EXHIBIT 13
 Business of DCB Financial Corp
     Common Stock and Shareholder Matters




---



##### 



Quarter endedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2009
    
    
    2009High
    
    $
    9.00
    
    
    $
    9.00
    
    
    $
    10.75
    
    
    $
    9.50Low
    
    
    5.10
    
    
    
    5.40
    
    
    
    7.65
    
    
    
    6.50Dividends per share
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.00
 March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2008
    
    
    2008
    
    
    2008
    
    
    2008High
    
    $
    17.00
    
    
    $
    16.00
    
    
    $
    15.50
    
    
    $
    14.75Low
    
    
    12.90
    
    
    
    13.55
    
    
    
    12.50
    
    
    
    8.00Dividends per share
    
    
    0.16
    
    
    
    0.16
    
    
    
    0.16
    
    
    
    0.08
   Selected Consolidated Financial Information and Other Data
  Selected consolidated financialcondition data:
    
    At December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Total assets
    
    $
    675,022
    
    
    $
    712,564
    
    
    $
    680,786
    
    
    $
    684,004
    
    
    $
    690,896Cash and cash equivalents
    
    
    41,453
    
    
    
    34,658
    
    
    
    32,068
    
    
    
    15,894
    
    
    
    18,069Securities available for sale
    
    
    94,100
    
    
    
    111,360
    
    
    
    89,009
    
    
    
    88,071
    
    
    
    96,580Securities held to maturity
    
    
    1,752
    
    
    
    8,002
    
    
    
    
    
    
    
    
    
    
    
    Net loans
    
    
    479,003
    
    
    
    507,076
    
    
    
    512,195
    
    
    
    547,021
    
    
    
    547,510Deposits
    
    
    557,455
    
    
    
    565,153
    
    
    
    510,874
    
    
    
    524,094
    
    
    
    503,906Borrowed funds
    
    
    66,159
    
    
    
    88,384
    
    
    
    110,082
    
    
    
    95,512
    
    
    
    128,535Shareholders equity
    
    
    49,343
    
    
    
    56,059
    
    
    
    57,068
    
    
    
    61,399
    
    
    
    56,254
  2




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##### 



Selected Operating Data
    
    Year ended December 31,(In thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Interest income
    
    $
    32,341
    
    
    $
    38,405
    
    
    $
    43,556
    
    
    $
    44,407
    
    
    $
    36,566Interest expense
    
    
    10,558
    
    
    
    16,743
    
    
    
    22,154
    
    
    
    21,315
    
    
    
    13,750Net interest income
    
    
    21,783
    
    
    
    21,662
    
    
    
    21,402
    
    
    
    23,092
    
    
    
    22,816Provision for loan losses
    
    
    9,398
    
    
    
    8,177
    
    
    
    10,159
    
    
    
    1,808
    
    
    
    2,000Net interest income after provision for loan losses
    
    
    12,385
    
    
    
    13,485
    
    
    
    11,243
    
    
    
    21,284
    
    
    
    20,816Noninterest income
    
    
    3,219
    
    
    
    5,487
    
    
    
    5,928
    
    
    
    5,619
    
    
    
    5,654Noninterest expense
    
    
    22,989
    
    
    
    20,884
    
    
    
    17,962
    
    
    
    16,452
    
    
    
    15,665Income (loss) before income tax
    
    
    (7,385
    )
    
    
    (1,912
    )
    
    
    (791
    )
    
    
    10,451
    
    
    
    10,805Income tax expense (credit)
    
    
    (3,185
    )
    
    
    (2,241
    )
    
    
    (930
    )
    
    
    3,098
    
    
    
    3,249Net income (loss)
    
    $
    (4,200
    )
    
    $
    329
    
    
    $
    139
    
    
    $
    7,353
    
    
    $
    7,556Per Share Data:Basic earnings (loss) per share
    
    $
    (1.13
    )
    
    $
    0.09
    
    
    $
    0.04
    
    
    $
    1.93
    
    
    $
    1.94Diluted earnings (loss) per share
    
    $
    (1.13
    )
    
    $
    0.09
    
    
    $
    0.04
    
    
    $
    1.92
    
    
    $
    1.94Dividends declared per share
    
    $
    0.06
    
    
    $
    0.56
    
    
    $
    0.60
    
    
    $
    0.55
    
    
    $
    0.48
 At or for the year ended December 31,Selected Financial Ratios:
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Interest rate spread
    
    
    3.21
    %
    
    
    2.97
    %
    
    
    2.90
    %
    
    
    2.85
    %
    
    
    3.37
    %Net interest margin
    
    
    3.38
    
    
    
    3.29
    
    
    
    3.36
    
    
    
    3.48
    
    
    
    3.66Return on average equity
    
    
    *
    
    
    
    0.55
    
    
    
    0.23
    
    
    
    12.55
    
    
    
    13.68Return on average assets
    
    
    *
    
    
    
    0.05
    
    
    
    0.02
    
    
    
    1.05
    
    
    
    1.15Average equity to average assets
    
    
    7.64
    
    
    
    8.42
    
    
    
    8.88
    
    
    
    8.39
    
    
    
    8.41Dividend payout ratio
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    28.50
    
    
    
    24.74Allowance for loan losses as
a percentage of loans past
due over 90 days
    
    
    84.08
    
    
    
    105.01
    
    
    
    64.05
    
    
    
    64.05
    
    
    
    114.53
 *
    
    Not meaningful. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
   3




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##### 



Forward-Looking Statements
   Recent Accounting Standards
     4




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##### 




    
    It does not have the intent to sell the security; and
 
    
    It is more-likely-than-not it will not have to sell the security before recovery of its
amortized cost basis less any current period credit losses
      5




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##### 



Critical Accounting Policies
      6




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##### 



Overview of 2009
      
    
    The Corporations assets totaled $675,022 at December 31, 2009, compared to $712,564 at
December 31, 2008, a decrease of $37,542, or 5.3%. The decrease in assets was mainly
attributed to a decline in loans and investment securities.
 
    
    Net loss for 2009 totaled $4,200, a decrease of $4,529, compared to net income for 2008
of $329. The 2009 operating results were negatively affected by a $2,621
other-than-temporary impairment loss recognized on investment securities, a $1,221 increase
in the provision for loan losses and a $1,211 increase in federal deposit insurance
premiums.
 
    
    The provision for loan losses totaled $9,398 for the year ended December 31, 2009
compared to $8,177 in 2008. DCB maintains an allowance for loan losses at a level to
absorb managements estimate of probable inherent credit losses in its portfolio.
  7




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##### 




    
    The Corporations net interest margin increased from the preceding year. Net interest
income increased to $21,783 for 2009 compared to $21,662 for 2008. The $121 increase was
mainly attributed to a decline in interest expense on deposits and borrowings.
 
    
    The ability to generate earnings is impacted in part by competitive pricing on loans and
deposits, and by changes in the rates on various U.S. Treasury, U. S. Government Agency and
State and political subdivision issues which comprise a significant portion of the Banks
investment portfolio. The Bank is competitive with interest rates and loan fees that it
charges, in pricing and variety of accounts it offers to the depositor. The Corporation
confirms this by completing regular rate shops and comparisons versus competing financial
services companies. The dominant pricing mechanism on loans is the prime interest rate as
published in the Wall Street Journal, on a fixed rate plus spread over funding costs. The
interest spread depends on the overall account relationship and the creditworthiness of the
borrower.
 
