##### 



EXHIBIT 13
 Business of DCB Financial Corp
     Common Stock and Shareholder Matters
  25




---



##### 



Quarter endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,2005
    
    2005
    
    2005
    
    2005High
    
    $
    29.00
    
    
    $
    27.15
    
    
    $
    27.90
    
    
    $
    28.85Low
    
    
    20.75
    
    
    
    25.00
    
    
    
    26.05
    
    
    
    25.55Dividends per share
    
    
    0.11
    
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.13
 March 31,
    
    June 30,
    
    September 30,
    
    December 31,2004
    
    2004
    
    2004
    
    2004High
    
    $
    23.50
    
    
    $
    24.15
    
    
    $
    26.00
    
    
    $
    29.00Low
    
    
    20.00
    
    
    
    23.25
    
    
    
    23.45
    
    
    
    23.60Dividends per share
    
    
    0.10
    
    
    
    0.16
    
    
    
    0.11
    
    
    
    0.11
   Selected Consolidated Financial Information and Other Data
  Selected consolidated financial
condition data:
    
    
    At December 31,(In thousands)
    
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001Total assets
    
    $
    690,896
    
    
    $
    611,685
    
    
    $
    553,297
    
    
    $
    522,998
    
    
    $
    519,380Cash and cash equivalents
    
    
    18,069
    
    
    
    11,238
    
    
    
    20,349
    
    
    
    32,503
    
    
    
    17,945Securities available for sale
    
    
    96,580
    
    
    
    96,123
    
    
    
    108,547
    
    
    
    96,477
    
    
    
    84,021Securities held to maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,718Net loans
    
    
    547,510
    
    
    
    478,487
    
    
    
    400,616
    
    
    
    366,487
    
    
    
    358,960Deposits
    
    
    503,906
    
    
    
    454,574
    
    
    
    442,352
    
    
    
    438,623
    
    
    
    430,714Borrowed funds
    
    
    128,535
    
    
    
    101,028
    
    
    
    54,312
    
    
    
    29,802
    
    
    
    37,336Shareholders equity
    
    
    56,254
    
    
    
    54,261
    
    
    
    49,689
    
    
    
    52,528
    
    
    
    49,121
 26




---



##### 



Selected Operating Data
    
    
    Year ended December 31,(In thousands, except per share data)
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Interest and dividend income
    
    $
    36,566
    
    
    $
    27,813
    
    
    $
    26,591
    
    
    $
    30,882
    
    
    $
    35,736Interest expense
    
    
    13,750
    
    
    
    7,802
    
    
    
    7,973
    
    
    
    10,142
    
    
    
    16,369Net interest income
    
    
    22,816
    
    
    
    20,011
    
    
    
    18,618
    
    
    
    20,740
    
    
    
    19,367Provision for loan losses
    
    
    2,000
    
    
    
    1,696
    
    
    
    1,418
    
    
    
    2,950
    
    
    
    872Net interest income after
provision for loan losses
    
    
    20,816
    
    
    
    18,315
    
    
    
    17,200
    
    
    
    17,790
    
    
    
    18,495Noninterest income
    
    
    5,654
    
    
    
    7,618
    
    
    
    6,624
    
    
    
    6,259
    
    
    
    5,625Noninterest expense
    
    
    15,665
    
    
    
    15,985
    
    
    
    16,508
    
    
    
    18,010
    
    
    
    17,377Income before income tax
    
    
    10,805
    
    
    
    9,948
    
    
    
    7,316
    
    
    
    6,039
    
    
    
    6,743Income tax expense
    
    
    3,249
    
    
    
    2,973
    
    
    
    2,287
    
    
    
    2,036
    
    
    
    2,245Net income
    
    $
    7,556
    
    
    $
    6,975
    
    
    $
    5,029
    
    
    $
    4,003
    
    
    $
    4,498Per Share Data:Basic earnings per share
    
    $
    1.94
    
    
    $
    1.77
    
    
    $
    1.26
    
    
    $
    0.96
    
    
    $
    1.08Diluted earnings per share
    
    $
    1.94
    
    
    $
    1.77
    
    
    $
    1.26
    
    
    $
    0.96
    
    
    $
    1.08Dividends declared per share
    
    $
    0.48
    
    
    $
    0.48
    
    
    $
    0.39
    
    
    $
    0.34
    
    
    $
    0.30
 At or for the year ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001Selected Financial Ratios:Interest rate spread
    
