##### 








---



##### 



2
    
    Message to Shareholders3
    
    Financial Highlights4
    
    Selected Financial Data6
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations25
    
    Consolidated Balance Sheets26
    
    Consolidated Statements of Income27
    
    Consolidated Statements of Changes in Shareholders Equity28
    
    Consolidated Statements of Cash Flows29
    
    Notes to Consolidated Financial Statements December 31, 2007, 2006 and 200544
    
    Report of Management on the Companys Internal Control Over Financial Reporting45
    
    Report of Independent Registered Public Accounting Firm46
    
    Comparison of Five-Year Cumulative Total Return of National Bancshares Corporation, S&P 500 Stock Index, and S&P 500 Bank Index47
    
    Price Range of Common Stock47
    
    Shareholder Information48
    
    Officers49
    
    Directors49
    
    First National Bank Offices
 1




---



##### 



2




---



##### 



Financial Position
 PercentageAt December 31,
    
    2007
    
    2006
    
    ChangeTotal assets
    
    $
    306,651
    
    
    $
    308,358
    
    
    
    (0.6
    )%Deposits
    
    
    242,523
    
    
    
    247,681
    
    
    
    (2.1
    )%Loans  net
    
    
    191,488
    
    
    
    184,481
    
    
    
    3.8
    %Securities
    
    
    84,514
    
    
    
    86,000
    
    
    
    (1.7
    )%Shareholders equity
    
    
    34,991
    
    
    
    34,680
    
    
    
    0.9
    %Book value per share
    
    
    15.85
    
    
    
    15.52
    
    
    
    2.1
    %Year ended December 31,Net interest income
    
    $
    10,864
    
    
    $
    11,161
    
    
    
    (2.7
    )%Net income
    
    
    1,711
    
    
    
    1,164
    
    
    
    47.0
    %Cash dividends declared
    
    
    1,430
    
    
    
    1,430
    
    
    
    Net income per share
    
    
    0.77
    
    
    
    0.52
    
    
    
    48.1
    %Cash dividends per share
    
    
    0.64
    
    
    
    0.64
    
    
    
    
 www.fnborrville.com
 3




---



##### 



As of or for the years ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Income statement data:Interest income
    
    $
    17,832
    
    
    $
    17,157
    
    
    $
    16,075
    
    
    $
    15,312
    
    
    $
    15,044Interest expense
    
    
    6,968
    
    
    
    5,995
    
    
    
    4,128
    
    
    
    3,346
    
    
    
    3,740Net interest income
    
    
    10,864
    
    
    
    11,162
    
    
    
    11,947
    
    
    
    11,966
    
    
    
    11,304Provision for loan losses
    
    
    147
    
    
    
    160
    
    
    
    159
    
    
    
    178
    
    
    
    245Net interest income after
provision for loan losses
    
    
    10,717
    
    
    
    11,002
    
    
    
    11,788
    
    
    
    11,788
    
    
    
    11,059Noninterest income
    
    
    1,990
    
    
    
    1,653
    
    
    
    1,801
    
    
    
    1,895
    
    
    
    1,532Noninterest expense
    
    
    10,500
    
    
    
    11,354
    
    
    
    10,986
    
    
    
    9,897
    
    
    
    9,141Income before income taxes
    
    
    2,207
    
    
    
    1,301
    
    
    
    2,603
    
    
    
    3,786
    
    
    
    3,450Income taxes
    
    
    496
    
    
    
    137
    
    
    
    503
    
    
    
    875
    
    
    
    807Net income
    
    
    1,711
    
    
    
    1,164
    
    
    
    2,100
    
    
    
    2,911
    
    
    
    2,643Balance sheet data:Cash and due from banks
    
    $
    11,842
    
    
    $
    8,955
    
    
    $
    10,985
    
    
    $
    11,756
    
    
    $
    11,507Federal funds sold
    
    
    443
    
    
    
    9,820
    
    
    
    8,780
    
    
    
    6,070
    
    
    
    Securities
    
    
    84,514
    
    
    
    86,000
    
    
    
    77,009
    
    
    
    76,327
    
    
    
    83,793Loans, net
    
    
    191,488
    
    
    
    184,481
    
    
    
    191,538
    
    
    
    196,725
    
    
    
    187,056Deposits
    
    
    242,523
    
    
    
    247,681
    
    
    
    249,488
    
    
    
    248,522
    
    
    
    242,847Borrowings
    
    
    26,374
    
    
    
    22,744
    
    
    
    19,952
    
    
    
    21,679
    
    
    
    20,141Shareholders equity
    
    
    34,991
    
    
    
    34,680
    
    
    
    34,653
    
    
    
    35,319
    
    
    
    34,805Total assets
    
    
    306,651
    
    
    
    308,358
    
    
    
    306,881
    
    
    
    308,425
    
    
    
    301,249Share and per share data:Net income
    
    $
    0.77
    
    
    $
    0.52
    
    
    $
    0.94
    
    
    $
    1.30
    
    
    $
    1.18Cash dividends
    
    
    0.64
    
    
    
    0.64
    
    
    
    0.64
    
    
    
    0.61
    
    
    
    0.58Book value at period end
    
    
    15.85
    
    
    
    15.52
    
    
    
    15.51
    
    
    
    15.81
    
    
    
    15.58Weighted average number
of shares outstanding
    
    
    2,231,369
    
    
    
    2,234,488
    
    
    
    2,234,488
    
    
    
    2,234,488
    
    
    
    2,234,488Performance ratios:Return on average equity
    
    
    4.94
    %
    
    
    3.29
    %
    
    
    5.90
    %
    
    
    8.29
    %
    
    
    7.58
    %Return on average assets
    
    
    0.56
    %
    
    
    0.38
    %
    
    
    0.70
    %
    
    
    0.97
    %
    
    
    0.90
    %Dividend payout percentage
    
    
    83.58
    %
    
    
    122.87
    %
    
    
    68.10
    %
    
    
    46.83
    %
    
    
    49.03
    %Efficiency ratio (1)
    
    
    81.69
    %
    
    
    88.60
    %
    
    
    79.91
    %
    
    
    71.41
    %
    
    
    71.21
    %Full time equivalent staff
    
    
    105
    
    
    
    132
    
    
    
    135
    
    
    
    136
    
    
    
    133Average total assets to
full time equivalent staff
    
    $
    2,903
    
    
    $
    2,296
    
    
    $
    2,234
    
    
    $
    2,214
    
    
    $
    2,209Asset quality ratios:Allowance for loan losses
to ending total loans
    
    
    1.05
    %
    
    
    1.07
    %
    
    
    0.98
    %
    
    
    0.89
    %
    
    
    0.85
    %Net loan charge-offs
to average loans
    
    
    0.06
    %
    
    
    0.03
    %
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.13
    %Capital ratios:Average equity to average assets
    
    
    11.35
    %
    
    
    11.66
    %
    
    
    11.81
    %
    
    
    11.65
    %
    
    
    11.86
    %Leverage ratio (2)
    
    
    8.26
    %
    
    
    8.57
    %
    
    
    9.76
    %
    
    
    9.41
    %
    
    
    9.04
    %Total risk-based capital ratio (2)
    
    
    12.78
    %
    
    
    13.26
    %
    
    
    14.45
    %
    
    
    13.73
    %
    
    
    13.59
    %
 
 (1)
    
    The efficiency ratio is calculated by dividing noninterest expenses by the sum of net
interest income and noninterest income.(2)
    
    Computed in accordance with Comptroller of the Currency and FDIC guidelines. 4




---



##### 



Basic andInterest
    
    Net interest
    
    Provision for
    
    Income before
    
    
    
    
    
    diluted earningsincome
    
    income
    
    loan losses
    
    income taxes
    
    Net income
    
    per share(Dollar amounts in thousands)2007First quarter
    
    $
    4,352
    
    
    $
    2,642
    
    
    $
    27
    
    
    $
    354
    
    
    $
    287
    
    
    $
    0.13Second quarter
    
    
    4,542
    
    
    
    2,758
    
    
    
    
    
    
    
    361
    
    
    
    314
    
    
    
    0.14Third quarter
    
    
    4,497
    
    
    
    2,741
    
    
    
    
    
    
    
    674
    
    
    
    507
    
    
    
    0.23Fourth quarter
    
    
    4,441
    
    
    
    2,723
    
    
    
    120
    
    
    
    818
    
    
    
    603
    
    
    
    0.272006First quarter
    
    $
    4,166
    
    
    $
    2,895
    
    
    $
    
    
    
    $
    612
    
    
    $
    508
    
    
    $
    0.23Second quarter
    
    
    4,187
    
    
    
    2,721
    
    
    
    
    
    
    
    123
    
    
    
    159
    
    
    
    0.07Third quarter
    
    
    4,379
    
    
    
    2,820
    
    
    
    40
    
    
    
    391
    
    
    
    303
    
    
    
    0.14Fourth quarter
    
    
    4,425
    
    
    
    2,726
    
    
    
    120
    
    
    
    176
    
    
    
    194
    
    
    
    0.09
   5




---



##### 



Forward Looking Statement
   Management Strategy
       6




---



##### 



Financial Condition
     7




---



##### 



Loan portfolio composition at December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %(Dollar amounts in thousands)Real estate:Commercial
    
    $
    51,463
    
    
    
    27
    %
    
    $
    45,737
    
    
    
    25
    %
    
    $
    47,638
    
    
    
    25
    %
    
    $
    47,081
    
    
    
    24
    %
    
    $
    39,349
    
    
    
    21
    %Residential
    
    
    80,113
    
    
    
    41
    %
    
    
    86,652
    
    
    
