- | ---------- | 
|                                                                                       |                                | Years Ended December 31, |          
|                                                                                       |                                |                          |          
|                                                                                       |                                | 2004                     |           |           | 2003      |  |           | 2002      |        
|                                                                                       |                                |                          |           |           |           |  |           |           |        
|Income                                                                                 |                                |                          |           |           |           |  |           |           |         |  |             |           
|                                                                                       | Dividends from Bank subsidiary |                          | $         | 1,500,000 |           |  | $         |          |         |  | $           | 12,200,000 |           
|                                                                                       | Other dividends                |                          |           | 24,046    |           |  |           | 25,210    |         |  |             | 25,970     |           
|                                                                                       | Securities gains, net          |                          |           | 19,909    |           |  |           | 110,607   |         |  |             | 148,002    |           
|                                                                                       |                                |                          |           |           |           |  |           |           |        
|                                                                                       |                                | Total income             |           |           | 1,543,955 |  |           |           | 135,817 |  |             |            | 12,373,972 | 
|Expenses                                                                               |                                |                          |           |           |           |  |           |           |         |  |             |           
|                                                                                       | Miscellaneous expense          |                          |           | (33,965   | )         |  |           | (30,049   | )       |  |             | (52,296    | )         
|Undistributed equity in (distributions in excess of) net income
    of Bank subsidiary |                                |                          | 1,400,750 |           |           |  | 2,537,783 |           |         |  | (10,066,902 | )         
|                                                                                       |                                |                          |           |           |           |  |           |           |        
|                                                                                       | Net income                     |                          | $         | 2,910,740 |           |  | $         | 2,643,551 |         |  | $           | 2,254,774  |           
|                                                                                       |                                |                          |           |           |           |  |           |           |        








46



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003 and 2002




NOTE 17  PARENT COMPANY ONLY CONDENSED
FINANCIAL INFORMATION (Continued)


STATEMENTS OF CASH FLOWS


|                                     |                                                                                |                                                                                        |                                    |            |            |           |         |            |            |        |            |             |             |            | 
|------------------------------------ | ------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------- | ---------------------------------- | ---------- | ---------- | --------- | ------- | ---------- | ---------- | ------ | ---------- | ----------- | ----------- | ---------- | 
|                                     |                                                                                | Years Ended December 31,                                                               |                                   
|                                     |                                                                                |                                                                                        |                                   
|                                     |                                                                                | 2004                                                                                   |                                    |            | 2003       |           |         | 2002       |           
|                                     |                                                                                |                                                                                        |                                    |            |            |           |         |            |           
|Cash flows from operating activities |                                                                                |                                                                                        |                                    |            |            |           |         |            |            |        |            |            
|                                     | Net income                                                                     |                                                                                        | $                                  | 2,910,740  |            |           | $       | 2,643,551  |            |        | $          | 2,254,774   |            
|                                     | Adjustments to reconcile net income to net cash from operating
    activities: |                                                                                        |                                    |            |            |           |         |            |            |        |            |             |            
|                                     |                                                                                | Distributions in excess of (equity in undistributed) net income
    of Bank subsidiary |                                    |            | (1,400,750 | )         |         |            | (2,537,783 | )      |            |             | 10,066,902  |           
|                                     |                                                                                | Net security gains                                                                     |                                    |            | (19,909    | )         |         |            | (110,607   | )      |            |             | (148,002    | )         
|                                     |                                                                                | Change in other assets and liabilities                                                 |                                    |            | (899       | )         |         |            |           |        |            |             | 141,192     |           
|                                     |                                                                                |                                                                                        |                                    |            |            |           |         |            |           
|                                     |                                                                                |                                                                                        | Net cash from operating activities |            |            | 1,489,182 |         |            |            | (4,839 | )          |             |             | 12,314,866 | 
|Cash flows from investing activities |                                                                                |                                                                                        |                                    |            |            |           |         |            |            |        |            |            
|                                     | Sales of securities                                                            |                                                                                        |                                    | 93,953     |            |           |         | 1,459,269  |            |        |            | 227,562     |            
|                                     | Cash paid for acquisition (net of cash received)                               |                                                                                        |                                    |           |            |           |         |           |            |        |            | (14,733,013 | )          
|                                     |                                                                                |                                                                                        |                                    |            |            |           |         |            |           
|                                     |                                                                                | Net cash from investing activities                                                     |                                    |            | 93,953     |           |         |            | 1,459,269  |        |            |             | (14,505,451 | )         
|Cash flows from financing activities |                                                                                |                                                                                        |                                    |            |            |           |         |            |            |        |            |            
|                                     | Dividends paid                                                                 |                                                                                        |                                    | (1,340,693 | )          |           |         | (1,273,659 | )          |        |            | (1,179,743  | )          
|                                     | Dividends reinvested                                                           |                                                                                        |                                    |           |            |           |         |           |            |        |            | 261,580     |            
|                                     |                                                                                |                                                                                        |                                    |            |            |           |         |            |           
|                                     |                                                                                | Net cash from financing activities                                                     |                                    |            | (1,340,693 | )         |         |            | (1,273,659 | )      |            |             | (918,163    | )         
|                                     |                                                                                |                                                                                        |                                    |            |            |           |         |            |           
|Net increase (decrease) in cash      |                                                                                |                                                                                        | 242,442                            |            |            |           | 180,771 |            |            |        | (3,108,748 | )          
|Cash, beginning of year              |                                                                                |                                                                                        | 781,087                            |            |            |           | 600,316 |            |            |        | 3,709,064  |            
|                                     |                                                                                |                                                                                        |                                    |            |            |           |         |            |           
|Cash, end of year                    |                                                                                | $                                                                                      | 1,023,529                          |            |            | $         | 781,087 |            |            | $      | 600,316    |            
|                                     |                                                                                |                                                                                        |                                    |            |            |           |         |            |           