    
    Deposit rates are reviewed weekly by management and are discussed by the Asset/Liability
Committee on a monthly basis. The Banks primary objective in setting deposit rates is to
remain competitive in the market area and develop funding opportunities while earning an
adequate interest rate margin.
 Analysis of Financial Condition
        
    
    Future reversals of existing taxable temporary differences
 
    
    Tax planning strategies such
as converting tax exempt income to taxable income and sale / leaseback
opportunities
 
    
    Future taxable income exclusive of reversing temporary differences and carryforwards
  8




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##### 



Comparison of Results of Operations for the Years Ended December 31, 2009 and December 31, 2008
 Net Income (Loss).
  9




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##### 



Net Interest Income.
   Provision and Allowance for Loan Losses.
     10




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##### 



Noninterest Income.
 Noninterest Expense.
 Income Taxes.
 Comparison of Results of Operations for the Years Ended December 31, 2008 and December 31, 2007
 Net Income.
  11




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##### 



Net Interest Income.
   Provision and Allowance for Loan Losses.
     12




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##### 



Noninterest Income.
 Noninterest Expense.
 Income Taxes.
   13




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##### 



Year ended December 31,2009
    
    
    2008
    
    
    2007Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    Interestoutstanding
    
    
    earned/
    
    
    Yield/
    
    
    outstanding
    
    
    earned/
    
    
    Yield/
    
    
    outstanding
    
    
    earned/
    
    
    Yield/balance
    
    
    paid
    
    
    rate
    
    
    balance
    
    
    paid
    
    
    rate
    
    
    balance
    
    
    paid
    
    
    rateInterest-earning assets:Federal funds sold
    
    $
    43,057
    
    
    $
    167
    
    
    
    0.39
    %
    
    $
    30,930
    
    
    $
    614
    
    
    
    1.99
    %
    
    $
    4,604
    
    
    $
    298
    
    
    
    6.47
    %Taxable securities
    
    
    75,050
    
    
    
    3,299
    
    
    
    4.40
    
    
    
    87,169
    
    
    
    3,954
    
    
    
    4.54
    
    
    
    68,588
    
    
    
    3,585
    
    
    
    5.23Tax-exempt securities (1)
    
    
    22,452
    
    
    
    987
    
    
    
    4.40
    
    
    
    23,589
    
    
    
    1,010
    
    
    
    4.28
    
    
    
    24,705
    
    
    
    892
    
    
    
    3.61Loans (2)
    
    
    504,844
    
    
    
    27,888
    
    
    
    5.52
    
    
    
    517,635
    
    
    
    32,827
    
    
    
    6.34
    
    
    
    538,608
    
    
    
    39,781
    
    
    
    7.20Total interest-earning assets
    
    
    645,403
    
    
    
    32,341
    
    
    
    5.01
    
    
    
    659,323
    
    
    
    38,405
    
    
    
    5.82
    
    
    
    636,505
    
    
    
    43,556
    
    
    
    6.84Noninterest-earning assets
    
    
    62,481
    
    
    
    
    
    
    
    
    
    
    
    53,246
    
    
    
    
    
    
    
    
    
    
    
    44,612Total assets
    
    $
    707,884
    
    
    
    
    
    
    
    
    
    
    $
    712,569
    
    
    
    
    
    
    
    
    
    
    $
    681,117Interest-bearing liabilities:Demand and money market deposits
    
    $
    198,012
    
    
    $
    651
    
    
    
    0.33
    %
    
    $
    221,018
    
    
    $
    3,128
    
    
    
    1.42
    %
    
    $
    259,051
    
    
    $
    9,618
    
    
    
    3.71
    %Savings deposits
    
    
    32,828
    
    
    
    54
    
    
    
    0.16
    
    
    
    29,697
    
    
    
    136
    
    
    
    0.46
    
    
    
    31,343
    
    
    
    151
    
    
    
    0.48Certificates of deposit
    
    
    292,095
    
    
    
    6,624
    
    
    
    2.27
    
    
    
    251,665
    
    
    
    9,426
    
    
    
    3.75
    
    
    
    173,377
    
    
    
    8,323
    
    
    
    4.80Total deposits
    
    
    522,935
    
    
    
    7,329
    
    
    
    
    
    
    
    502,380
    
    
    
    12,690
    
    
    
    2.53
    
    
    
    463,771
    
    
    
    18,092
    
    
    
    3.90Borrowed funds
    
    
    64,246
    
    
    
    3,229
    
    
    
    5.03
    
    
    
    84,825
    
    
    
    4,053
    
    
    
    4.78
    
    
    
    98,459
    
    
    
    4,062
    
    
    
    4.13Total interest-bearing liabilities
    
    
    587,181
    
    
    
    10,558
    
    
    
    1.80
    
    
    
    587,205
    
    
    
    16,743
    
    
    
    2.85
    
    
    
    562,230
    
    
    
    22,154
    
    
    
    3.94Noninterest-bearing liabilities
    
    
    66,612
    
    
    
    
    
    
    
    
    
    
    
    65,395
    
    
    
    
    
    
    
    
    
    
    
    58,379Total liabilities
    
    
    653,793
    
    
    
    
    
    
    
    
    
    
    
    652,600
    
    
    
    
    
    
    
    
    
    
    
    620,609Shareholders equity
    
    
    54,091
    
    
    
    
    
    
    
    
    
    
    
    59,969
    
    
    
    
    
    
    
    
    
    
    
    60,508Total liabilities and shareholders
  equity
    
    $
    707,884
    
    
    
    
    
    
    
    
    
    
    $
    712,569
    
    
    
    
    
    
    
    
    
    
    $
    681,117Net interest income; interest rate spread
    
    
    
    
    
    $
    21,783
    
    
    
    3.21
    %
    
    
    
    
    
    $
    21,662
    
    
    
    2.97
    %
    
    
    
    
    
    $
    21,402
    
    
    
    2.90
    %Net interest margin (net interest income
as a percent of average interest-earning
assets)
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    
    
    
    
    3.29
    %
    
    
    
    
    
    
    
    
    
    
    3.36
    %Average interest-earning assets to average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    109.92
    %
    
    
    
    
    
    
    
    
    
    
    112.28
    %
    
    
    
    
    
    
    
    
    
    
    113.21
    %
 
 (1)
    
    Interest on tax-exempt securities is reported on a historical basis without taxequivalent
adjustment. Interest on tax-exempt securities on a tax equivalent basis was $1,495 in 2009,
$1,546 in 2008, and $1,352 in 2007.(2)
    
    Includes nonaccrual loans.  14




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##### 



Year ended December 31,2009 vs. 2008
    
    
    2008 vs. 2007Increase
    
    
    
    
    
    
    Increase(decrease)
    
    
    
    
    
    
    (decrease)due to
    
    
    
    
    
    
    due toVolume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest income attributable to:Federal funds sold
    
    $
    236
    
    
    $
    (684
    )
    
    $
    (447
    )
    
    $
    1,700
    
    
    $
    (1,394
    )
    
    $
    306Taxable securities
    
    
    (550
    )
    
    
    (105
    )
    
    
    (655
    )
    
    
    971
    
    
    
    (603
    )
    
    
    368Tax-exempt securities
    
    
    (49
    )
    
    
    26
    
    
    
    (23
    )
    
    
    (40
    )
    
    
    168
    
    
    
    128Loans
    
    
    (810
    )
    
    
    (4,128
    )
    
    
    (4,939
    )
    
    
    (1,509
    )
    
    
    (4,444
    )
    
    
    (5,953
    )Total interest income
    
    
    (1,173
    )
    
    
    (4,891
    )
    
    
    (6,064
    )
    
    
    1,122
    
    
    
    (6,273
    )
    
    
    (5,151
    )Interest expense attributable to:Demand and money market deposits
    
    
    (326
    )
    
    
    (2,151
    )
    
    
    (2,477
    )
    
    
    (1,412
    )
    
    
    (5,078
    )
    
    
    (6,490
    )Savings deposits
    
    
    14
    
    
    
    (97
    )
    
    
    (82
    )
    
    
    (8
    )
    
    
    (6
    )
    
    
    (14
    )Certificates of deposit
    
    
    1,514
    
    
    
    (4,316
    )
    
    
    (2,802
    )
    
    
    3,758
    
    
    
    (2,655
    )
    
    
    1,103Borrowed funds
    
    
    (982
    )
    
    
    159
    
    
    
    (824
    )
    
    
    (563
    )
    
    
    553
    
    
    
    (10
    )Total interest expense
    
    
    220
    
    
    
    (6,405
    )
    
    
    (6,185
    )
    
    
    1,775
    
    
    
    (7,186
    )
    
    
    (5,411
    )Increase (decrease) in net
  interest income
    
    $
    (1,393
    )
    
    $
    1,514
    
    
    $
    121
    
    
    $
    (653
    )
    
    $
    913
    
    
    $
    260
 Asset and Liability Management and Market Risk
    15




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##### 



Change in
    
    
    