    46
    %
    
    
    91,592
    
    
    
    47
    %
    
    
    97,694
    
    
    
    49
    %
    
    
    101,291
    
    
    
    54
    %Home equity
    
    
    20,857
    
    
    
    11
    %
    
    
    19,383
    
    
    
    10
    %
    
    
    19,045
    
    
    
    10
    %
    
    
    18,272
    
    
    
    9
    %
    
    
    14,008
    
    
    
    7
    %Construction
    
    
    8,367
    
    
    
    4
    %
    
    
    6,079
    
    
    
    3
    %
    
    
    6,440
    
    
    
    3
    %
    
    
    6,327
    
    
    
    3
    %
    
    
    5,132
    
    
    
    3
    %160,800
    
    
    
    83
    %
    
    
    157,851
    
    
    
    84
    %
    
    
    164,715
    
    
    
    85
    %
    
    
    169,374
    
    
    
    85
    %
    
    
    159,780
    
    
    
    85
    %Other:Consumer
    
    
    11,988
    
    
    
    6
    %
    
    
    7,522
    
    
    
    4
    %
    
    
    6,205
    
    
    
    3
    %
    
    
    5,386
    
    
    
    3
    %
    
    
    4,829
    
    
    
    3
    %Commercial
    
    
    17,552
    
    
    
    9
    %
    
    
    18,519
    
    
    
    10
    %
    
    
    20,046
    
    
    
    10
    %
    
    
    21,197
    
    
    
    10
    %
    
    
    21,375
    
    
    
    11
    %Credit Cards

unsecured
    
    
    1,614
    
    
    
    1
    %
    
    
    1,521
    
    
    
    1
    %
    
    
    1,406
    
    
    
    1
    %
    
    
    1,362
    
    
    
    1
    %
    
    
    1,264
    
    
    
    0
    %Other
    
    
    1,987
    
    
    
    1
    %
    
    
    1,609
    
    
    
    1
    %
    
    
    1,566
    
    
    
    1
    %
    
    
    1,675
    
    
    
    1
    %
    
    
    1,821
    
    
    
    1
    %Total Loans
    
    $
    193,941
    
    
    
    100
    %
    
    $
    187,022
    
    
    
    100
    %
    
    $
    193,938
    
    
    
    100
    %
    
    $
    198,994
    
    
    
    100
    %
    
    $
    189,069
    
    
    
    100
    %Less:Unearned and
deferred income
    
    
    (425
    )
    
    
    
    
    
    
    (548
    )
    
    
    
    
    
    
    (496
    )
    
    
    
    
    
    
    (505
    )
    
    
    
    
    
    
    (409
    )Allowance for
loan losses
    
    
    (2,028
    )
    
    
    
    
    
    
    (1,993
    )
    
    
    
    
    
    
    (1,903
    )
    
    
    
    
    
    
    (1,763
    )
    
    
    
    
    
    
    (1,604
    )Net loans
    
    $
    191,488
    
    
    
    
    
    
    $
    184,481
    
    
    
    
    
    
    $
    191,539
    
    
    
    
    
    
    $
    196,726
    
    
    
    
    
    
    $
    187,056Net loans as
a percent of
total assets
    
    
    62.45
    %
    
    
    
    
    
    
    59.83
    %
    
    
    
    
    
    
    62.41
    %
    
    
    
    
    
    
    63.78
    %
    
    
    
    
    
    
    62.09
    %
    8




---



##### 



Allowance for Loan Losses.
 Loans Analyzed Individually.
 Loan Grade 1, 2, 3 and 4
 Loan Grade 5 (Watch)
 Loan Grade 6 (Special-Mention)
 Loan Grade 7 (Substandard)
 Loan Grade 8 (Doubtful)
 Loan Grade 9 (Loss)
  9




---



##### 



Classified assets at December 31,2007
    
    2006
    
    2005Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent ofAmount
    
    total loans
    
    Amount
    
    total loans
    
    Amount
    
    total loans(Dollar amounts in thousands)Classified Loans:Special mention
    
    $
    401
    
    
    
    0.2
    %
    
    $
    6,476
    
    
    
    3.5
    %
    
    $
    5,422
    
    
    
    2.8
    %Substandard
    
    $
    4,839
    
    
    
    2.5
    %
    
    $
    5,350
    
    
    
    2.9
    %
    
    $
    4,838
    
    
    
    2.5
    %Doubtful
    
    $
    79
    
    
    
    0.0
    %
    
    $
    161
    
    
    
    0.0
    %
    
    $
    1,186
    
    
    
    0.6
    %Loss
    
    $
    
    
    
    
    0.0
    %
    
    $
    152
    
    
    
    0.0
    %
    
    $
    
    
    
    
    0.0
    %Total classified loans
    
    $
    5,319
    
    
    
    2.7
    %
    
    $
    12,139
    
    
    
    6.5
    %
    
    $
    11,446
    
    
    
    5.9
    %Other classified assets
    
    $
    
    
    
    
    0.0
    %
    
    $
    
    
    
    
    0.0
    %
    
    $
    
    
    
    
    0.0
    %Total classified assets
    
    $
    5,319
    
    
    
    2.7
    %
    
    $
    12,139
    
    
    
    6.5
    %
    
    $
    11,446
    
    
    
    5.9
    %
 Pools of Homogenous Loans Analyzed under SFAS 5.
  Changes in the Allowance for Loan Losses and Classified Assets.
   10




---



##### 



Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollar amounts in thousands)Balance, beginning of period
    
    $
    1,993
    
    
    $
    1,903
    
    
    $
    1,763
    
    
    $
    1,604
    
    
    $
    1,604Loans charged off:Collateralized by real estate:Commercial
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    12
    
    
    
    42
    
    
    
    
    
    
    
    24
    
    
    
    Home equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    72
    
    
    
    43
    
    
    
    8
    
    
    
    25
    
    
    
    10Commercial
    
    
    67
    
    
    
    17
    
    
    
    33
    
    
    
    
    
    
    
    237Credit cards
    
    
    
    
    
    
    21
    
    
    
    16
    
    
    
    20
    
    
    
    20Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total loans charged off
    
    
    151
    
    
    
    162
    
    
    
    57
    
    
    
    69
    
    
    
    267Recoveries of loans
previously charged off:Collateralized by real estate:Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    1
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    Home equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    55
    
    
    
    32
    
    
    
    
    
    
    
    Consumer
    
    
    37
    
    
    
    16
    
    
    
    5
    
    
    
    1
    
    
    
    9Commercial
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    41
    
    
    
    7Credit cards
    
    
    1
    
    
    
    6
    
    
    
    
    
    
    
    8
    
    
    
    6Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoveries
    
    
    39
    
    
    
    92
    
    
    
    38
    
    
    
    50
    
    
    
    22Net loans recovered (charged off)
    
    
    (112
    )
    
    
    (70
    )
    
    
    (19
    )
    
    
    (19
    )
    
    
    (245
    )Provision charged to operations
    
    
    147
    
    
    
    160
    
    
    
    159
    
    
    
    178
    
    
    
    245Balance, end of period
    
    $
    2,028
    
    
    $
    1,993
    
    
    $
    1,903
    
    
    $
    1,763
    
    
    $
    1,604Loans outstanding:Average
    
    $
    187,888
    
    
    $
    186,146
    
    
    $
    197,064
    
    
    $
    194,032
    
    
    $
    187,180End of period
    
    
    193,941
    
    
    
    187,022
    
    
    
    193,937
    
    
    
    198,993
    
    
    
    189,068Ratio of allowance for loan
losses to total loans
outstanding at end of period
    
    
    1.05
    %
    
    
    1.07
    %
    
    
    0.98
    %
    
    
    0.89
    %
    
    
    0.85
    %Net recoveries (charge offs)
to average loans
    
    
    (0.06
    )%
    
    
    (0.04
    )%
    
    
    (0.01
    )%
    
    
    (0.01
    )%
    
    
    (0.13
    )%
  11




---



##### 



Allocation of the allowance for loan losses at December 31,2007
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    2003Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofloans in each
    
    
    
    
    
    
    loans in each
    
    
    
    
    
    
    loans in each
    
    
    
    
    
    
    loans in each
    
    
    
    
    
    
    loans in eachcategory to
    
    
    
    
    
    
    category to
    
    
    
    
    
    
    category to
    
    
    
    
    
    
    category to
    
    
    
    
    
    
    category toAmount
    
    
    total loans
    
    
    Amount
    
    
    total loans
    
    
    Amount
    
    
    total loans
    
    
    Amount
    
    
    total loans
    
    
    Amount
    
    
    total loans(Dollar amounts in thousands)Real estate:Commercial
    
    $
    779
    
    
    
    27
    %
    
    $
    654
    
    
    
    25
    %
    
    $
    720
    
    
    
    25
    %
    
    $
    373
    
    
    
    24
    %
    
    $
    463
    
    
    
    21
    %Residential
    
    
    321
    
    
    
    41
    %
    
    
    88
    
    
    
    46
    %
    
    
    186
    
    
    
    47
    %
    
    
    114
    
    
    
    49
    %
    
    
    57
    
    
    
    54
    %Home equity
    
    
    115
    
    
    
    11
    %
    
    
    9
    
    
    
    10
    %
    
    
    8
    
    
    
    10
    %
    
    
    13
    
    
    
    9
    %
    
    
    6
    
    
    
    7
    %Construction
    
    
    
    
    
    
    4
    %
    
    
    
    
    
    
    3
    %
    
    
    
    
    
    
    3
    %
    
    
    
    
    
    
    3
    %
    
    
    
    
    