NOTE 18  QUARTERLY FINANCIAL DATA
(UNAUDITED)


|     |                |          |   |           |              |  |   |           |  |  |                    |         |  |  |   |      | 
|---- | -------------- | -------- | - | --------- | ------------ |  | - | --------- |  |  | ------------------ | ------- |  |  | - | ---- | 
|     |                | Interest |   |           | Net Interest |  |   | Net       |  |  | Basic and Diluted  |        
|     |                | Income   |   |           | Income       |  |   | Income    |  |  | Earnings per Share |        
|     |                |          |   |           |              |  |   |           |  |  |                    |        
|2004 |                |          |   |           |              |  |   |           |  |  |                    |         |  |  |   |     
|     | First quarter  |          | $ | 3,776,566 |              |  | $ | 3,005,542 |  |  | $                  | 829,998 |  |  | $ | 0.37 | 
|     | Second quarter |          |   | 3,786,272 |              |  |   | 2,925,382 |  |  |                    | 656,179 |  |  |   | 0.29 | 
|     | Third quarter  |          |   | 3,813,203 |              |  |   | 2,951,300 |  |  |                    | 593,893 |  |  |   | 0.27 | 
|     | Fourth quarter |          |   | 3,935,958 |              |  |   | 3,083,453 |  |  |                    | 830,670 |  |  |   | 0.37 | 
|2003 |                |          |   |           |              |  |   |           |  |  |                    |         |  |  |   |     
|     | First quarter  |          | $ | 3,974,571 |              |  | $ | 2,992,145 |  |  | $                  | 806,646 |  |  | $ | 0.36 | 
|     | Second quarter |          |   | 3,926,619 |              |  |   | 2,926,329 |  |  |                    | 799,626 |  |  |   | 0.36 | 
|     | Third quarter  |          |   | 3,744,193 |              |  |   | 2,839,220 |  |  |                    | 636,946 |  |  |   | 0.28 | 
|     | Fourth quarter |          |   | 3,398,426 |              |  |   | 2,546,099 |  |  |                    | 400,333 |  |  |   | 0.18 | 