    
    3.37
    %
    
    
    3.55
    %
    
    
    3.48
    %
    
    
    3.79
    %
    
    
    3.42
    %Net interest margin
    
    
    3.66
    
    
    
    3.72
    
    
    
    3.75
    
    
    
    4.24
    
    
    
    4.10Return on average equity
    
    
    13.68
    
    
    
    13.14
    
    
    
    10.11
    
    
    
    7.82
    
    
    
    9.40Return on average assets
    
    
    1.15
    
    
    
    1.13
    
    
    
    0.91
    
    
    
    0.76
    
    
    
    0.89Average equity to average assets
    
    
    8.41
    
    
    
    8.60
    
    
    
    8.96
    
    
    
    9.78
    
    
    
    9.43Dividend payout ratio
    
    
    24.74
    
    
    
    27.12
    
    
    
    30.95
    
    
    
    35.42
    
    
    
    27.78Allowance for loan losses as
a percentage of loans past due over
90 days still accruing interest and
nonaccrual loans
    
    
    142.73
    
    
    
    140.75
    
    
    
    151.18
    
    
    
    114.55
    
    
    
    200.17
 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  27




---



##### 



Forward-Looking Statements
   Critical Accounting Policies
    28




---



##### 



Overview of 2005
        29




---



##### 



Wall Street Journal
  Analysis of Financial Condition
  30




---



##### 



31




---



##### 



Comparison of Results of Operations for the Years Ended December 31, 2005 and December 31, 2004
 Net Income.
  Net Interest Income.
   32




---



##### 



Provision and Allowance for Loan Losses.
     Noninterest Income.
 33




---



##### 



Noninterest Expense.
  Income Taxes.
 Comparison of Results of Operations for the Years Ended December 31, 2004 and December 31, 2003
 Net Income.
  Net Interest Income.
 34




---



##### 



Provision and Allowance for Loan Losses.
   Noninterest Income.
 Noninterest Expense.
  35




---



##### 



Income Taxes.
 36




---



##### 



Year ended December 31,2005
    
    
    2004
    
    
    2003Average
    
    
    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
    
    $
    238
    
    
    $
    13
    
    
    
    5.59
    %
    
    $
    451
    
    
    $
    8
    
    
    
    1.77
    %
    
    $
    14,082
    
    
    $
    144
    
    
    
    1.02
    %Taxable securities
    
    
    73,932
    
    
    
    3,091
    
    
    
    4.18
    
    
    
    78,875
    
    
    
    2,855
    
    
    
    3.62
    
    
    
    77,882
    
    
    
    2,876
    
    
    
    3.69Tax-exempt securities (1)
    
    
    23,861
    
    
    
    800
    
    
    
    3.35
    
    
    
    19,380
    
    
    
    709
    
    
    
    3.66
    
    
    
    17,049
    
    
    
    702
    
    
    
    4.12Loans (2)
    
    
    525,233
    
    
    
    32,662
    
    
    
    6.22
    
    
    
    438,861
    
    
    
    24,241
    
    
    
    5.52
    
    
    
    387,627
    
    
    
    22,869
    
    
    
    5.90Total interest-earning assets
    
    
    623,264
    
    
    
    36,566
    
    
    
    5.87
    
    
    
    537,567
    
    
    
    27,813
    
    
    
    5.17
    
    
    
    496,640
    
    
    
    26,591
    
    
    
    5.35Noninterest-earning assets
    
    
    33,609
    
    
    
    
    
    
    
    
    
    
    
    79,696
    
    
    
    
    
    
    
    
    
    
    
    58,209Total assets
    
    $
    656,873
    
    
    
    
    
    
    
    
    
    
    $
    617,263
    
    
    
    
    
    
    
    
    