    
    3
    %Consumer
    
    
    116
    
    
    
    6
    %
    
    
    89
    
    
    
    4
    %
    
    
    40
    
    
    
    3
    %
    
    
    16
    
    
    
    3
    %
    
    
    8
    
    
    
    3
    %Commercial
    
    
    552
    
    
    
    9
    %
    
    
    1,064
    
    
    
    10
    %
    
    
    826
    
    
    
    10
    %
    
    
    1,227
    
    
    
    10
    %
    
    
    964
    
    
    
    11
    %Credit cards
    
    
    48
    
    
    
    1
    %
    
    
    31
    
    
    
    1
    %
    
    
    47
    
    
    
    1
    %
    
    
    21
    
    
    
    1
    %
    
    
    22
    
    
    
    0
    %Other
    
    
    
    
    
    
    1
    %
    
    
    58
    
    
    
    1
    %
    
    
    76
    
    
    
    1
    %
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    1
    %Unallocated
    
    
    97
    
    
    
    N/A
    
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    N/A
    
    
    
    85
    
    
    
    N/ATotal
    
    $
    2,028
    
    
    
    100
    %
    
    $
    1,993
    
    
    
    100
    %
    
    $
    1,903
    
    
    
    100
    %
    
    $
    1,764
    
    
    
    100
    %
    
    $
    1,605
    
    
    
    100
    %
  Problem assets at December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollar amounts in thousands)Real estate:Commercial:Non-accrual
    
    $
    2,106
    
    
    $
    454
    
    
    $
    
    
    
    $
    
    
    
    $
    Past due 90 days or more
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential:Non-accrual
    
    
    209
    
    
    
    223
    
    
    
    599
    
    
    
    395
    
    
    
    568Past due 90 days or more
    
    
    142
    
    
    
    217
    
    
    
    198
    
    
    
    52
    
    
    
    29Home equity:Non-accrual
    
    
    
    
    
    
    8
    
    
    
    5
    
    
    
    
    
    
    
    Past due 90 days or more
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Construction:Non-accrual
    
    
    
    
    
    
    276
    
    
    
    
    
    
    
    125
    
    
    
    125Past due 90 days or more
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Not collateralized by real estate:Consumer:Non-accrual
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    8
    
    
    
    Past due 90 days or more
    
    
    1
    
    
    
    8
    
    
    
    5
    
    
    
    4
    
    
    
    Commercial:Non-accrual
    
    
    330
    
    
    
    1,100
    
    
    
    1,472
    
    
    
    899
    
    
    
    678Past due 90 days or more
    
    
    
    
    
    
    22
    
    
    
    36
    
    
    
    
    
    
    
    Credit cards:Non-accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Past due 90 days or more
    
    
    6
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    Total nonperforming loans
    
    
    2,803
    
    
    
    2,308
    
    
    
    2,325
    
    
    
    1,483
    
    
    
    1,432Other real estate owned
    
    
    194
    
    
    
    103
    
    
    
    103
    
    
    
    46
    
    
    
    Total nonperforming assets
    
    $
    2,997
    
    
    $
    2,411
    
    
    $
    2,428
    
    
    $
    1,529
    
    
    $
    1,432Loans outstanding, net
    
    $
    191,488
    
    
    $
    184,481
    
    
    $
    191,538
    
    
    $
    196,725
    
    
    $
    187,056Nonperforming loans
to total net loans
    
    
    1.46
    %
    
    
    1.25
    %
    
    
    1.21
    %
    
    
    0.75
    %
    
    
    0.77
    %Nonperforming assets
to total assets
    
    
    0.98
    %
    
    
    0.78
    %
    
    
    0.79
    %
    
    
    0.50
    %
    
    
    0.48
    %Allowance for loan losses
to total loans
    
    
    1.05
    %
    
    
    1.07
    %
    
    
    0.98
    %
    
    
    0.89
    %
    
    
    0.85
    %Allowance for loan losses
to nonperforming loans
    
    
    72.35
    %
    
    
    86.38
    %
    
    
    81.86
    %
    
    
    118.88
    %
    
    
    112.01
    %
 12




---



##### 



Gross
    
    
    GrossAmortized cost
    
    
    unrealized gains
    
    
    unrealized losses
    
    
    Fair value(Dollar amounts in thousands)December 31, 2007Available for sale:U.S. Government and federal agency
    
    $
    10,107
    
    
    $
    161
    
    
    $
    
    
    
    $
    10,268State and municipal
    
    
    15,786
    
    
    
    295
    
    
    
    (13
    )
    
    
    16,068Corporate bonds and notes
    
    
    17,864
    
    
    
    26
    
    
    
    (295
    )
    
    
    17,595Mortgage backed
    
    
    40,310
    
    
    
    294
    
    
    
    (21
    )
    
    
    40,583Total securities
    
    $
    84,067
    
    
    $
    776
    
    
    $
    (329
    )
    
    $
    84,514December 31, 2006Available for sale:U.S. Government and federal agency
    
    $
    29,537
    
    
    $
    69
    
    
    $
    (226
    )
    
    $
    29,380State and municipal
    
    
    17,110
    
    
    
    330
    
    
    
    (45
    )
    
    
    17,395Corporate bonds and notes
    
    
    27,579
    
    
    
    132
    
    
    
    (441
    )
    
    
    27,270Mortgage backed
    
    
    12,030
    
    
    
    4
    
    
    
    (79
    )
    
    
    11,955Total securities
    
    $
    86,256
    
    
    $
    535
    
    
    $
    (791
    )
    
    $
    86,000December 31, 2005Available for sale:U.S. Government and federal agency
    
    $
    22,398
    
    
    $
    26
    
    
    $
    (282
    )
    
    $
    22,142State and municipal
    
    
    2,040
    
    
    
    37
    
    
    
    (2
    )
    
    
    2,075Corporate bonds and notes
    
    
    30,993
    
    
    
    193
    
    
    
    (463
    )
    
    
    30,723Mortgage backed
    
    
    4,969
    
    
    
    5
    
    
    
    (75
    )
    
    
    4,899Equity securities
    
    
    240
    
    
    
    13
    
    
    
    
    
    
    
    253Total available for sale
    
    
    60,640
    
    
    
    274
    
    
    
    (822
    )
    
    
    60,092Held to maturity:State and municipal
    
    
    16,917
    
    
    
    284
    
    
    
    (86
    )
    
    
    17,115Total securities
    
    $
    77,557
    
    
    $
    558
    
    
    $
    (908
    )
    
    $
    77,207
 13




---



##### 



One year
    
    More than one
    
    More than five
    
    More thanor less
    
    to five years
    
    to ten years
    
    ten years
    
    Total securitiesCarrying value
    
    Carrying value
    
    Carrying value
    
    Carrying value
    
    Carrying value
    
    MarketAverage yield
    
    Average yield
    
    Average yield
    
    Average yield
    
    Average yield
    
    value(Dollar amounts in thousands)U.S. Government and
federal agency
    
    $
    3,002
    
    
    $
    3,024
    
    
    $
    4,242
    
    
    $
    
    
    
    $
    10,268
    
    
    $
    10,2684.81
    %
    
    
    4.89
    %
    
    
    4.23
    %
    
    
    
    
    
    
    4.59
    %State and municipal
    
    
    278
    
    
    
    4,747
    
    
    
    5,335
    
    
    
    5,708
    
    
    
    16,068
    
    
    
    16,0683.72
    %
    
    
    4.09
    %
    
    
    4.21
    %
    
    
    4.28
    %
    
    
    4.19
    %Corporate bonds
and notes
    
    
    9,470
    
    
    
    6,374
    
    
    
    1,751
    
    
    
    
    
    
    
    17,595
    
    
    
    17,5955.04
    %
    
    
    4.43
    %
    
    
    4.45
    %
    
    
    
    
    
    
    4.76
    %Mortgage-backed
    
    
    
    
    
    
    1,917
    
    
    
    13,402
    
    
    
    25,264
    
    
    
    40,583
    
    
    
    40,5835.66
    %
    
    
    5.18
    %
    
    
    5.15
    %
    
    
    5.18
    %Total securities
    
    $
    12,750
    
    
    $
    16,062
    
    
    $
    24,730
    
    
    $
    30,972
    
    
    $
    84,514
    
    
    $
    84,5144.96
    %
    
    
    4.56
    %
    
    
    4.76
    %
    
    
    4.99
    %
    
    
    4.83
    %
 Restricted Equity Securities:
 Total Liabilities:
 Deposits:
 14




---



##### 



Maturity of time deposits of $100,000 or more at December 31, 2007(Dollar amounts in thousands)Time Remaining to Maturity
    
    Amount
    
    
    Percent of TotalThree months or less
    
    $
    3,034
    
    
    
    23.8
    %Over three through 12 months
    
    
    6,944
    
    
    
    54.6
    %Over one year through 3 years
    
    
    2,527
    
    
    
    19.9
    %Over 3 years
    
    
    220
    
    
    
    1.7
    %Total
    
    $
    12,725
    
    
    
    100.0
    %
 Liquidity and Capital Resources:
     15




---



##### 



Year Ended December 312007
    
    2006
    
    2005(Dollar amounts in thousands)Balance at year end
    
    $
    8,831
    
    
    $
    7,902
    
    
    $
    2,360Average balance outstanding
    
    
    8,642
    
    
    
    6,008
    
    
    
    4,100Maximum month-end balance
    
    
    10,956
    
    
    
    7,902
    
    
    