    
    December 31, 2009
    
    
    December 31, 2008Interest Rate
    
    
    
    
    $ Change
    
    
    % Change
    
    
    NPV
    
    
    $ Change
    
    
    % Change
    
    
    NPV(Basis Points)
    
    
    
    
    In NPV
    
    
    In NPV
    
    
    Ratio
    
    
    In NPV
    
    
    In NPV
    
    
    Ratio+300
    
    
    
    
    $
    (1,358
    )
    
    
    (2.29
    )%
    
    
    8.98
    %
    
    $
    (3,186
    )
    
    
    (5.6)
    %
    
    
    7.8
    %+200
    
    
    
    
    
    326
    
    
    
    .55
    
    
    
    9.16
    
    
    
    (775
    )
    
    
    (1.4
    )
    
    
    8.1+100
    
    
    
    
    
    901
    
    
    
    1.52
    
    
    
    9.04
    
    
    
    975
    
    
    
    1.7
    
    
    
    8.2Base
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -100
    
    
    
    
    
    (5,495
    )
    
    
    (9.28
    )%
    
    
    7.89
    %
    
    
    (3,786
    )
    
    
    (6.7)
    %
    
    
    7.3
    %
   16




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##### 



Liquidity
    Capital Resources
    17




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##### 



Payment due by yearLess than 1
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsFHLB advances
    
    $
    63,148
    
    
    $
    4,446
    
    
    $
    51,143
    
    
    $
    4,430
    
    
    $
    3,129Federal funds purchased and
other short-term borrowings
    
    
    3,011
    
    
    
    3,011
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    6,854
    
    
    
    932
    
    
    
    1,864
    
    
    
    1,864
    
    
    
    2,194Loan and line of credit and
other commitments
    
    
    86,632
    
    
    
    86,632
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    156,645
    
    
    $
    92,021
    
    
    $
    53,007
    
    
    $
    6,294
    
    
    $
    5,323
  18




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##### 



2009
    
    
    2008ASSETSCash and due from financial institutions
    
    $
    10,082
    
    
    $
    20,658Interest bearing deposits
    
    
    26,371
    
    
    
    10,000Federal funds sold and overnight investments
    
    
    5,000
    
    
    
    4,000Total cash and cash equivalents
    
    
    41,453
    
    
    
    34,658Securities available for sale
    
    
    94,100
    
    
    
    111,360Securities held to maturity
    
    
    1,752
    
    
    
    8,002Total securities
    
    
    95,852
    
    
    
    119,362Loans held for sale, at lower of cost or fair value
    
    
    2,442
    
    
    
    1,083Loans
    
    
    489,482
    
    
    
    513,213Less allowance for loan losses
    
    
    (10,479
    )
    
    
    (6,137
    )Net loans
    
    
    479,003
    
    
    
    507,076Real estate owned
    
    
    4,912
    
    
    
    5,071Investment in FHLB stock
    
    
    3,773
    
    
    
    3,796Premises and equipment, net
    
    
    14,435
    
    
    
    15,537Investment in unconsolidated affiliates
    
    
    1,439
    
    
    
    1,277Bank-owned life insurance
    
    
    16,326
    
    
    
    15,623Accrued interest receivable and other assets
    
    
    15,387
    
    
    
    9,081Total assets
    
    $
    675,022
    
    
    $
    712,564LIABILITIESDepositsNoninterest-bearing
    
    $
    60,502
    
    
    $
    49,018Interest-bearing
    
    
    496,953
    
    
    
    516,135Total deposits
    
    
    557,455
    
    
    
    565,153Federal funds purchased and other short-term borrowings
    
    
    3,011
    
    
    
    5,370Federal Home Loan Bank advances
    
    
    63,148
    
    
    
    83,014Accrued interest payable and other liabilities
    
    
    2,065
    
    
    
    2,968Total liabilities
    
    
    625,679
    
    
    
    656,505SHAREHOLDERS EQUITYCommon stock, no par value, 7,500,000 shares authorized,
  4,273,908 shares issued
    
    
    3,785
    
    
    
    3,785Retained earnings
    
    
    60,213
    
    
    
    64,933Treasury stock, at cost, 556,523 shares
    
    
    (13,494
    )
    
    
    (13,494
    )Accumulated other comprehensive income (loss)
    
    
    (1,161
    )
    
    
    835Total shareholders equity
    
    
    49,343
    
    
    
    56,059Total liabilities and shareholders equity
    
    $
    675,022
    
    
    $
    712,564
   19




---



##### 



2009
    
    
    2008
    
    
    2007Interest and dividend incomeLoans
    
    $
    27,888
    
    
    $
    32,827
    
    
    $
    38,781Taxable securities
    
    
    3,299
    
    
    
    3,954
    
    
    
    3,585Tax-exempt securities
    
    
    987
    
    
    
    1,010
    
    
    
    892Federal funds sold and other
    
    
    167
    
    
    
    614
    
    
    
    298Total interest income
    
    
    32,341
    
    
    
    38,405
    
    
    
    43,556Interest expenseDeposits
    
    
    7,329
    
    
    
    12,690
    
    
    
    18,092Borrowings
    
    
    3,229
    
    
    
    4,053
    
    
    
    4,062Total interest expense
    
    
    10,558
    
    
    
    16,743
    
    
    
    22,154Net interest income
    
    
    21,783
    
    
    
    21,662
    
    
    
    21,402Provision for loan losses
    
    
    9,398
    
    
    
    8,177
    
    
    
    10,159Net interest income after provision for loan losses
    
    
    12,385
    
    
    
    13,485
    
    
    
    11,243Noninterest incomeService charges on deposit accounts
    
    
    2,621
    
    
    
    2,653
    
    
    
    2,656Trust department income
    
    
    859
    
    
    
    910
    
    
    
    876Gain on sale of securities
    
    
    631
    
    
    
    307
    
    
    
    33Loss on sale of assets
    
    
    (780
    )
    
    
    (1,080
    )
    
    
    (228
    )Gain on sale of loans
    
    
    311
    
    
    
    193
    
    
    
    344Treasury management fees
    
    
    469
    
    
    
    533
    
    
    
    551Data processing servicing fees
    
    
    573
    
    
    
    491
    
    
    
    408Earnings on bank owned life insurance
    
    
    703
    
    
    
    660
    
    
    
    567Total other-than-temporary impairment losses
    
    
    (6,301
    )
    
    
    
    
    
    
    Portion of loss recognized in other comprehensive
income (before taxes)
    
    
    3,680
    
    
    
    
    
    
    
    Net impairment losses recognized in income
    
    
    (2,621
    )
    
    
    
    
    
    
    Other
    
    
    453
    
    
    
    820
    
    
    
    721Total noninterest income
    
    
    3,219
    
    
    
    5,487
    
    
    
    5,928Noninterest expenseSalaries and employee benefits
    
    
    10,276
    
    
    
    9,918
    
    
    
    9,643Occupancy and equipment
    
    
    4,496
    
    
    
    4,452
    
    
    
    3,663Professional services
    
    
    992
    
    
    
    1,060
    
    
    
    475Advertising
    
    
    439
    
    
    
    447
    
    
    
    427Postage, freight and courier
    
    
    334
    
    
    
    306
    
    
    
    286Supplies
    
    
    301
    
    
    
    338
    
    
    
    290State franchise taxes
    
    
    656
    
    
    
    499
    
    
    
    463Federal deposit insurance premiums
    
    
    1,815
    
    
    
    604
    
    
    
    90Other
    
    
    3,680
    
    
    
    3,260
    
    
    
    2,625Total noninterest expense
    
    
    22,989
    
    
    
    20,884
    
    
    
    17,962Loss before income tax credits
    
    
    (7,385
    )
    
    
    (1,912
    )
    
    
    (791
    )Income tax credits
    
    
    (3,185
    )
    
    
    (2,241
    )
    
    
    (930
    )Net income (loss)
    
    $
    (4,200
    )
    
    $
    329
    
    
    $
    139Basic earnings (loss) per common share
    
    $
    (1.13
    )
    
    $
    0.09
    
    
    $
    0.04Diluted earnings (loss) per common share
    
    $
    (1.13
    )
    