    
    $
    554,849Interest-bearing liabilities:Demand and money market deposits
    
    $
    195,959
    
    
    $
    4,267
    
    
    
    2.18
    %
    
    $
    168,880
    
    
    $
    1,441
    
    
    
    0.85
    %
    
    $
    171,045
    
    
    $
    2,149
    
    
    
    1.26
    %Savings deposits
    
    
    54,920
    
    
    
    271
    
    
    
    0.49
    
    
    
    61,320
    
    
    
    303
    
    
    
    0.49
    
    
    
    62,792
    
    
    
    420
    
    
    
    0.67Certificates of deposit
    
    
    173,216
    
    
    
    5,128
    
    
    
    2.96
    
    
    
    143,359
    
    
    
    3,334
    
    
    
    2.33
    
    
    
    141,650
    
    
    
    4,099
    
    
    
    2.89Total deposits
    
    
    424,095
    
    
    
    9,666
    
    
    
    2.28
    
    
    
    373,559
    
    
    
    5,078
    
    
    
    1.36
    
    
    
    375,487
    
    
    
    6,668
    
    
    
    1.78Borrowed funds
    
    
    125,013
    
    
    
    4,084
    
    
    
    3.27
    
    
    
    107,826
    
    
    
    2,724
    
    
    
    2.53
    
    
    
    51,146
    
    
    
    1,305
    
    
    
    2.55Total interest-bearing liabilities
    
    
    549,108
    
    
    
    13,750
    
    
    
    2.50
    
    
    
    481,385
    
    
    
    7,802
    
    
    
    1.62
    
    
    
    426,634
    
    
    
    7,973
    
    
    
    1.87Noninterest-bearing liabilities
    
    
    52,519
    
    
    
    
    
    
    
    
    
    
    
    82,800
    
    
    
    
    
    
    
    
    
    
    
    78,480Total liabilities
    
    
    601,627
    
    
    
    
    
    
    
    
    
    
    
    564,185
    
    
    
    
    
    
    
    
    
    
    
    505,113Shareholders equity
    
    
    55,246
    
    
    
    
    
    
    
    
    
    
    
    53,078
    
    
    
    
    
    
    
    
    
    
    
    49,736Total liabilities and shareholders
equity
    
    $
    656,873
    
    
    
    
    
    
    
    
    
    
    $
    617,263
    
    
    
    
    
    
    
    
    
    
    $
    554,849Net interest income; interest rate spread
    
    
    
    
    
    $
    22,816
    
    
    
    3.37
    %
    
    
    
    
    
    $
    20,011
    
    
    
    3.55
    %
    
    
    
    
    
    $
    18,618
    
    
    
    3.48
    %Net interest margin (net interest income
as a percent of average interest-earning
assets)
    
    
    
    
    
    
    
    
    
    
    3.66
    %
    
    
    
    
    
    
    
    
    
    
    3.72
    %
    
    
    
    
    
    
    
    
    
    
    3.75
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    113.50
    
    
    
    
    
    
    
    
    
    
    
    111.67
    %
    
    
    
    
    
    
    
    
    
    
    116.41
    %
 
 (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 $1,222 in 2005, $1,076 in 2004, and $1,064 in 2003.(2)
    
    Includes nonaccrual loans. 37




---



##### 



Year ended December 31,2005 vs. 2004
    
    
    2004 vs. 2003Increase
    
    
    
    
    
    
    Increase(decrease)
    
    
    
    
    
    
    (decrease)due to
    
    
    
    
    
    
    due toVolume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest income attributable to:Federal funds sold
    
    $
    (4
    )
    
    $
    9
    
    
    $
    5
    
    
    $
    (138
    )
    
    $
    2
    
    
    $
    (136
    )Taxable securities
    
    
    (180
    )
    
    
    416
    
    
    
    236
    
    
    
    36
    
    
    
    (57
    )
    
    
    (21
    )Tax-exempt securities
    
    
    165
    
    
    
    (74
    )
    
    
    91
    
    
    
    97
    
    
    
    (90
    )
    
    
    7Loans
    
    
    4,770
    
    
    
    3,651
    
    
    
    8,421
    
    
    
    3,015
    
    
    