    8,918Weighted-average rate at year end
    
    
    2.85
    %
    
    
    3.63
    %
    
    
    2.54
    %Weighted-average rate during the year
    
    
    3.86
    %
    
    
    3.48
    %
    
    
    1.88
    %
   Payment due by period(Dollar amounts in thousands)Contractual Obligations
    
    Total
    
    
    Less than 1 year
    
    
    1 - 3 years
    
    
    3 - 5 years
    
    
    More than 5 yearsTime deposits
    
    $
    79,892
    
    
    $
    55,518
    
    
    $
    22,830
    
    
    $
    1,544
    
    
    $
    Long-term obligations
    
    
    17,000
    
    
    
    
    
    
    
    14,000
    
    
    
    3,000
    
    
    
    Information system
contract obligations
    
    
    975
    
    
    
    780
    
    
    
    195
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    41
    
    
    
    16
    
    
    
    25
    
    
    
    
    
    
    
    Total
    
    $
    97,908
    
    
    $
    56,314
    
    
    $
    37,050
    
    
    $
    4,544
    
    
    $
    
 16




---



##### 



Off-Balance Sheet and Contingent Liabilities:
 Expiration of funding commitmentsOne year and less
    
    
    Over one year
    
    
    Total(Dollar amounts in thousands)Unused loan commitments
    
    $
    22,253
    
    
    $
    33,824
    
    
    $
    56,077Commitment to make loans
    
    
    6,723
    
    
    
    
    
    
    
    6,723Letters of credit
    
    
    157
    
    
    
    
    
    
    
    157Total
    
    $
    29,133
    
    
    $
    33,824
    
    
    $
    62,957
    Shareholders Equity:
  17




---



##### 



Interest Rate Sensitivity:
   Economic Value of Equity
   December 31, 2007Basis Point Change in Rates
    
    +300 bp
    
    +200 bp
    
    +100 bp
    
    -100 bp
    
    -200 bp
    
    -300 bpIncrease (decrease) in EVE
    
    
    (16.6
    )%
    
    
    (9.8
    )%
    
    
    (4.9
    )%
    
    
    0.6
    %
    
    
    (0.5
    )%
    
    
    (2.2
    )%
  Earnings at Risk
  18




---



##### 



December 31, 2007Basis Point Change in Rates
    
    +300 bp
    
    +200 bp
    
    +100 bp
    
    -100 bp
    
    -200 bp
    
    -300 bpIncrease (decrease) in Earnings
    
    
    6.4
    %
    
    
    5.5
    %
    
    
    3.9
    %
    
    
    (7.1
    )%
    
    
    (6.6
    )%
    
    
    (14.1
    )%
      19




---



##### 



Results of Operations
  Average Balances, Interest Rates and Yields.
 Year ended December 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    yield/cost
    
    
    Balance
    
    
    Interest
    
    
    yield/cost
    
    
    Balance
    
    
    Interest
    
    
    yield/cost(Dollars amounts in thousands)AssetsInterest earning assets:Securities:Taxable
    
    $
    68,787
    
    
    
    3,585
    
    
    
    5.18
    %
    
    $
    65,044
    
    
    
    3,299
    
    
    
    5.07
    %
    
    $
    54,089
    
    
    
    2,727
    
    
    
    5.06
    %Nontaxable (1)
    
    
    16,757
    
    
    
    1,059
    
    
    
    6.39
    %
    
    
    18,820
    
    
    
    1,209
    
    
    
    6.45
    %
    
    
    19,545
    
    
    
    1,307
    
    
    
    6.71
    %Federal funds sold
    
    
    6,447
    
    
    
    335
    
    
    
    5.20
    %
    
    
    8,816
    
    
    
    440
    
    
    
    4.99
    %
    
    
    6,823
    
    
    
    242
    
    
    
    3.55
    %Interest bearing deposits
    
    
    1,319
    
    
    
    69
    
    
    
    5.23
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loans (including
nonaccrual loans)
    
    
    187,888
    
    
    
    13,144
    
    
    
    7.00
    %
    
    
    186,146
    
    
    
    12,620
    
    
    
    6.78
    %
    
    
    197,064
    
    
    
    12,243
    
    
    
    6.21
    %Total interest-earning assets
    
    
    281,198
    
    
    
    18,192
    
    
    
    6.34
    %
    
    
    278,826
    
    
    
    17,568
    
    
    
    6.30
    %
    
    
    277,521
    
    
    
    16,519
    
    
    
    5.81
    %All other assets
    
    
    23,645
    
    
    
    
    
    
    
    
    
    
    
    24,215
    
    
    
    
    
    
    
    
    
    
    
    24,030Total assets
    
    $
    304,843
    
    
    
    
    
    
    
    
    
    
    $
    303,041
    
    
    
    
    
    
    
    
    
    
    $
    301,551Liabilities and
Shareholders EquityInterest-bearing liabilities:Interest-bearing checking
    
    $
    58,148
    
    
    
    1,341
    
    
    
    2.31
    %
    
    $
    42,342
    
    
    
    908
    
    
    
    2.14
    %
    
    $
    42,683
    
    
    
    421
    
    
    
    0.99
    %Savings
    
    
    56,690
    
    
    
    615
    
    
    
    1.08
    %
    
    
    64,979
    
    
    
    721
    
    
    
    1.11
    %
    
    
    80,746
    
    
    
    614
    
    
    
    0.76
    %Time, $100,000 and over
    
    
    14,087
    
    
    
    641
    
    
    
    4.55
    %
    
    
    14,168
    
    
    
    584
    
    
    
    4.12
    %
    
    
    10,420
    
    
    
    312
    
    
    
    2.99
    %Time, other
    
    
    72,584
    
    
    
    3,231
    
    
    
    4.45
    %
    
    
    71,593
    
    
    
    2,754
    
    
    
    3.85
    %
    
    
    63,034
    
    
    
    1,798
    
    
    
    2.85
    %Other funds purchased
    
    
    23,838
    
    
    
    1,140
    
    
    
    4.78
    %
    
    
    21,319
    
    
    
    1,028
    
    
    
    4.82
    %
    
    
    22,072
    
    
    
    983
    
    
    
    4.45
    %Total interest-bearing liabilities
    
    
    225,347
    
    
    
    6,968
    
    
    
    3.09
    %
    
    
    214,401
    
    
    
    5,995
    
    
    
    2.80
    %
    
    
    218,955
    
    
    
    4,128
    
    
    
    1.89
    %Demand deposits
    
    
    42,225
    
    
    
    
    
    
    
    
    
    
    
    51,078
    
    
    
    
    
    
    
    
    
    
    
    44,655Other liabilities
    
    
    2,666
    
    
    
    
    
    
    
    
    
    
    
    2,221
    
    
    
    
    
    
    
    
    
    
    
    2,321Shareholders equity
    
    
    34,605
    
    
    
    
    
    
    
    
    
    
    
    35,341
    
    
    
    
    
    
    
    
    
    
    
    35,620Total liabilities and
shareholders equity
    
    $
    304,843
    
    
    
    
    
    
    
    
    
    
    $
    303,041
    
    
    
    
    
    
    
    
    
    
    $
    301,551Net interest income (1)
    
    
    
    
    
    $
    11,224
    
    
    
    
    
    
    
    
    
    
    $
    11,573
    
    
    
    
    
    
    
    
    
    
    $
    12,391Interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    3.25
    %
    
    
    
    
    
    
    
    
    
    
    3.50
    %
    
    
    
    
    
    
    
    
    
    
    3.92
    %Net yield on interest-
earning assets (3)
    
    
    
    
    
    
    
    
    
    
    3.99
    %
    
    
    
    
    
    
    
    
    
    
    4.15
    %
    
    
    
    
    
    
    
    
    
    
    4.55
    %Ratio of average interest-
earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    124.78
    %
    
    
    
    
    
    
    
    
    
    
    130.05
    %
    
    
    
    
    
    
    
    
    
    
    126.75
    %
 
 (1)
    
    Tax equivalent basis.(2)
    
    Interest rate spread represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.(3)
    
    Net yield on interest-earning assets represents net interest income as a percentage of
average interest-earning assets. 20




---



##### 



Rate/Volume Analysis.
 Changes in net interest income for
    
    
    Changes in net interest income forthe year ended December 31, 2007
    
    
    the year ended December 31, 20062007 versus 2006 increase
    
    
    2006 versus 2005 increase(decrease) due to changes in
    
    
    (decrease) due to changes inVolume
    
    
    Rate
    
    
    Net change
    
    
    Volume
    
    
    Rate
    
    
    Net change(Dollar amounts in thousands)Interest IncomeSecurities:Taxable
    
    $
    214
    
    
    $
    72
    
    
    $
    286
    
    
    $
    556
    
    
    $
    16
    
    
    $
    572Nontaxable
    
    
    (144
    )
    
    
    (6
    )
    
    
    (150
    )(tax equivalent basis)*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    (50
    )
    
    
    (98
    )Federal funds sold
    
    
    (123
    )
    
    
    18
    
    
    
    (105
    )
    
    
    83
    
    
    
    115
    
    
    
    198Interest bearing deposits
    
    
    69
    
    
    
    
    
    
    
    69
    
    
    
    
    
    
    
    
    
    
    
    Loans (including
nonaccrual loans)
    
    
    122
    
    
    
    402
    
    
    
    524
    
    
    
    (702
    )
    
    
    1,079
    
    
    
    377Total
interest income (tax equivalent basis)

    
    $
    138
    
    
    $
    486
    
    
    $
    624
    
    
    $
    (111
    )
    
    $
    1,160
    
    
    $
    1,049Interest ExpenseDepositsInterest bearing checking
    
    $
    365
    
    
    $
    68
    
    
    $
    433
    
    
    $
    (3
    )
    