    $
    0.09
    
    
    $
    0.04
   20




---



##### 



2009
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    (4,200
    )
    
    $
    329
    
    
    $
    139Unrealized gains on securities
available for sale, net of related taxes
of $430, $490 and $235 in
2009, 2008 and 2007, respectively
    
    
    834
    
    
    
    951
    
    
    
    456Net unrealized losses on securities held-to-maturity for which a portion of an
other-than-temporary impairment
has been recognized in income,
net of taxes of $1,251
    
    
    (2,429
    )
    
    
    
    
    
    
    Amortization of unrealized losses on held-to-maturity securities, net of taxes
of $7
    
    
    15
    
    
    
    
    
    
    
    Reclassification adjustment for realized gains
included in net income, net of taxes
of $215, $104 and $11 in 2009, 2008 and
2007, respectively
    
    
    (416
    )
    
    
    (203
    )
    
    
    (22
    )Comprehensive income (loss)
    
    $
    (6,196
    )
    
    $
    1,077
    
    
    $
    573Accumulated other comprehensive income (loss)
    
    $
    (1,161
    )
    
    $
    835
    
    
    $
    87
   21




---



##### 



AccumulatedOther
    
    
    TotalCommon
    
    
    Retained
    
    
    Treasury
    
    
    Comprehensive
    
    
    ShareholdersStock
    
    
    Earnings
    
    
    Stock
    
    
    Income (Loss)
    
    
    EquityBalance at January 1, 2007
    
    
    3,780
    
    
    
    68,807
    
    
    
    (10,841
    )
    
    
    (347
    )
    
    
    61,399Net income
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    
    
    
    
    139Unrealized gains on securities
designated as available for
sale, net of realized gains and
tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    434
    
    
    
    434Purchase of treasury stock-
97,737 shares at cost
    
    
    
    
    
    
    
    
    
    
    (2,653
    )
    
    
    
    
    
    
    (2,653
    )Issuance of 158 shares
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Dividends ($0.60 per share)
    
    
    
    
    
    
    (2,256
    )
    
    
    
    
    
    
    
    
    
    
    (2,256
    )Balance at December 31, 2007
    
    
    3,785
    
    
    
    66,690
    
    
    
    (13,494
    )
    
    
    87
    
    
    
    57,068Net income
    
    
    
    
    
    
    329
    
    
    
    
    
    
    
    
    
    
    
    329Unrealized gains on securities
designated as available for
sale, net of realized gains
and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    748
    
    
    
    748Dividends ($0.56 per share)
    
    
    
    
    
    
    (2,086
    )
    
    
    
    
    
    
    
    
    
    
    (2,086
    )Balance at December 31, 2008
    
    
    3,785
    
    
    
    64,933
    
    
    
    (13,494
    )
    
    
    835
    
    
    
    56,059Net loss
    
    
    
    
    
    
    (4,200
    )
    
    
    
    
    
    
    
    
    
    
    (4,200
    )Unrealized gains on securities
designated as available for
sale, net of realized gains
and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    418
    
    
    
    418Unrealized losses on securities
designated as held-to-maturity, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,414
    )
    
    
    (2,414
    )Dividends ($0.06 per share)
    
    
    
    
    
    
    (520
    )
    
    
    
    
    
    
    
    
    
    
    (520
    )Balance at December 31, 2009
    
    $
    3,785
    
    
    $
    60,213
    
    
    $
    (13,494
    )
    
    $
    (1,161
    )
    
    $
    49,343
   22




---



##### 



2009
    
    
    2008
    
    
    2007Cash flows from operating activitiesNet income (loss)
    
    $
    (4,200
    )
    
    $
    329
    
    
    $
    139Adjustments to reconcile net income to net cash
  provided by (used in) operating activitiesDepreciation
    
    
    1,822
    
    
    
    1,622
    
    
    
    1,180Provision for loan losses
    
    
    9,398
    
    
    
    8,177
    
    
    
    10,159Deferred income taxes
    
    
    (2,618
    )
    
    
    291
    
    
    
    (1,051
    )Gain on sale of securities
    
    
    (631
    )
    
    
    (307
    )
    
    
    (33
    )Gain on sale of loans
    
    
    (311
    )
    
    
    (193
    )
    
    
    (344
    )Loss on sale of assets
    
    
    780
    
    
    
    1,080
    
    
    
    228Stock option plan expense
    
    
    115
    
    
    
    75
    
    
    
    83Premium amortization on securities, net
    
    
    514
    
    
    
    426
    
    
    
    270FHLB stock dividends
    
    
    (103
    )
    
    
    (192
    )
    
    
    (66
    )Other-than-temporary impairment loss
    
    
    2,621
    
    
    
    
    
    
    
    Loans originated for sale in the secondary market
    
    
    (22,250
    )
    
    
    (17,387
    )
    
    
    (23,531
    )Proceeds from sale of loans
    
    
    22,569
    
    
    
    17,575
    
    
    
    23,875Earnings on bank owned life insurance
    
    
    (703
    )
    
    
    (660
    )
    
    
    (567
    )Net changes in other assets and other liabilities
    
    
    (4,669
    )
    
    
    1,836
    
    
    
    (2,282
    )Net cash provided by operating activities
    
    
    (2,334
    )
    
    
    12,672
    
    
    
    8,060Cash flows used in investing activitiesSecuritiesPurchases
    
    
    (43,387
    )
    
    
    (64,798
    )
    
    
    (22,711
    )Maturities, principal payments, and calls
    
    
    60,257
    
    
    
    35,512
    
    
    
    22,194Net change in loans
    
    
    18,206
    
    
    
    (9,243
    )
    
    
    22,632Premises and equipment expenditures
    
    
    (684
    )
    
    
    (2,981
    )
    
    
    (5,890
    )Purchase of bank-owned life insurance policies
    
    
    
    
    
    
    
    
    
    
    (5,000
    )Proceeds from sale of real estate owned
    
    
    674
    
    
    
    1,238
    
    
    
    745Investment in unconsolidated affiliates
    
    
    (162
    )
    
    
    (7
    )
    
    
    (302
    )Net cash provided by (used in) investing activities
    
    
    34,904
    
    
    
    (40,279
    )
    
    
    11,668Cash flows provided by (used in) financing activitiesNet change in deposits
    
    
    (7,698
    )
    
    
    54,279
    
    
    
    (13,220
    )Net change in federal funds purchased
  and other short-term borrowings
    
    
    (2,359
    )
    
    
    (11,226
    )
    
    
    14,820Proceeds from Federal Home Loan Bank advances
    
    
    
    
    
    
    205
    
    
    
    26,500Repayment of Federal Home Loan Bank advances
    
    
    (19,866
    )
    
    
    (10,677
    )
    
    
    (26,750
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (2,653
    )Issuance of treasury stock
    
    
    
    
    
    
    
    
    
    
    5Cash dividends paid
    
    
    (520
    )
    
    
    (2,384
    )
    
    
    (2,256
    )Net cash provided by (used in) financing activities
    
    
    (30,443
    )
    
    
    30,197
    
    
    
    (3,554
    )Net change in cash and cash equivalents
    
    
    6,795
    
    
    
    2,590
    
    
    
    16,174Cash and cash equivalents at beginning of year
    
    
    34,658
    
    
    
    32,068
    
    
    
    15,894Cash and cash equivalents at end of year
    
    $
    41,453
    
    
    $
    34,658
    
    
    $
    32,068
   23




---



##### 



2009
    
    
    2008
    
    
    2007Supplemental disclosure of cash flow information
Cash paid during the year for:Interest on deposits and borrowings
    
    $
    11,072
    
    
    $
    16,868
    
    
    $
    22,160Income taxes
    
    $
    
    
    
    $
    1,145
    
    
    $
    1,805Supplemental disclosure of non cash investing
and financing activities:Unrealized gains on securities designated
as available for sale, net of related tax effects
    
    $
    834
    
    
    $
    951
    
    
    $
    456Unrealized
losses on securities designated as held-to-maturity, net of
amortization and tax effects
    
    $
    (2,414
    )
    
    $
    
    
    
    $
    Transfers from loans to real estate owned
    
    $
    1,748
    
    
    $
    6,190
    
    
    $
    2,379Loans originated upon sale of real estate owned
    
    $
    1,232
    
    
    $
    
    
    