47



---



##### 



REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM




























48



---



##### 



PRICE RANGE OF COMMON STOCK




|               |  |      |       |  |     |   |       |                     |  |   |     | 
|-------------- |  | ---- | ----- |  | --- | - | ----- | ------------------- |  | - | --- | 
|2004           |  | High |       |  | Low |   |       | Dividends Per Share | 
|               |  |      |       |  |     |   |       |                     | 
|First Quarter  |  | $    | 24.60 |  |     | $ | 23.80 |                     |  | $ | .15 | 
|Second Quarter |  |      | 26.40 |  |     |   | 24.25 |                     |  |   | .15 | 
|Third Quarter  |  |      | 26.40 |  |     |   | 24.07 |                     |  |   | .15 | 
|Fourth Quarter |  |      | 28.00 |  |     |   | 24.80 |                     |  |   | .16 | 

|               |  |      |       |  |     |   |       |                     |  |   |     | 
|-------------- |  | ---- | ----- |  | --- | - | ----- | ------------------- |  | - | --- | 
|2003           |  | High |       |  | Low |   |       | Dividends Per Share | 
|               |  |      |       |  |     |   |       |                     | 
|First Quarter  |  | $    | 23.00 |  |     | $ | 21.75 |                     |  | $ | .14 | 
|Second Quarter |  |      | 22.65 |  |     |   | 21.85 |                     |  |   | .14 | 
|Third Quarter  |  |      | 25.05 |  |     |   | 23.00 |                     |  |   | .15 | 
|Fourth Quarter |  |      | 25.00 |  |     |   | 23.25 |                     |  |   | .15 | 



SHAREHOLDER INFORMATION


Corporate Office 
 National Bancshares Corporation 
 112 West Market Street, PO Box 57 
 Orrville, OH 44667 
 www.fnborrville.com


Stock Trading Information


Form 10-K


Shareholder Assistance


Transfer Agent


National Bancshares Corporation has a Dividend Reinvestment
Plan and a Dividend Direct Deposit Plan available at no cost.
Please contact Registrar and Transfer Company for enrollment.







49



---



##### 





50



---



##### 



OFFICERS


National Bancshares Corporation








First National Bank





CONTROL           LENDING                                    OPERATIONS       HUMAN RESOURCES         SALES & BUSINESS 
 DEVELOPMENT                   INTERNAL AUDIT    SECURITY/ COMPLIANCE        OFFICE ADMINISTRATION





51



---



##### 






ROBERT F. GUMZ


1916-2004























52



---



##### 



DIRECTORS (PICTURE)




---



##### 



()
 FIRST NATIONAL BANK
OFFICES Main Office
112 West Market St., Orrville
(330)682-1010 Cleveland Road Office
1725 Cleveland Rd., Wooster
(330)263-1725 Dalton Office
12 West Main St., Dalton
(330)828-2227 Kidron Office
4934 Kidron Rd., Kidron
(330)857-3101 Lodi Office
106 Ainsworth St., Lodi
(330)948-1414 Downtown Massillon Office
211 Lincoln Way East, Massillon
(330)832-7441 Mayflower Office
2312 Lincoln Way N.W., Massillon
(330)833-1622 Massillon Marketplace Office
1 Massillon Marketplace Dr. S.W., Massillon
(330)837-2582 Midway Office
U.S. Rt. 30 at Co. Rd. 44, Apple Creek
(330)264-8070 Mt. Eaton Office
15974 East Main St., Mt. Eaton
(330)857-4301 or (330)359-5476 Northside Office
1720 North Main St., Orrville
(330)682-2342 Seville Office
121 Greenwich Rd., Seville
(330)769-3105 Smithville Office
153 East Main St., Smithville
(330)669-2611 West High Office
1320 West High St., Orrville
(330)682-2881