    $
    490
    
    
    $
    487Savings
    
    
    (90
    )
    
    
    (16
    )
    
    
    (106
    )
    
    
    (136
    )
    
    
    243
    
    
    
    107Time, $100,000 and over
    
    
    (4
    )
    
    
    61
    
    
    
    57
    
    
    
    133
    
    
    
    139
    
    
    
    272Time, other
    
    
    44
    
    
    
    433
    
    
    
    477
    
    
    
    268
    
    
    
    687
    
    
    
    955Other funds purchased
    
    
    120
    
    
    
    (8
    )
    
    
    112
    
    
    
    (34
    )
    
    
    79
    
    
    
    45Total interest expense
    
    $
    435
    
    
    $
    538
    
    
    $
    973
    
    
    $
    228
    
    
    $
    1,638
    
    
    $
    1,866Change in net
interest income (tax equivalent basis)*
    
    $
    (297
    )
    
    $
    (52
    )
    
    $
    (349
    )
    
    $
    (339
    )
    
    $
    (478
    )
    
    $
    (817
    )
 
 *
    
    Tax equivalence based on highest statutory tax rates of 34%. 2007 versus 2006
     21




---



##### 



2006 versus 2005
    22




---



##### 



23




---



##### 



Critical Accounting Policies
  Allowance for Loan Losses.
 Valuation of Securities.
 Goodwill and Other Intangible Assets.
 New Accounting Pronouncements
  24




---



##### 



2007
    
    
    2006ASSETSCash and due from banks
    
    $
    11,842
    
    
    $
    8,955Federal funds sold
    
    
    443
    
    
    
    9,820Total cash and cash equivalents
    
    
    12,285
    
    
    
    18,775Securities available for sale
    
    
    84,514
    
    
    
    86,000Restricted equity securities
    
    
    3,121
    
    
    
    3,121Loans, net of allowance for loan losses:2007  $2,0282006  $1,993
    
    
    191,488
    
    
    
    184,481Premises and equipment, net
    
    
    5,206
    
    
    
    5,549Goodwill
    
    
    4,723
    
    
    
    4,723Identified intangible assets
    
    
    654
    
    
    
    891Accrued interest receivable
    
    
    1,502
    
    
    
    1,750Cash surrender value of life insurance
    
    
    2,587
    
    
    
    2,499Other assets
    
    
    571
    
    
    
    569$
    306,651
    
    
    $
    308,358LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDepositsNon-interest bearing
    
    $
    44,492
    
    
    $
    44,238Interest bearing
    
    
    198,031
    
    
    
    203,443Total deposits
    
    
    242,523
    
    
    
    247,681Repurchase agreements
    
    
    8,831
    
    
    
    7,902Federal Reserve note account
    
    
    543
    
    
    
    843Federal Home Loan Bank advances
    
    
    17,000
    
    
    
    14,000Accrued interest payable
    
    
    975
    
    
    
    1,029Accrued expenses and other liabilities
    
    
    1,788
    
    
    
    2,223Total liabilities
    
    
    271,660
    
    
    
    273,678Shareholders equityCommon stock, no par value; 6,000,000 shares
authorized; 2,289,528 shares issued
    
    
    11,447
    
    
    
    11,447Additional paid-in capital
    
    
    4,690
    
    
    
    4,690Retained earnings
    
    
    20,182
    
    
    
    19,901Treasury stock, at cost (82,143 and 55,040 shares)
    
    
    (1,623
    )
    
    
    (1,189
    )Accumulated other comprehensive income (loss)
    
    
    295
    
    
    
    (169
    )Total shareholders equity
    
    
    34,991
    
    
    
    34,680$
    306,651
    
    
    $
    308,358
 25




---



##### 



2007
    
    
    2006
    
    
    2005Interest and dividend incomeLoans, including fees
    
    $
    13,144
    
    
    $
    12,620
    
    
    $
    12,243SecuritiesTaxable
    
    
    3,585
    
    
    
    3,299
    
    
    
    2,727Nontaxable
    
    
    699
    
    
    
    798
    
    
    
    863Federal funds sold and other
    
    
    404
    
    
    
    440
    
    
    
    242Total interest and dividend income
    
    
    17,832
    
    
    
    17,157
    
    
    
    16,075Interest expenseDeposits
    
    
    5,828
    
    
    
    4,967
    
    
    
    3,145Short-term borrowings
    
    
    360
    
    
    
    225
    
    
    
    88Federal Home Loan Bank advances
    
    
    780
    
    
    
    803
    
    
    
    895Total interest expense
    
    
    6,968
    
    
    
    5,995
    
    
    
    4,128Net interest income
    
    
    10,864
    
    
    
    11,162
    
    
    
    11,947Provision for loan losses
    
    
    147
    
    
    
    160
    
    
    
    159Net interest income after provision for loan losses
    
    
    10,717
    
    
    
    11,002
    
    
    
    11,788Noninterest incomeChecking account fees
    
    
    1,191
    
    
    
    985
    
    
    
    970Visa check card interchange fees
    
    
    269
    
    
    
    205
    
    
    
    177Deposit and miscellaneous service fees
    
    
    176
    
    
    
    170
    
    
    
    198Gain (loss) on sales of other real estate owned
    
    
    
    
    
    
    (29
    )
    
    
    20Securities gains, net
    
    
    14
    
    
    
    44
    
    
    
    109Other
    
    
    340
    
    
    
    278
    
    
    
    327Total noninterest income
    
    
    1,990
    
    
    
    1,653
    
    
    
    1,801Noninterest expenseSalaries and employee benefits
    
    
    5,182
    
    
    
    5,860
    
    
    
    5,769Data processing
    
    
    1,105
    
    
    
    1,003
    
    
    
    921Net occupancy
    
    
    859
    
    
    
    826
    
    
    
    909Professional and consulting fees
    
    
    593
    
    
    
    249
    
    
    
    273Franchise tax
    
    
    336
    
    
    
    362
    
    
    
    373Maintenance and repairs
    
    
    327
    
    
    
    294
    
    
    
    382Amortization of intangibles
    
    
    237
    
    
    
    246
    
    
    
    250Telephone
    
    
    243
    
    
    
    263
    
    
    
    228Marketing
    
    
    127
    
    
    
    416
    
    
    
    301Director fees and pension
    
    
    212
    
    
    
    380
    
    
    
    295Other
    
    
    1,279
    
    
    
    1,455
    
    
    
    1,285Total noninterest expense
    
    
    10,500
    
    
    
    11,354
    
    
    
    10,986Income before income taxes
    
    
    2,207
    
    
    
    1,301
    
    
    
    2,603Income tax expense
    
    
    496
    
    
    
    137
    
    
    
    503Net income
    
    $
    1,711
    
    
    $
    1,164
    
    
    $
    2,100Weighted average common shares outstanding
    
    
    2,231,369
    
    
    
    2,234,488
    
    
    
    2,234,488Basic and diluted earnings per common share
    
    $
    0.77
    
    
    $
    0.52
    
    
    $
    0.94
 26




---



##### 



AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury
    
    
    Comprehensive
    
    
    ShareholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Income (Loss)
    
    
    EquityBalance at January 1, 2005
    
    $
    11,447
    
    
    $
    4,690
    
    
    $
    19,397
    
    
    $
    (1,189
    )
    
    $
    974
    
    
    $
    35,319Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    2,100
    
    
    
    
    
    
    
    
    
    
    
    2,100Other comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,336
    )
    
    
    (1,336
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    764Cash dividends declared ($.64 per share)
    
    
    
    
    
    
    
    
    
    
    (1,430
    )
    
    
    
    
    
    
    
    
    
    
    (1,430
    )Balance at December 31, 2005
    
    
    11,447
    
    
    
    4,690
    
    
    
    20,067
    
    
    
    (1,189
    )
    
    
    (362
    )
    
    
    34,653Adjustment to apply SAB 108 (See Note 1)
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Balance at January 1, 2006
    
    
    11,447
    
    
    
    4,690
    
    
    
    20,167
    
    
    
    (1,189
    )
    
    
    (362
    )
    
    
    34,753Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    1,164
    
    
    
    
    
    
    
    
    
    
    
    1,164Other comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    193
    
    
    
    193Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,357Cash dividends declared ($.64 per share)
    
    
    
    
    
    
    
    
    
    
    (1,430
    )
    
    
    
    
    
    
    
    
    
    
    (1,430
    )Balance at December 31, 2006
    
    
    11,447
    
    
    
    4,690
    
    
    
    19,901
    
    
    
    (1,189
    )
    
    
    (169
    )
    
    
    34,680Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    1,711
    
    
    
    
    
    
    
    
    
    
    
    1,711Other comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    464
    
    
    
    464Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,175Cash dividends declared ($.64 per share)
    
    
    
    
    
    
    
    
    
    
    (1,430
    )
    
    
    
    
    
    
    
    
    
    
    (1,430
    )Purchase of 27,103 common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (434
    )
    
    
    
    
    
    
    (434
    )Balance at December 31, 2007
    
    $
    11,447
    
    
    $
    4,690
    
    
    $
    20,182
    
    
    $
    (1,623
    )
    
    $
    295
    
    
    $
    34,991
 27




---



##### 



2007
    
    
    2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    1,711
    
    
    $
    1,164
    
    
    $
    2,100Adjustments to reconcile net income
to net cash from operating activitiesProvision for loan losses
    
    
    147
    
    
    
    160
    
    
    
    159Deferred income taxes
    
    
    (19
    )
    
    
    (310
    )
    
    
    (239
    )Depreciation, amortization and accretion
    
    
    442
    
    
    