    $
    384Cash dividends declared but unpaid
    
    $
    
    
    
    $
    298
    
    
    $
    595Transfer of securities from available for sale to the held
to maturity classification
    
    $
    
    
    
    $
    8,002
    
    
    $
    
   24




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Nature of Operations
 Business Segments
 Use of Estimates
 Cash Flows
 Securities
   25




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     Loans Held for Sale
 Loans
   26




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Allowance for Loan Losses
   27




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Concentrations of Credit Risk
 Investment in Federal Home Loan Bank Stock
 Premises and Equipment
 Foreclosed Assets
   28




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Servicing Assets
 Bank Owned Life Insurance
 Investment in unconsolidated affiliates
 Income Taxes Income Taxes
     29




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Financial Instruments
 Earnings (Loss) Per Common Share
  2009
    
    
    2008
    
    
    2007Weighted-average common shares
outstanding (basic)
    
    
    3,717,385
    
    
    
    3,717,385
    
    
    
    3,743,157Dilutive effect of assumed exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    2,927Weighted-average common shares
outstanding (diluted)
    
    
    3,717,385
    
    
    
    3,717,385
    
    
    
    3,746,084
    Stock option plan
    30




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     Year EndedDecember 31, 2009WEIGHTEDWEIGHTED
    
    
    AVERAGEAVERAGE
    
    
    REMAINING
    
    
    AGGREGATEEXERCISE
    
    
    CONTRACTUAL
    
    
    INTRINSICSHARES
    
    
    PRICE
    
    
    LIFE
    
    
    VALUEOutstanding at beginning of year
    
    
    159,284
    
    
    $
    22.92
    
    
    8.2 years
        
    $
    Granted
    
    
    55,566
    
    
    
    8.93
    
    
    9.5 years
        
    
    Forfeited
    
    
    (9,967
    )
    
    
    21.30Outstanding at end of year
    
    
    204,883
    
    
    $
    19.59
    
    
    8.6 years
        
    $
    Options exercisable at year end
    
    
    63,005
    
    
    $
    24.77
    
    
    
    
    
    
    $
    Weighted-average fair value of
options granted during the year
    
    
    
    
    
    $
    0.76
    
    
    
    
    
    
    $
    
   31




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Year Ended
    
    
    Year EndedDecember 31, 2008
    
    
    December 31, 2007WEIGHTED
    
    
    
    
    
    
    WEIGHTEDAVERAGE
    
    
    
    
    
    
    AVERAGEEXERCISE
    
    
    
    
    
    
    EXERCISESHARES
    
    
    PRICE
    
    
    SHARES
    
    
    PRICEOutstanding at beginning of year
    
    
    108,051
    
    
    $
    25.80
    
    
    
    70,040
    
    
    $
    27.19Granted
    
    
    57,643
    
    
    
    16.90
    
    
    
    44,214
    
    
    
    23.43Exercised
    
    
    
    
    
    
    
    
    
    
    (158
    )
    
    
    28.69Forfeited
    
    
    (6,410
    )
    
    
    22.46
    
    
    
    (6,045
    )
    
    
    26.20Outstanding at end of year
    
    
    159,284
    
    
    $
    22.92
    
    
    
    108,051
    
    
    $
    25.80Options exercisable at year end
    
    
    39,220
    
    
    $
    26.03
    
    
    
    21,553
    
    
    $
    26.13Weighted-average fair value of
options granted during the year
    
    
    
    
    
    $
    1.01
    
    
    
    
    
    
    $
    2.57
  NUMBER OUTSTANDING
    
    RANGE OF EXERCISE PRICES97,878
    
    $23.00 - $30.7052,632
    
    $16.9054,371
    
    $7.50 - $9.00
 Comprehensive Income (Loss)
 Restrictions on Cash
   32




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Dividend Restrictions
 Fair Value of Financial Instruments
 Advertising and Marketing:
 Reclassification
 NOTE 2  SECURITIES
  Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    Losses
    
    
    Cost2009U.S. Government and agency obligations
    
    $
    27,455
    
    
    $
    297
    
    
    $
    (77
    )
    
    $
    27,235State and municipal obligations
    
    
    25,952
    
    
    
    543
    
    
    
    (35
    )
    
    
    25,444Corporate bonds
    
    
    1,039
    
    
    
    27
    
    
    
    
    
    
    
    1,012Mortgage-backed securities
    
    
    39,591
    
    
    
    1,144
    
    
    
    (8
    )
    
    
    38,455Total debt securities
    
    
    94,037
    
    
    
    2,011
    
    
    
    (120
    )
    
    
    92,146Other securities
    
    
    63
    
    
    
    20
    
    
    
    (14
    )
    
    
    57Total
    
    $
    94,100
    
    
    $
    2,031
    
    
    $
    (134
    )
    
    $
    92,203
   33




---



##### 



NOTE 2  SECURITIES
 Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    Losses
    
    
    Cost2008U.S. Government and agency obligations
    
    $
    33,197
    
    
    $
    705
    
    
    $
    
    
    
    $
    32,492State and municipal obligations
    
    
    29,161
    
    
    
    286
    
    
    
    (346
    )
    
    
    29,221Mortgage-backed securities
    
    
    48,930
    
    
    
    658
    
    
    
    (52
    )
    
    
    48,324Total debt securities
    
    
    111,288
    
    
    
    1,649
    
    
    
    (398
    )
    
    
    110,037Other securities
    
    
    72
    
    
    
    30
    
    
    
    (15
    )
    
    
    57Total
    
    $
    111,360
    
    
    $
    1,679
    
    
    $
    (413
    )
    
    $
    110,094
  Adjusted
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueDecember 31, 2009Collateralized debt obligations
    
    $
    5,410
    
    
    $
    (3,658
    )
    
    $
    1,752
   Carrying value before impairment
    
    $
    8,031Other than temporary impairment due to
credit quality issues
    
    
    (2,621
    )Adjusted carrying value
    
    
    5,410Other than temporary impairment not
related to credit quality issues
    
    
    (3,658
    )Fair value securities held to maturity
    
    $
    1,752
   34




---



##### 



NOTE 2  SECURITIES
 Credit Losses Recognized on Investments
  Accumulated Credit Losses2009
    
    
    2008Credit losses on debt securities held to maturityBeginning of period
    
    $
    
    
    
    $
    Additions related to other-than-temporary losses not
previously recognized
    
    
    2,621
    
    
    
    Reductions due to sales
    
    
    
    
    
    
    Reductions due to change in intent or likelihood of sale
    
    
    
    
    
    
    Additions related to increases in previously recognized
other-than-temporary losses
    
    
    
    
    
    
    Reductions due to increases in expected cash flows
    
    
    
    
    
    
    End of period
    
    $
    2,621
    
    
    $
    
 Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueDecember 31, 2008Collateralized debt obligations
    
    $
    8,002
    
    
    $
    3,923
    
    
    $
    4,079
   35




---



##### 



NOTE 2  SECURITIES
  2009
 (Less than 12 months)
    
    
    (12 months or longer)
    
    
    
    
    
    
    
    
    
    
    TotalDescription of
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    UnrealizedSecurities
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    lossesU.S. Government and
agency obligations
    
    
    5
    
    
    $
    5,087
    
    
    $
    (77
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    5
    
    
    $
    5,087
    
    
    $
    (77
    )State and municipal
obligations
    
    
    9
    
    
    
    3,504
    
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    3,504
    
    
    
    (35
    )Collateralized debt
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1,752
    
    
    
    (3,685
    )
    
    
    2
    
    
    
    1,752
    
    
    
    (3,685
    )Mortgage-backed
securities and other
    
    
    5
    
    
    
    1,048
    
    
    
    (1
    )
    
    
    6
    
    
    
    931
    
    
    
    (21
    )
    
    
    11
    
    
    
    1,979
    
    
    
    (22
    )Total temporarily
impaired securities
    
    
    19
    
    
    $
    9,639
    
    
    $
    (113
    )
    
    
    8
    
    
    $
    2,683
    
    
    $
    (3,706
    )
    
    
    27
    
    
    $
    12,322
    
    
    $
    (3,819
    )
 2008
 (Less than 12 months)
    