    (1,643
    )
    
    
    1,372Total interest income
    
    
    4,751
    
    
    
    4,002
    
    
    
    8,753
    
    
    
    3,010
    
    
    
    (1,788
    )
    
    
    1,222Interest expense attributable to:Demand and money market deposits
    
    
    231
    
    
    
    2,595
    
    
    
    2,826
    
    
    
    (27
    )
    
    
    (681
    )
    
    
    (708
    )Savings deposits
    
    
    (31
    )
    
    
    (1
    )
    
    
    (32
    )
    
    
    (10
    )
    
    
    (107
    )
    
    
    (117
    )Certificates of deposit
    
    
    677
    
    
    
    1,117
    
    
    
    1,794
    
    
    
    49
    
    
    
    (814
    )
    
    
    (765
    )Borrowed funds
    
    
    433
    
    
    
    927
    
    
    
    1,360
    
    
    
    1,445
    
    
    
    (26
    )
    
    
    1,419Total interest expense
    
    
    1,310
    
    
    
    4,638
    
    
    
    5,948
    
    
    
    1,457
    
    
    
    (1,628
    )
    
    
    (171
    )Increase (decrease) in net
interest income
    
    $
    3,441
    
    
    $
    (636
    )
    
    $
    2,805
    
    
    $
    1,553
    
    
    $
    (160
    )
    
    $
    1,393
 Asset and Liability Management and Market Risk
   38




---



##### 



Change in
    
    December 31, 2005
    
    December 31, 2004Interest Rate
    
    $ Change
    
    % Change
    
    NPV
    
    $ Change
    
    % Change
    
    NPV(Basis Points)
    
    In NPV
    
    In NPV
    
    Ratio
    
    In NPV
    
    In NPV
    
    Ratio+300
    
    $
    (20,985
    )
    
    
    (45
    )%
    
    
    4.05
    %
    
    $
    (17,258
    )
    
    
    (40
    )%
    
    
    3.75
    %+200
    
    
    (14,228
    )
    
    
    (30
    )
    
    
    5.01
    
    
    
    (11,614
    )
    
    
    (27
    )
    
    
    4.54+100
    
    
    (718
    )
    
    
    (15
    )
    
    
    5.98
    
    
    
    (6,087
    )
    
    
    (14
    )
    
    
    6.27Base
    
    
    
    
    
    
    
    
    
    
    6.92
    
    
    
    
    
    
    
    
    
    
    
    7.15-100
    
    
    8,456
    
    
    
    19
    
    
    
    8.01
    
    
    
    6,561
    
    
    
    15
    
    
    
    8.09
 39




---



##### 



Liquidity
    40




---



##### 



Capital Resources
      Payment due by yearLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsFHLB advances
    
    $
    102,925
    
    
    $
    11,985
    
    
    $
    16,964
    
    
    $
    7,202
    
    
    $
    66,774Federal funds purchased and other
short-term borrowings
    
    
    25,610
    
    
    
    25,610Operating lease obligations
    
    
    7,458
    
    
    
    858
    
    
    
    1,374
    
    
    
    1,045
    
    
    
    4,181Loan and line of credit commitments
    
    
    133,929
    
    
    
    133,929
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    269,922
    
    
    $
    172,382
    
    
    $
    18,338
    
    
    $
    8,247
    
    
    $
    70,955
 41




---



##### 



2005
    
    
    2004ASSETSCash and due from financial institutions
    
    $
    18,069
    
    
    $
    11,238Securities available for sale
    
    
    96,580
    
    
    
    96,123Loans held for sale
    
    
    1,640
    
    
    
    1,122Loans
    
    
    553,045
    
    
    
    483,305Less allowance for loan losses
    
    
    (5,535
    )
    
    
    (4,818
    )Net loans
    
    
    547,510
    
    
    
    478,487Real estate owned
    
    
    386
    
    
    
    Investment in FHLB stock
    
    
    3,327
    
    
    
    2,856Premises and equipment, net
    
    
    8,854
    
    
    
    8,846Investment in unconsolidated affiliates
    
    
    614
    
    
    