    944
    
    
    
    1,025Earnings on Bank owned life insurance
    
    
    (88
    )
    
    
    (83
    )
    
    
    (78
    )Federal Home Loan Bank stock dividend
    
    
    
    
    
    
    (134
    )
    
    
    (109
    )Origination of mortgage loans held for sale
    
    
    (1,826
    )
    
    
    (3,834
    )
    
    
    (7,398
    )Proceeds from sales of mortgage loans held for sale
    
    
    1,826
    
    
    
    3,812
    
    
    
    7,421Gain on sale of loans
    
    
    (19
    )
    
    
    (17
    )
    
    
    (43
    )Net security gains
    
    
    (14
    )
    
    
    (43
    )
    
    
    (109
    )Impairment charge for property
    
    
    
    
    
    
    124
    
    
    
    (Gain) loss on sale/write-down of other real estate owned
    
    
    33
    
    
    
    29
    
    
    
    (20
    )Change in other assets and liabilities
    
    
    (353
    )
    
    
    562
    
    
    
    621Net cash from operating activities
    
    
    1,840
    
    
    
    2,374
    
    
    
    3,330Cash flows from investing activitiesSecurities held to maturityProceeds from maturities and repayments
    
    
    
    
    
    
    50
    
    
    
    1,003Purchases
    
    
    
    
    
    
    
    
    
    
    (2,035
    )Securities available for saleProceeds from maturities and repayments
    
    
    15,753
    
    
    
    8,795
    
    
    
    7,718Proceeds from sales
    
    
    22,662
    
    
    
    278
    
    
    
    18,664Purchases
    
    
    (36,083
    )
    
    
    (17,906
    )
    
    
    (28,094
    )Purchases of property and equipment
    
    
    (325
    )
    
    
    (918
    )
    
    
    (1,333
    )Proceeds from sale of property and equipment
    
    
    211
    
    
    
    
    
    
    
    Proceeds from sale of other real estate owned
    
    
    
    
    
    
    105
    
    
    
    66Purchase of loans
    
    
    (6,408
    )
    
    
    
    
    
    
    Net change in loans to customers
    
    
    (747
    )
    
    
    6,677
    
    
    
    4,812Net cash from investing activities
    
    
    (4,937
    )
    
    
    (2,919
    )
    
    
    801Cash flows from financing activitiesNet change in deposits
    
    
    (5,158
    )
    
    
    (1,807
    )
    
    
    965Net change in short-term borrowings
    
    
    629
    
    
    
    5,792
    
    
    
    (1,727
    )Proceeds from Federal Home Loan Bank advances
    
    
    3,000
    
    
    
    
    
    
    
    Repayments Federal Home Loan Bank advances
    
    
    
    
    
    
    (3,000
    )
    
    
    Dividends paid
    
    
    (1,430
    )
    
    
    (1,430
    )
    
    
    (1,430
    )Purchase of common stock
    
    
    (434
    )
    
    
    
    
    
    
    Net cash from financing activities
    
    
    (3,393
    )
    
    
    (445
    )
    
    
    (2,192
    )Net change in cash and cash equivalents
    
    
    (6,490
    )
    
    
    (990
    )
    
    
    1,939Beginning cash and cash equivalents
    
    
    18,775
    
    
    
    19,765
    
    
    
    17,826Ending cash and cash equivalents
    
    $
    12,285
    
    
    $
    18,775
    
    
    $
    19,765Supplemental cash flow information:Interest paid
    
    $
    7,022
    
    
    $
    5,671
    
    
    $
    3,869Income taxes paid
    
    
    662
    
    
    
    375
    
    
    
    795Supplemental noncash disclosures:Transfer from loans to other real estate owned
    
    $
    124
    
    
    $
    134
    
    
    $
    103Adjustment to apply SAB 108 (see Note 1)
    
    
    
    
    
    
    100
    
    
    
    Transfer investment securities from held to maturity
to available for sale
    
    
    
    
    
    
    16,831
    
    
    
    
  28




---



##### 



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:
  Loans:
 29




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Purchased Loans:
 Allowance for Loan Losses:
   Servicing Rights:
   Other Real Estate Owned:
 30




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Premises and Equipment:
 Federal Home Loan Bank (FHLB) Stock:
 Bank Owned Life Insurance:
 Accounting
for Purchases of Life Insurance  Determining the Amount That Could Be Realized in Accordance with
FASB Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance).
 Goodwill and Other Intangible Assets:
   Long-term Assets:
 Repurchase Agreements:
 Benefit Plans:
 Income Taxes:
 Accounting for Uncertainty in Income Taxes
 Loan Commitments and Related Financial Instruments:
 31




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Earnings Per Common Share:
 Comprehensive Income:
 Loss Contingencies:
 Restrictions on Cash:
 Dividend Restriction:
 Fair Value of Financial Instruments:
 Reclassifications:
 Adoption of New Accounting Standards:
 Effect of Newly Issued But Not Yet Effective Accounting Standards: Fair Value Measurements Effective Date of FASB Statement No.157
 32




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements
 Written Loan Commitments
Recorded at Fair Value through Earnings Application of Accounting
Principles to Loan Commitments
 NOTE 2  SECURITIES
  Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses2007U.S. Treasury and federal agency
    
    $
    10,268
    
    
    $
    161
    
    
    $
    State and municipal
    
    
    16,068
    
    
    
    295
    
    
    
    (13
    )Mortgage-backed
    
    
    40,583
    
    
    
    294
    
    
    
    (21
    )Corporate bond and notes
    
    
    17,595
    
    
    
    26
    
    
    
    (295
    )Total
    
    $
    84,514
    
    
    $
    776
    
    
    $
    (329
    )2006U.S. Treasury and federal agency
    
    $
    29,380
    
    
    $
    69
    
    
    $
    (226
    )State and municipal
    
    
    17,395
    
    
    
    330
    
    
    
    (45
    )Mortgage-backed
    
    
    11,955
    
    
    
    4
    
    
    
    (79
    )Corporate bond and notes
    
    
    27,270
    
    
    
    132
    
    
    
    (441
    )Total
    
    $
    86,000
    
    
    $
    535
    
    
    $
    (791
    )
  2007
    
    2006
    
    2005Proceeds
    
    $
    22,662
    
    
    $
    278
    
    
    $
    18,664Gross gains
    
    
    132
    
    
    
    38
    
    
    
    355Gross losses
    
    
    (121
    )
    
    
    
    
    
    
    (254
    )Gross gains from calls
    
    
    3
    
    
    
    6
    
    
    
    8
  33




---



##### 



NOTE 2  SECURITIES
  Fair ValueDue in one year or less
    
    $
    12,750Due from one to five years
    
    
    14,145Due from five to ten years
    
    
    11,328Due after ten years
    
    
    5,708Mortgage-backed
    
    
    40,583Total
    
    $
    84,514
    Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss2007U.S. Government
and federal agency
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    State and municipal
    
    
    486
    
    
    
    (8
    )
    
    
    1,969
    
    
    
    (5
    )
    
    
    2,459
    
    
    
    (13
    )Corporate bonds and notes
    
    
    1,181
    
    
    
    (17
    )
    
    
    12,156
    
    
    
    (278
    )
    
    
    13,337
    
    
    
    (295
    )Mortgage backed
    
    
    6,246
    
    
    
    (9
    )
    
    
    1,269
    
    
    
    (12
    )
    
    
    7,515
    
    
    
    (21
    )Total temporarily impaired
    
    $
    7,913
    
    
    $
    (34
    )
    
    $
    15,394
    
    
    $
    (295
    )
    
    $
    23,307
    
    
    $
    (329
    )2006U.S. Government
and federal agency
    
    $
    5,032
    
    
    $
    (34
    )
    
    $
    13,164
    
    
    $
    (192
    )
    
    $
    18,196
    
    
    $
    (226
    )State and municipal
    
    
    1,093
    
    
    
    (3
    )
    
    
    3,315
    
    
    
    (42
    )
    
    
    4,408
    
    
    
    (45
    )Corporate bonds and notes
    
    
    1,500
    
    
    
    (10
    )
    
    
    19,431
    
    
    
    (431
    )
    
    
    20,931
    
    
    
    (441
    )Mortgage backed
    
    
    6,238
    
    
    
    (20
    )
    
    
    3,389
    
    
    
    (59
    )
    
    
    9,627
    
    
    
    (79
    )Total temporarily impaired
    
    $
    13,863
    
    
    $
    (67
    )
    
    $
    39,299
    
    
    $
    (724
    )
    
    $
    53,162
    
    
    $
    (791
    )
  34




---



##### 



NOTE 3  LOANS
  2007
    
    
    2006Collateralized by real estate:Commercial
    
    $
    51,463
    
    
    $
    45,737Residential
    
    
    80,113
    
    
    
    86,652Home equity
    
    
    20,857
    
    
    
    19,383Construction
    
    
    8,367
    
    
    
    6,079160,800
    
    
    
    157,851Other:Consumer
    
    
    11,988
    
    
    
    7,522Commercial
    
    
    17,552
    
    
    
    18,519Credit card
    
    
    1,614
    
    
    
    1,521Other
    
    
    1,987
    
    
    
    1,609193,941
    
    
    
    187,022Unearned and deferred income
    
    
    (425
    )
    
    
    (548
    )Allowance for loan losses
    
    
    (2,028
    )
    
    
    (1,993
    )Total
    
    $
    191,488
    
    
    $
    184,481
  2007
    
    
    2006
    
    
    2005Beginning balance
    
    $
    1,993
    
    
    $
    1,903
    
    
    $
    1,763Provision for loan losses
    
    
    147
    
    
    