    
    (12 months or longer)
    
    
    
    
    
    
    
    
    
    
    TotalDescription of
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    UnrealizedSecurities
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    lossesState and municipal
obligations
    
    
    33
    
    
    $
    12,246
    
    
    $
    (342
    )
    
    
    1
    
    
    $
    302
    
    
    $
    (2
    )
    
    
    34
    
    
    $
    12,548
    
    
    $
    (344
    )Collateralized debt
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    4,079
    
    
    
    (3,923
    )
    
    
    2
    
    
    
    4,079
    
    
    
    (3,923
    )Mortgage-backed
securities and other
    
    
    39
    
    
    
    6,130
    
    
    
    (37
    )
    
    
    17
    
    
    
    729
    
    
    
    (30
    )
    
    
    56
    
    
    
    6,859
    
    
    
    (67
    )Total temporarily
impaired securities
    
    
    72
    
    
    $
    18,376
    
    
    $
    (379
    )
    
    
    20
    
    
    $
    5,110
    
    
    $
    (3,955
    )
    
    
    92
    
    
    $
    23,486
    
    
    $
    (4,334
    )
     36




---



##### 



NOTE 2  SECURITIES
       37




---



##### 



NOTE 2  SECURITIES
  Amortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    1,529
    
    
    $
    1,533Due from one to five years
    
    
    16,696
    
    
    
    16,906Due from five to ten years
    
    
    22,925
    
    
    
    23,262Due after ten years
    
    
    12,541
    
    
    
    12,745Mortgage-backed securities
    
    
    38,455
    
    
    
    39,591Total debt securities
    
    
    92,146
    
    
    
    94,037Other securities
    
    
    57
    
    
    
    63Total
    
    $
    92,203
    
    
    $
    94,100
  2009
    
    
    2008
    
    
    2007Proceeds from sales and/or calls
    
    $
    20,882
    
    
    $
    728
    
    
    $
    8,558Gross realized gains
    
    
    631
    
    
    
    307
    
    
    
    33
  NOTE 3  LOANS
  2009
    
    
    2008Commercial and industrial
    
    $
    44,123
    
    
    $
    45,597Commercial real estate
    
    
    207,808
    
    
    
    207,968Residential real estate and home equity
    
    
    180,779
    
    
    
    192,331Real estate construction and land development
    
    
    37,989
    
    
    
    41,897Consumer and credit card
    
    
    18,745
    
    
    
    25,249489,444
    
    
    
    513,042Add: Net deferred loan origination costs
    
    
    38
    
    
    
    171Total loans receivable
    
    $
    489,482
    
    
    $
    513,213
   38




---



##### 



NOTE 3  LOANS
   Balance at December 31, 2008
    
    $
    19,203New loans
    
    
    17Repayments
    
    
    (11,232
    )Balance at December 31, 2009
    
    $
    7,988
   39




---



##### 



NOTE 4  ALLOWANCE FOR LOAN LOSSES
  2009
    
    
    2008
    
    
    2007Balance beginning of year
    
    $
    6,137
    
    
    $
    8,298
    
    
    $
    5,442Provision for loan losses
    
    
    9,398
    
    
    
    8,177
    
    
    
    10,159Loans charged-off
    
    
    (5,790
    )
    
    
    (10,654
    )
    
    
    (7,691
    )Recoveries
    
    
    734
    
    
    
    316
    
    
    
    388Balance at end of year
    
    $
    10,479
    
    
    $
    6,137
    
    
    $
    8,298
    2009
    
    
    2008
    
    
    2007Loans with no allocated allowance for
unconfirmed loan losses
    
    $
    15,321
    
    
    $
    4,644
    
    
    $
    538Loans with allocated allowance for
unconfirmed loan losses
    
    
    31,985
    
    
    
    8,166
    
    
    
    9,800Total
    
    $
    47,306
    
    
    $
    12,810
    
    
    $
    10,338Amount of the allowance for loan losses allocated
to unconfirmed losses on impaired loans
    
    $
    6,326
    
    
    $
    2,767
    
    
    $
    2,114
   40




---



##### 



NOTE 4  ALLOWANCE FOR LOAN LOSSES
 2009
    
    
    2008
    
    
    2007Average balance of impaired loans during the year
    
    $
    20,435
    
    
    $
    13,301
    
    
    $
    7,907Interest income recognized during impairment
    
    
    
    
    
    
    
    
    
    
    Cash basis interest income recognized
    
    
    
    
    
    
    
    
    
    
    
  2009
    
    
    2008
    
    
    2007Beginning balance
    
    $
    2,767
    
    
    $
    2,114
    
    
    $
    1,562Provision related to impaired loans
    
    
    3,770
    
    
    
    6,620
    
    
    
    6,608Loan charge-offs (net of recoveries)
    
    
    (211
    )
    
    
    (5,967
    )
    
    
    (6,056
    )Ending balance
    
    $
    6,326
    
    
    $
    2,767
    
    
    $
    2,114
   2009
    
    
    2008
    
    
    2007Loans past due over 90 days still accruing interest
    
    $
    886
    
    
    $
    1,146
    
    
    $
    2,740Nonaccrual loans
    
    
    11,275
    
    
    
    4,698
    
    
    
    10,360Total
    
    $
    12,161
    
    
    $
    5,844
    
    
    $
    13,100
    41




---



##### 



NOTE 5  PREMISES AND EQUIPMENT
  2009
    
    
    2008Land
    
    $
    1,899
    
    
    $
    1,899Buildings
    
    
    13,824
    
    
    
    13,924Furniture and equipment
    
    
    13,631
    
    
    
    12,84729,354
    
    
    
    28,670Accumulated depreciation
    
    
    (14,919
    )
    
    
    (13,133
    )$
    14,435
    
    
    $
    15,537
  2010
    
    $
    9322011
    
    
    9322012
    
    
    9322013
    
    
    9322014
    
    
    859Thereafter
    
    
    2,219$
    6,806
 NOTE 6  INTEREST-BEARING DEPOSITS
  2009
    
    
    2008Interest-bearing demand
    
    $
    76,439
    
    
    $
    73,057Money market
    
    
    133,790
    
    
    
    123,646Savings deposits
    
    
    32,279
    
    
    
    30,410Time depositsIn denominations under $100,000
    
    
    97,438
    
    
    
    106,684In denominations of $100,000 or more
    
    
    157,007
    
    
    
    182,338$
    496,953
    
    
    $
    516,135
   42




---



##### 



NOTE 6  INTEREST-BEARING DEPOSITS
  2010
    
    $
    209,2292011
    
    
    31,9812012
    
    
    9,9032013
    
    
    2,4782014
    
    
    854$
    254,445
  NOTE 7  BORROWED FUNDS
   Interest
    
    Maturing yearrate range
    
    ending December 31,
    
    2009
    
    
    20082.79% - 3.98%
    
    2009
    
    $
    
    
    
    $
    2,7853.77% - 4.67%
    
    2010
    
    
    
    
    
    
    1,4454.44% - 5.50%
    
    2011
    
    
    15,000
    
    
    
    15,0003.36% - 4.68%
    
    2012
    
    
    29,500
    
    
    
    29,5002.59% - 3.67%
    
    2013
    
    
    3,288
    
    
    
    2,4513.78% - 4.27%
    
    2014
    
    
    1,979
    
    
    
    1,9793.47% - 5.44%
    
    Thereafter
    
    
    13,381
    
    
    
    29,854$
    63,148
    
    
    $
    83,014Weighted-average interest rate
    
    
    
    
    4.34
    %
    
    
    4.28
    %
   43




---



##### 



NOTE 7  BORROWED FUNDS
   2010
    
    $
    4,4462011
    
    
    18,5342012
    
    
    32,6092013
    
    
    2,4512014
    
    
    1,979Thereafter
    
    
    3,129$
    63,148
  NOTE 8  RETIREMENT PLANS
      44




---



##### 



NOTE 9  FEDERAL INCOME TAXES
   2009
    
    
    2008
    
    
    2007Current
    
    $
    (567
    )
    
    $
    (2,377
    )
    
    $
    121Deferred
    
    
    (2,618
    )
    
    
    136
    
    
    