    295Bank owned life insurance
    
    
    8,898
    
    
    
    8,457Accrued interest receivable and other assets
    
    
    5,018
    
    
    
    4,261Total assets
    
    $
    690,896
    
    
    $
    611,685LIABILITIESDepositsNoninterest-bearing
    
    $
    68,977
    
    
    $
    65,148Interest-bearing
    
    
    434,929
    
    
    
    389,426Total deposits
    
    
    503,906
    
    
    
    454,574Federal funds purchased and other short-term borrowings
    
    
    25,610
    
    
    
    5,215Federal Home Loan Bank advances
    
    
    102,925
    
    
    
    95,813Accrued interest payable and other liabilities
    
    
    2,201
    
    
    
    1,822Total liabilities
    
    
    634,642
    
    
    
    557,424SHAREHOLDERS EQUITYCommon stock, no par value, 7,500,000 shares authorized,
4,273,200 issued at December 31, 2005 and 2004
    
    
    3,780
    
    
    
    3,780Retained earnings
    
    
    63,552
    
    
    
    57,862Treasury stock, at cost, 447,112 and 338,440
shares at December 31, 2005 and 2004
    
    
    (10,506
    )
    
    
    (7,616
    )Accumulated other comprehensive income (loss)
    
    
    (572
    )
    
    
    235Total shareholders equity
    
    
    56,254
    
    
    
    54,261Total liabilities and shareholders equity
    
    $
    690,896
    
    
    $
    611,685
  42




---



##### 



2005
    
    
    2004
    
    
    2003Interest and dividend incomeLoans
    
    $
    32,662
    
    
    $
    24,241
    
    
    $
    22,869Taxable securities
    
    
    3,091
    
    
    
    2,855
    
    
    
    2,876Tax-exempt securities
    
    
    800
    
    
    
    709
    
    
    
    702Federal funds sold and other
    
    
    13
    
    
    
    8
    
    
    
    144Total interest income
    
    
    36,566
    
    
    
    27,813
    
    
    
    26,591Interest expenseDeposits
    
    
    9,666
    
    
    
    5,078
    
    
    
    6,668Borrowings
    
    
    4,084
    
    
    
    2,724
    
    
    
    1,305Total interest expense
    
    
    13,750
    
    
    
    7,802
    
    
    
    7,973Net interest income
    
    
    22,816
    
    
    
    20,011
    
    
    
    18,618Provision for loan losses
    
    
    2,000
    
    
    
    1,696
    
    
    
    1,418Net interest income after provision for loan losses
    
    
    20,816
    
    
    
    18,315
    
    
    
    17,200Noninterest incomeService charges on deposit accounts
    
    
    2,592
    
    
    
    2,543
    
    
    
    2,634Trust department income
    
    
    668
    
    
    
    646
    
    
    
    609Gains (losses) on sales of securities
    
    
    
    
    
    
    (4
    )
    
    
    51Gains (losses) on sale of assets
    
    
    (35
    )
    
    
    (140
    )
    
    
    649Gains on sales of loans
    
    
    407
    
    
    
    179
    
    
    
    979Gain on sale of unconsolidated affiliate
    
    
    
    
    
    
    2,638
    
    
    
    Treasury management fees
    
    
    469
    
    
    
    512
    
    
    
    547Data processing servicing fees
    
    
    310
    
    
    
    288
    
    
    
    366Earnings on bank owned life insurance
    
    
    441
    
    
    
    450
    
    
    
    108Other
    
    
    802
    
    
    
    506
    
    
    
    681Total noninterest income
    
    
    5,654
    
    
    
    7,618
    
    
    
    6,624Noninterest expenseSalaries and other employee benefits
    
    
    8,541
    
    
    
    7,941
    
    
    
    8,226Occupancy and equipment
    
    
    3,244
    
    
    
    3,802
    
    
    
    4,030Professional services
    
    
    417
    
    
    
    274
    
    
    
    578Advertising
    
    
    394
    
    
    
    337
    
    
    
    321Postage, freight and courier
    
    
    361
    
    
    
    376
    
    
    
    347Supplies
    
    
    247
    
    
    
    243
    
    
    