    160
    
    
    
    159Loans charged-off
    
    
    (151
    )
    
    
    (162
    )
    
    
    (57
    )Recoveries
    
    
    39
    
    
    
    92
    
    
    
    38Ending balance
    
    $
    2,028
    
    
    $
    1,993
    
    
    $
    1,903
  2007
    
    2006Year-end loans with no allocated allowance
for loan losses
    
    $
    
    
    
    $
    Year-end loans with allocated allowance
for loan losses
    
    
    2,702
    
    
    
    1,732Amount of the allowance for loan losses allocated
    
    
    629
    
    
    
    415Total
 2007
    
    2006
    
    2005Average of individually impaired loans during year
    
    $
    2,500
    
    
    $
    584
    
    
    $
    366
   2007
    
    2006Loans past due over 90 days still on accrual
    
    $
    158
    
    
    $
    247Nonaccrual loans
    
    
    2,645
    
    
    
    2,061
  35




---



##### 



NOTE 4  LOAN SERVICING
  2007
    
    2006Mortgage loan portfolios serviced for:FHLMC
    
    $
    17,597
    
    
    $
    17,203
   2007
    
    
    2006
    
    
    2005Servicing rights:Beginning of year
    
    $
    86
    
    
    $
    84
    
    
    $
    25Additions
    
    
    19
    
    
    
    40
    
    
    
    77Amortized to expense
    
    
    (38
    )
    
    
    (38
    )
    
    
    (18
    )End of year
    
    $
    67
    
    
    $
    86
    
    
    $
    84
  NOTE 5  PREMISES AND EQUIPMENT
  2007
    
    
    2006Land
    
    $
    1,378
    
    
    $
    1,589Buildings
    
    
    6,096
    
    
    
    6,064Furniture, fixtures and equipment
    
    
    4,536
    
    
    
    4,26212,010
    
    
    
    11,915Less: Accumulated depreciation
    
    
    (6,804
    )
    
    
    (6,366
    )Total
    
    $
    5,206
    
    
    $
    5,549
   NOTE 6  INTANGIBLE ASSETS
  2007
    
    
    2006Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized intangible assets:Core deposit intangibles
    
    $
    1,063
    
    
    $
    673
    
    
    $
    1,063
    
    
    $
    570Branch acquisition intangible
    
    
    760
    
    
    
    704
    
    
    
    760
    
    
    
    674Customer relationship intangibles
    
    
    728
    
    
    
    520
    
    
    
    728
    
    
    
    416Total
    
    $
    2,551
    
    
    $
    1,897
    
    
    $
    2,551
    
    
    $
    1,660
  36




---



##### 



NOTE 6  INTANGIBLE ASSETS
  2008
    
    $
    2312009
    
    
    2252010
    
    
    902011
    
    
    862012
    
    
    22
 NOTE 7  DEPOSITS
 2007
    
    
    2006Demand, noninterest-bearing
    
    $
    44,492
    
    
    $
    44,238Demand, interest-bearing
    
    
    64,594
    
    
    
    54,208Savings
    
    
    53,545
    
    
    
    59,019Time, $100,000 and over
    
    
    12,725
    
    
    
    14,657Time, other
    
    
    67,167
    
    
    
    75,559Total
    
    $
    242,523
    
    
    $
    247,681
  2008
    
    $
    55,5182009
    
    
    15,5542010
    
    
    7,2762011
    
    
    1,3992012 and thereafter
    
    
    145$
    79,892
 NOTE 8  FEDERAL HOME LOAN BANK ADVANCES
  2007
    
    
    2006Maturity 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
    
    
    $
    1,000Maturities in 2010 and 2011, fixed rate at 4.93% to
5.79% at December 31, 2007 and 2006,
convertible to variable if 1-month LIBOR is at
or above fixed rate
    
    
    13,000
    
    
    
    13,000Maturities in 2009, fixed rate at 3.95% to 4.10% at
December 31, 2007
    
    
    3,000
    
    
    
    Total
    
    $
    17,000
    
    
    $
    14,000
  Payment Information
  2009
    
    
    3.95 to 4.10
    %
    
    $
    3,0002010
    
    
    5.00 to 6.26
    %
    
    
    11,0002011
    
    
    4.93 to 5.12
    %
    
    
    3,000
 37




---



##### 



NOTE 9  REPURCHASE AGREEMENTS
  2007
    
    2006
    
    2005Average balance during the year
    
    $
    8,642
    
    
    $
    6,008
    
    
    $
    4,100Average interest rate during the year
    
    
    3.86
    %
    
    
    3.48
    %
    
    
    1.88
    %Maximum month-end balance during the year
    
    $
    10,956
    
    
    $
    7,902
    
    
    $
    8,918Weighted average rate at year-end
    
    
    2.85
    %
    
    
    3.63
    %
    
    
    2.54
    %
 NOTE 10  BENEFIT PLANS
    NOTE 11  INCOME TAXES
  2007
    
    
    2006Deferred tax assets:Bad debts
    
    $
    529
    
    
    $
    518Deferred loan fees
    
    
    190
    
    
    
    186Core deposit intangibles
    
    
    14
    
    
    
    21Deferred compensation
    
    
    363
    
    
    
    390Non-accrual loan interest income
    
    
    78
    
    
    
    78Real estate owned write-down
    
    
    11
    
    
    
    Accrued benefits
    
    
    
    
    
    
    80Credit card rebate
    
    
    
    
    
    
    20Unrealized security losses, net
    
    
    
    
    
    
    87Total
    
    $
    1,185
    
    
    $
    1,380
 38




---



##### 



NOTE 11  INCOME TAXES
 2007
    
    
    2006Deferred tax liabilities:Securities accretion
    
    $
    87
    
    
    $
    86Depreciation
    
    
    203
    
    
    
    223Federal Home Loan Bank stock dividends
    
    
    509
    
    
    
    509Prepaid expenses
    
    
    26
    
    
    
    42Mortgage servicing rights
    
    
    23
    
    
    
    29Partnership income
    
    
    2
    
    
    
    2Purchase accounting adjustments
    
    
    283
    
    
    
    369Unrealized security gains, net
    
    
    152
    
    
    
    Total
    
    
    1,285
    
    
    
    1,260Net deferred tax asset (liability)
    
    $
    (100
    )
    
    $
    120
   2007
    
    
    2006
    
    
    2005Currently payable
    
    $
    515
    
    
    $
    447
    
    
    $
    743Deferred
    
    
    (19
    )
    
    
    (310
    )
    
    
    (240
    )Total
    
    $
    496
    
    
    $
    137
    
    
    $
    503
  2007
    
    
    2006
    
    
    2005Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    AmountTax at federal statutory rate
    
    
    34
    %
    
    $
    750
    
    
    
    34
    %
    
    $
    442
    
    
    
    34
    %
    
    $
    885Tax-exempt income
    
    
    (10
    )
    
    
    (228
    )
    
    
    (20
    )
    
    
    (261
    )
    
    
    (11
    )
    
    
    (295
    )Other
    
    
    (2
    )
    
    
    (26
    )
    
    
    (3
    )
    
    
    (44
    )
    
    
    (3
    )
    
    
    (87
    )Income tax expense
    
    
    22
    %
    
    $
    496
    
    
    
    11
    %
    
    $
    137
    
    
    
    20
    %
    
    $
    503
 NOTE 12  RELATED-PARTY TRANSACTIONS
  Beginning balance
    
    $
    3,586Effect of changes in composition of related parties
    
    
    (268
    )New loans
    
    
    803Repayments
    
    
    (797
    )Ending balance
    
    $
    3,324
   39




---



##### 



NOTE 13  REGULATORY CAPITAL MATTERS
    To Be WellRequired
    
    Capitalized UnderFor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action RegulationsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio2007Total capital to risk
weighted assets
    
    $
    26,810
    
    
    
    12.78
    %
    
    $
    16,785
    
    
    
    8.00
    %
    
    $
    20,981
    
    
    
    10.00
    %Tier 1 capital to risk
weighted assets
    
    
    24,782
    
    
    
    11.81
    %
    
    
    8,392
    
    
    
    4.00
    %
    
    
    12,588
    
    
    
    6.00
    %Tier 1 capital to
average assets
    
    
    24,782
    
    
    
    8.26
    %
    
    
    2,001
    
    
    
    4.00
    %
    
    
    15,001
    
    
    
    5.00
    %2006Total capital to risk
weighted assets
    
    $
    27,770
    
    
    
    13.26
    %
    
    $
    6,750
    
    
    
    8.00
    %
    
    $
    20,937
    
    
    
    10.00
    %Tier 1 capital to risk
weighted assets
    
    
    25,777
    
    
    
    12.31
    %
    
    
    8,375
    
    
    
    4.00
    %
    
    
    12,562
    
    
    
    6.00
    %Tier 1 capital to
average assets
    
    
    25,777
    
    
    
    8.57
    %
    
    
    12,038
    
    
    
    4.00
    %
    
    
    15,047
    
    
    
    5.00
    %
 Dividend Restrictions
 NOTE 14  LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES
   2007
    
    2006Commitments to make loans
    
    $
    6,723
    
    
    $
    6,104Unused lines of credit
    
    
    56,077
    
    
    
    53,317Letters of credit
    
    
    157
    
    
    
    241
 40




---



##### 



NOTE 14  LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES
  NOTE 15  FAIR VALUES OF FINANCIAL INSTRUMENTS
  2007
    
    2006Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    12,285
    
    
    $
    12,285
    
    
    $
    18,775
    
    
    $
    18,775Securities available for sale
    
    
    84,514
    
    
    