    (1,051
    )Totals
    
    $
    (3,185
    )
    
    $
    (2,241
    )
    
    $
    (930
    )
  2009
    
    
    2008
    
    
    2007Income taxes (credits) computed at the statutory federal
income tax rate
    
    $
    (2,511
    )
    
    $
    (650
    )
    
    $
    (269
    )Tax exempt income
    
    
    (564
    )
    
    
    (562
    )
    
    
    (512
    )Credit for change in estimate
    
    
    
    
    
    
    (1,061
    )
    
    
    Other
    
    
    (110
    )
    
    
    32
    
    
    
    (149
    )Totals
    
    $
    (3,185
    )
    
    $
    (2,241
    )
    
    $
    (930
    )
  2009
    
    
    2008Deferred tax assetsAllowance for loan losses
    
    $
    3,563
    
    
    $
    2,087Depreciation
    
    
    50
    
    
    
    123Deferred compensation
    
    
    190
    
    
    
    162Deferred loan origination fees and costs
    
    
    
    
    
    
    12Alternative minimum tax carry forward
    
    
    143
    
    
    
    Other-than-temporary impairment losses
    
    
    891
    
    
    
    Other
    
    
    39
    
    
    
    Expenses on foreclosed real estate
    
    
    120
    
    
    
    Unrealized loss on other-than-temporary impairment
on held-to-maturity securities
    
    
    1,244
    
    
    
    Dividend
    
    
    109
    
    
    
    1226,349
    
    
    
    2,506Deferred tax liabilitiesFHLB stock dividends
    
    
    (455
    )
    
    
    (471
    )Unrealized gain on securities available for sale
    
    
    (644
    )
    
    
    (431
    )Mortgage servicing rights
    
    
    (11
    )
    
    
    (13
    )Other
    
    
    
    
    
    
    (1
    )(1,110
    )
    
    
    (916
    )Net deferred tax asset
    
    $
    5,239
    
    
    $
    1,590
   45




---



##### 



NOTE 10  COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
    2009
    
    
    2008Fixed
    
    
    Variable
    
    
    Fixed
    
    
    VariableRate
    
    
    Rate
    
    
    Rate
    
    
    RateCommitments to extend credit
    
    $
    
    
    
    $
    37,177
    
    
    $
    
    
    
    $
    46,101Unused lines of credit and letters of credit
    
    $
    2,066
    
    
    $
    36,660
    
    
    $
    2,258
    
    
    $
    35,425
   Legal Proceedings
    46




---



##### 



NOTE 11  REGULATORY CAPITAL
      47




---



##### 



NOTE 11  REGULATORY CAPITAL
  To Be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio2009Total capital to risk-weighted assetsConsolidated
    
    $
    56,959
    
    
    
    11.0
    %
    
    $
    41,331
    
    
    
    8.0
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    59,878
    
    
    
    11.6
    
    
    
    41,406
    
    
    
    8.0
    
    
    $
    51,757
    
    
    
    10.0
    %Tier 1 (core) capital to risk-
weighted assetsConsolidated
    
    
    50,501
    
    
    
    9.8
    
    
    
    20,665
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    53,408
    
    
    
    10.3
    
    
    
    20,703
    
    
    
    4.0
    
    
    
    31,054
    
    
    
    6.0Tier 1 (core) capital to average assetsConsolidated
    
    
    50,501
    
    
    
    7.3
    
    
    
    27,797
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    53,408
    
    
    
    7.8
    
    
    
    27,573
    
    
    
    4.0
    
    
    
    34,466
    
    
    
    5.02008Total capital to risk-weighted assetsConsolidated
    
    $
    61,356
    
    
    
    11.1
    %
    
    $
    44,288
    
    
    
    8.0
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    59,377
    
    
    
    10.8
    
    
    
    43,909
    
    
    
    8.0
    
    
    $
    54,887
    
    
    
    10.0
    %Tier 1 (core) capital to risk-
weighted assetsConsolidated
    
    
    55,219
    
    
    
    10.0
    
    
    
    22,144
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    53,240
    
    
    
    9.7
    
    
    
    21,955
    
    
    
    4.0
    
    
    
    32,932
    
    
    
    6.0Tier 1 (core) capital to average assetsConsolidated
    
    
    55,219
    
    
    
    7.6
    
    
    
    28,894
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    53,240
    
    
    
    7.4
    
    
    
    28,796
    
    
    
    4.0
    
    
    
    35,995
    
    
    
    5.0
    48




---



##### 



NOTE 12  DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
  2009
    
    
    2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    41,454
    
    
    $
    41,671
    
    
    $
    34,658
    
    
    $
    34,658Securities available for sale
    
    
    94,100
    
    
    
    94,100
    
    
    
    111,360
    
    
    
    111,360Securities held to maturity
    
    
    1,752
    
    
    
    2,130
    
    
    
    8,002
    
    
    
    4,079Loans held for sale
    
    
    2,442
    
    
    
    2,442
    
    
    
    1,083
    
    
    
    1,083Loans
    
    
    489,482
    
    
    
    490,446
    
    
    
    513,213
    
    
    
    517,956FHLB stock
    
    
    3,773
    
    
    
    3,773
    
    
    
    3,796
    
    
    
    3,796Accrued interest receivable
    
    
    2,348
    
    
    
    2,348
    
    
    
    2,790
    
    
    
    2,790Financial liabilitiesNoninterest-bearing deposits
    
    $
    60,502
    
    
    $
    60,502
    
    
    $
    49,018
    
    
    $
    49,018Interest-bearing deposits
    
    
    496,953
    
    
    
    497,434
    
    
    
    516,135
    
    
    
    508,503Federal funds purchased and
other short-term borrowings
    
    
    3,011
    
    
    
    3,011
    
    
    
    5,370
    
    
    
    5,370FHLB advances
    
    
    63,148
    
    
    
    64,040
    
    
    
    83,014
    
    
    
    82,258Accrued interest payable
    
    
    654
    
    
    
    654
    
    
    
    1,461
    
    
    
    1,461
    49




---



##### 



NOTE 12  DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
 FAIR VALUE MEASUREMENTS
    Level 1
    
    Quoted prices in active markets for identical assets or liabilitiesLevel 2
    
    Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilitiesLevel 3
    
    Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities
  Securities
     50




---



##### 



NOTE 12  DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
 Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)December 31, 2009U.S. Government and agency
obligations
    
    $
    27,455
    
    
    $
    998
    
    
    $
    26,457
    
    
    $
    State and
municipal obligations
    
    
    25,952
    
    
    
    
    
    
    
    25,952
    
    
    
    Corporate bonds
    
    
    1,039
    
    
    
    
    
    
    
    1,039
    
    
    
    Mortgage-backed and
other securities
    
    
    39,654
    
    
    
    63
    
    
    
    39,591
    
    
    
    Total
    
    $
    94,100
    
    
    $
    1,061
    
    
    $
    93,039
    
    
    $
    
 Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)December 31, 2008U.S. Government and agency
obligations
    
    $
    33,197
    
    
    $
    
    
    
    $
    33,197
    
    
    $
    State and municipal obligations
    
    
    29,161
    
    
    
    1,210
    
    
    
    27,951
    
    
    
    Mortgage-backed and
other securities
    
    
    49,002
    
    
    
    787
    
    
    
    48,215
    
    
    
    Total
    
    $
    111,360
    
    
    $
    1,997
    
    
    $
    109,363
    
    
    $
    
  Securities
    51




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##### 



NOTE 12  DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
 Impaired loans
  Real Estate Owned
   Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)December 31, 2009Collateralized debt obligations
    
    $
    1,752
    
    
    $
    
    
    
    $
    
    
    
    $
    1,752Impaired loans
    
    
    6,326
    
    
    
    
    
    
    
    
    
    
    
    6,326Real estate owned
    
    
    1,470
    
    
    
    
    
    
    
    
    
    
    
    1,470December 31, 2008Impaired loans
    
    $
    5,528
    
    
    $
    
    
    
    $
    
    
    
    $
    5,528
   52




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##### 



NOTE 13  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
  CONDENSED BALANCE SHEETS
 2009
    
    
    2008AssetsCash and cash equivalents
    
    $
    1,321
    
    
    $
    2,388Investment in subsidiaries
    
    
    52,719
    
    
    