    84,514
    
    
    
    86,000
    
    
    
    86,000Restricted equity securities
    
    
    3,121
    
    
    
    3,121
    
    
    
    3,121
    
    
    
    3,121Loans, net
    
    
    191,488
    
    
    
    193,823
    
    
    
    184,481
    
    
    
    185,718Accrued interest receivable
    
    
    1,502
    
    
    
    1,502
    
    
    
    1,750
    
    
    
    1,750Financial liabilitiesDeposits
    
    
    (242,523
    )
    
    
    (242,759
    )
    
    
    (247,681
    )
    
    
    (247,359
    )Short-term borrowings
    
    
    (9,374
    )
    
    
    (9,374
    )
    
    
    (8,744
    )
    
    
    (8,744
    )Federal Home Loan Bank advances
    
    
    (17,000
    )
    
    
    (17,060
    )
    
    
    (14,000
    )
    
    
    (13,222
    )Accrued interest payable
    
    
    (975
    )
    
    
    (975
    )
    
    
    (1,029
    )
    
    
    (1,029
    )
   NOTE 16  OTHER COMPREHENSIVE INCOME (LOSS)
  2007
    
    
    2006
    
    
    2005Unrealized holding gains (loss) on
available for sale securities
    
    $
    717
    
    
    $
    73
    
    
    $
    (1,915
    )Reclassification adjustment for losses (gains)
later recognized in income
    
    
    (14
    )
    
    
    (44
    )
    
    
    (109
    )Net unrealized gains (loss)
    
    
    703
    
    
    
    29
    
    
    
    (2,024
    )Unrealized gains on securities
transferred from held to maturity
to available for sale
    
    
    
    
    
    
    263
    
    
    
    Tax effect (benefit)
    
    
    (239
    )
    
    
    (99
    )
    
    
    688Other comprehensive income (loss)
    
    $
    464
    
    
    $
    193
    
    
    $
    (1,336
    )
 41




---



##### 



NOTE 17  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
   December 312007
    
    
    2006ASSETSCash and cash equivalents
    
    $
    4,846
    
    
    $
    3,779Investment in Bank subsidiary
    
    
    30,460
    
    
    
    31,230Other assets
    
    
    43
    
    
    
    29Total assets
    
    $
    35,349
    
    
    $
    35,038LIABILITIES AND SHAREHOLDERS EQUITYDividends payable
    
    $
    358
    
    
    $
    358Shareholders equity
    
    
    34,991
    
    
    
    34,680Total liabilities and shareholders equity
    
    $
    35,349
    
    
    $
    35,038
  Years ended December 312007
    
    
    2006
    
    
    2005INCOMEDividends from Bank subsidiary
    
    $
    3,000
    
    
    $
    3,000
    
    
    $
    2,000Securities gains (loss), net
    
    
    1
    
    
    
    29
    
    
    
    (1
    )Total Income
    
    
    3,001
    
    
    
    3,029
    
    
    
    1,999EXPENSESMiscellaneous expense
    
    
    (85
    )
    
    
    (47
    )
    
    
    (33
    )Income before income tax and undistributed
subsidiary income
    
    
    2,916
    
    
    
    2,982
    
    
    
    1,966Income tax benefit
    
    
    29
    
    
    
    9
    
    
    
    17Undistributed equity in (distributions in excess
of) net income of Bank subsidiary
    
    
    (1,234
    )
    
    
    (1,827
    )
    
    
    117Net income
    
    $
    1,711
    
    
    $
    1,164
    
    
    $
    2,100
  Years ended December 312007
    
    
    2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    1,711
    
    
    $
    1,164
    
    
    $
    2,100Adjustments to reconcile net income
to net cash from operating activities:(Undistributed equity in) distributions in
excess of net income of Bank subsidiary
    
    
    1,234
    
    
    
    1,827
    
    
    
    (117
    )Net security (gains) losses
    
    
    (1
    )
    
    
    (29
    )
    
    
    1Change in other assets and liabilities
    
    
    (14
    )
    
    
    76
    
    
    
    (4
    )Net cash from operating activities
    
    
    2,930
    
    
    
    3,038
    
    
    
    1,980Cash flows from investing activitiesProceeds from sale of securities
    
    
    1
    
    
    
    53
    
    
    
    538Cash received from investment-return of capital
    
    
    
    
    
    
    
    
    
    
    7Net cash from investing activities
    
    
    1
    
    
    
    53
    
    
    
    545Cash flows from financing activitiesDividends paid
    
    
    (1,430
    )
    
    
    (1,430
    )
    
    
    (1,430
    )Purchase of common stock
    
    
    (434
    )
    
    
    
    
    
    
    Net cash from financing activities
    
    
    (1,864
    )
    
    
    (1,430
    )
    
    
    (1,430
    )Net increase in cash
    
    
    1,067
    
    
    
    1,661
    
    
    
    1,095Cash, beginning of year
    
    
    3,779
    
    
    
    2,118
    
    
    
    1,023Cash, end of year
    
    $
    4,846
    
    
    $
    3,779
    
    
    $
    2,118
 42




---



##### 



NOTE 18  QUARTERLY FINANCIAL DATA (UNAUDITED)
 Interest
    
    Net Interest
    
    Net
    
    Earnings Per ShareIncome
    
    Income
    
    Income
    
    Basic and Diluted2007First quarter
    
    $
    4,352
    
    
    $
    2,642
    
    
    $
    287
    
    
    $
    0.13Second quarter
    
    
    4,542
    
    
    
    2,758
    
    
    
    314
    
    
    
    0.14Third quarter
    
    
    4,497
    
    
    
    2,741
    
    
    
    507
    
    
    
    0.23Fourth quarter
    
    
    4,441
    
    
    
    2,723
    
    
    
    603
    
    
    
    0.272006First quarter
    
    $
    4,166
    
    
    $
    2,895
    
    
    $
    508
    
    
    $
    0.22Second quarter
    
    
    4,187
    
    
    
    2,721
    
    
    
    159
    
    
    
    0.07Third quarter
    
    
    4,379
    
    
    
    2,820
    
    
    
    303
    
    
    
    0.14Fourth quarter
    
    
    4,425
    
    
    
    2,726
    
    
    
    194
    
    
    
    0.09
   43




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##### 



David C. Vernon
Chief Executive Officer
    
    James R. VanSickle
Chief Financial Officer
 44




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##### 



45




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##### 



2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007National Bancshares Corp
    
    $
    100.00
    
    
    
    111.73
    
    
    
    130.86
    
    
    
    111.78
    
    
    
    118.09
    
    
    
    84.62S&P 500 Stock Index*
    
    $
    100.00
    
    
    
    128.68
    
    
    
    142.69
    
    
    
    149.70
    
    
    
    173.34
    
    
    
    182.86S&P 500 Banks Index*
    
    $
    100.00
    
    
    
    126.66
    
    
    
    144.92
    
    
    
    142.81
    
    
    
    165.80
    
    
    
    116.42
 
 *
    
    National Bancshares Corporation is not included in the S&P 500 Bank Index or S&P 500 Stock Index. 46




---



##### 



High
    
    Low
    
    Dividends per share2007First Quarter
    
    $
    25.57
    
    
    $
    22.50
    
    
    $
    .16Second Quarter
    
    
    22.80
    
    
    
    18.40
    
    
    
    .16Third Quarter
    
    
    18.50
    
    
    
    15.07
    
    
    
    .16Fourth Quarter
    
    
    17.50
    
    
    
    15.11
    
    
    
    .162006First Quarter
    
    $
    22.75
    
    
    $
    21.50
    
    
    $
    .16Second Quarter
    
    
    23.10
    
    
    
    22.27
    
    
    
    .16Third Quarter
    
    
    24.35
    
    
    
    22.50
    
    
    
    .16Fourth Quarter
    
    
    24.25
    
    
    
    21.75
    
    
    
    .16
  Corporate Office
 Stock Trading Information
 Form 10-K
 Shareholder Assistance
 Transfer Agent
  47




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##### 



OFFICERS
 NATIONAL BANCSHARES CORPORATION
  David C. Vernon
 FIRST NATIONAL BANK
 David C. Vernon
 Accounting
James R. VanSickle
 Angela L. Smith
 Client Services
Paul G. Kubiak
 Paul J. Bayus
 Karen K. Haueter
 Heather Kiner
 Matthew M. Miller
 Cindy A. Wagner
 Amberly M. Wolf
 Laura R. Yoder
 Compliance & Security
Pamela S. Null
 Maria A. Roush
 James R. VanSickle
 Credit Administration
Steven L. Riddick
 Mindy L. Henderson
 Lending
Thomas M. Fast
 Harold D. Berkey
 John D. Shultz, Jr.
 Darrell L. Smucker
 Dean M. Karhan
 Steven J. Bodo
 Lloyd L. Morton
 Kathy J. Barnes
 Scott M. Holmes
 Patricia J. Massaro
 Operations
James T. Griffith
 Janice M. Zacharias
   48




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##### 



BOARD OF DIRECTORS
NATIONAL BANCSHARES CORPORATION &
FIRST NATIONAL BANK
 FIRST NATIONAL BANK OFFICES
    Sara Steinbrenner Balzarini
 John P. Cook
 Bobbi E. Douglas
 John W. Kropf
 John L. Muhlbach, Jr.
 Victor B. Schantz
 Steve Schmid
 David C. Vernon      Howard J. Wenger
 Albert W. Yeagley
 Orrville
 
 
 Apple Creek
 Lodi
 Dalton
 Kidron
 Mt. Eaton
 Seville
 Smithville
 Wooster
 
 Massillon
   49