    54,069Investment securities
    
    
    63
    
    
    
    Investment in affiliates
    
    
    507
    
    
    
    1,541Other assets
    
    
    867
    
    
    
    4,757Total assets
    
    $
    55,477
    
    
    $
    62,755LiabilitiesShort term borrowings
    
    $
    2,370
    
    
    $
    3,370Other liabilities
    
    
    3,764
    
    
    
    3,326Shareholders Equity
    
    
    49,343
    
    
    
    56,059Total liabilities and shareholders equity
    
    $
    55,477
    
    
    $
    62,755
 CONDENSED STATEMENTS OF OPERATIONS
 2009
    
    
    2008
    
    
    2007Dividends from Bank subsidiary
    
    $
    
    
    
    $
    1,229
    
    
    $
    5,300Equity in undistributed earnings (loss or excess-
distributions) of subsidiaries
    
    
    (3,709
    )
    
    
    (501
    )
    
    
    (5,002
    )Other
    
    
    73
    
    
    
    889
    
    
    
    1,015Total income (loss)
    
    
    (3,636
    )
    
    
    1,617
    
    
    
    1,313Operating expenses
    
    
    817
    
    
    
    1,288
    
    
    
    1,174Federal income tax expense (credit)
    
    
    (253
    )
    
    
    112
    
    
    
    47Net income (loss)
    
    $
    (4,200
    )
    
    $
    217
    
    
    $
    92
   53




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##### 



NOTE 14  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
 CONDENSED STATEMENTS OF CASH FLOWS
 2009
    
    
    2008
    
    
    2007Cash flows from operating activitiesNet income (loss)
    
    $
    (4,200
    )
    
    $
    329
    
    
    $
    139Adjustments to reconcile net income
to cash provided by operating activities:(Undistributed earnings of) excess distributions
from subsidiaries
    
    
    (3,709
    )
    
    
    501
    
    
    
    5,002Net change in other assets and liabilities
    
    
    7,328
    
    
    
    638
    
    
    
    3,359Net cash from operating activities
    
    
    (581
    )
    
    
    1,468
    
    
    
    8,500Cash flows used in investing activitiesInvestment in unconsolidated affiliates
    
    
    1,034
    
    
    
    (242
    )
    
    
    (320
    )(Issuance) repayment of subordinated note to Bank
    
    
    
    
    
    
    16,510
    
    
    
    1,142Investment in Bank
    
    
    
    
    
    
    (13,000
    )
    
    
    (5,500
    )Net cash from investing activities
    
    
    1,034
    
    
    
    3,268
    
    
    
    (4,678
    )Cash flows from financing activitiesRepayment of short-term borrowings
    
    
    (1,000
    )
    
    
    
    
    
    
    Cash dividends paid
    
    
    (520
    )
    
    
    (2,384
    )
    
    
    (2,256
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    5Purchase of treasury stock, net
    
    
    
    
    
    
    
    
    
    
    (2,653
    )Net cash from financing activities
    
    
    (1,520
    )
    
    
    (2,384
    )
    
    
    (4,904
    )Net change in cash and cash equivalents
    
    
    (1,067
    )
    
    
    2,352
    
    
    
    (1,082
    )Cash and cash equivalents at beginning of year
    
    
    2,388
    
    
    
    36
    
    
    
    1,118Cash and cash equivalents at end of year
    
    $
    1,321
    
    
    $
    2,388
    
    
    $
    36
   54




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##### 



NOTE 15  SIGNIFICANT ESTIMATES AND CONCENTRATIONS
   Investments
  Current Economic Conditions
       55




---



##### 



NOTE 16  DETAILS OF OPERATING EXPENSES
  2009
    
    
    2008
    
    
    2007Bank premises rent
    
    $
    610
    
    
    $
    830
    
    
    $
    625Bank premises maintenance
    
    
    451
    
    
    
    484
    
    
    
    405Bank premises depreciation
    
    
    639
    
    
    
    535
    
    
    
    356Equipment lease
    
    
    199
    
    
    
    250
    
    
    
    257Equipment depreciation
    
    
    1,035
    
    
    
    967
    
    
    
    700Software maintenance
    
    
    858
    
    
    
    860
    
    
    
    681Other
    
    
    704
    
    
    
    526
    
    
    
    639Total
    
    $
    4,496
    
    
    $
    4,452
    
    
    $
    3,663
  2009
    
    
    2008
    
    
    2007ATM and debit cards
    
    $
    549
    
    
    $
    546
    
    
    $
    456Telephone
    
    
    470
    
    
    
    486
    
    
    
    308Other
    
    
    2,661
    
    
    
    2,228
    
    
    
    1,861Total
    
    $
    3,680
    
    
    $
    3,260
    
    
    $
    2,625
   56




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##### 



NOTE 17  QUARTERLY FINANCIAL DATA (Unaudited)
  THREE MONTHS ENDEDDecember 31,
    
    
    September 30,
    
    
    June 30,
    
    
    March 31,(In thousands, except per share data)2009:Total interest income
    
    $
    7,731
    
    
    $
    7,794
    
    
    $
    8,334
    
    
    $
    8,482Total interest expense
    
    
    2,147
    
    
    
    2,451
    
    
    
    2,755
    
    
    
    3,205Net interest income
    
    
    5,584
    
    
    
    5,343
    
    
    
    5,579
    
    
    
    5,277Provision for losses on loans
    
    
    2,490
    
    
    
    1,766
    
    
    
    1,707
    
    
    
    3,435Noninterest income (loss)
    
    
    1,042
    
    
    
    (326
    )
    
    
    1,105
    
    
    
    1,398Noninterest expense
    
    
    5,796
    
    
    
    5,844
    
    
    
    6,274
    
    
    
    5,075Loss before income tax credit
    
    
    (1,660
    )
    
    
    (2,593
    )
    
    
    (1,297
    )
    
    
    (1,835
    )Federal income tax credit
    
    
    ( 702
    )
    
    
    (1,143
    )
    
    
    (576
    )
    
    
    (764
    )Net loss
    
    $
    (958
    )
    
    $
    (1,450
    )
    
    $
    (721
    )
    
    $
    (1,071
    )Loss per share:Basic
    
    $
    (0.26
    )
    
    $
    (0.39
    )
    
    $
    (0.19
    )
    
    $
    (0.29
    )Diluted
    
    $
    (0.26
    )
    
    $
    (0.39
    )
    
    $
    (0.19
    )
    
    $
    (0.29
    )
    57




---



##### 



NOTE 17  QUARTERLY FINANCIAL DATA (Unaudited) (
 THREE MONTHS ENDEDDecember 31,
    
    
    September 30,
    
    
    June 30,
    
    
    March 31,(In thousands, except per share data)2008:Total interest income
    
    $
    8,953
    
    
    $
    9,525
    
    
    $
    9,787
    
    
    $
    10,140Total interest expense
    
    
    3,943
    
    
    
    4,004
    
    
    
    4,126
    
    
    
    4,670Net interest income
    
    
    5,010
    
    
    
    5,521
    
    
    
    5,661
    
    
    
    5,470Provision for losses on loans
    
    
    4,177
    
    
    
    2,800
    
    
    
    600
    
    
    
    600Noninterest income
    
    
    1,328
    
    
    
    865
    
    
    
    1,516
    
    
    
    1,778Noninterest expense
    
    
    5,635
    
    
    
    5,452
    
    
    
    4,946
    
    
    
    4,851Income (loss) before
income taxes (credits)
    
    
    (3,474
    )
    
    
    (1,866
    )
    
    
    1,631
    
    
    
    1,797Federal income tax
expense (credit)
    
    
    (1,493
    )
    
    
    (1,654
    )
    
    
    407
    
    
    
    499Net income (loss)
    
    $
    (1,981
    )
    
    $
    (212
    )
    
    $
    1,224
    
    
    $
    1,298Earnings (loss) per share:Basic
    
    $
    (0.53
    )
    
    $
    (0.06
    )
    
    $
    0.33
    
    
    $
    0.35Diluted
    
    $
    (0.53
    )
    
    $
    (0.06
    )
    
    $
    0.33
    
    
    $
    0.35
   58




---



##### 



59