    257State franchise taxes
    
    
    458
    
    
    
    544
    
    
    
    484Other
    
    
    2,003
    
    
    
    2,468
    
    
    
    2,265Total noninterest expense
    
    
    15,665
    
    
    
    15,985
    
    
    
    16,508Income before income taxes
    
    
    10,805
    
    
    
    9,948
    
    
    
    7,316Income tax expense
    
    
    3,249
    
    
    
    2,973
    
    
    
    2,287Net income
    
    $
    7,556
    
    
    $
    6,975
    
    
    $
    5,029Basic earnings per common share
    
    $
    1.94
    
    
    $
    1.77
    
    
    $
    1.26Diluted earnings per common share
    
    $
    1.94
    
    
    $
    1.77
    
    
    $
    1.26
  43




---



##### 



2005
    
    
    2004
    
    
    2003Net income
    
    $
    7,556
    
    
    $
    6,975
    
    
    $
    5,029Reclassification for realized (gains) losses
on sale of securities included in net income,
net of (taxes) benefits of $1 and $(17)
    
    
    
    
    
    
    3
    
    
    
    (34
    )Unrealized losses on securities
available for sale, net of tax benefits of
$416, $267, and $419
    
    
    (807
    )
    
    
    (518
    )
    
    
    (813
    )Comprehensive income
    
    $
    6,749
    
    
    $
    6,460
    
    
    $
    4,182Accumulated comprehensive income (loss)
    
    $
    (572
    )
    
    $
    235
    
    
    $
    750
  44




---



##### 



AccumulatedOther
    
    
    TotalCommon
    
    
    Retained
    
    
    Treasury
    
    
    Comprehensive
    
    
    ShareholdersStock
    
    
    Earnings
    
    
    Stock
    
    
    Income (Loss)
    
    
    EquityBalance at January 1, 2003
    
    $
    3,780
    
    
    $
    49,303
    
    
    $
    (2,152
    )
    
    $
    1,597
    
    
    $
    52,528Net income
    
    
    
    
    
    
    5,029
    
    
    
    
    
    
    
    
    
    
    
    5,029Unrealized losses on securities
designated as available for
sale, net of tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (847
    )
    
    
    (847
    )Purchase of treasury stock-237,274 shares at cost
    
    
    
    
    
    
    
    
    
    
    (5,536
    )
    
    
    
    
    
    
    (5,536
    )Sale of 3,800 shares of treasury stock
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    72Dividends ($0.39 per share)
    
    
    
    
    
    
    (1,557
    )
    
    
    
    
    
    
    
    
    
    
    (1,557
    )Balance at December 31, 2003
    
    
    3,780
    
    
    
    52,775
    
    
    
    (7,616
    )
    
    
    750
    
    
    
    49,689Net income
    
    
    
    
    
    
    6,975
    
    
    
    
    
    
    
    
    
    
    
    6,975Unrealized losses on securities
designated as available for
sale, net of tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (515
    )
    
    
    (515
    )Dividends ($0.48 per share)
    
    
    
    
    
    
    (1,888
    )
    
    
    
    
    
    
    
    
    
    
    (1,888
    )Balance at December 31, 2004
    
    
    3,780
    
    
    
    57,862
    
    
    
    (7,616
    )
    
    
    235
    
    
    
    54,261Net income
    
    
    
    
    
    
    7,556
    
    
    
    
    
    
    
    
    
    
    
    7,556Unrealized losses on securities
designated as available for
sale, net of tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (807
    )
    
    
    (807
    )Purchase of treasury stock-108,672 shares at cost
    
    
    
    
    
    
    
    
    
    
    (2,890
    )
    
    
    
    
    
    
    (2,890
    )Dividends ($0.48 per share)
    
    
    
    
    
    
    (1,866
    )
    
    
    
    
    
    
    
    
    
    
    (1,866
    )Balance at December 31, 2005
    
    $
    3,780
    
    
    $
    63,552
    
    
    $
    (10,506
    )
    
    $
    (572
    )
    
    $
    56,254
  45




---



##### 



2005
    
    
    2004
    
    
    2003Cash flows from operating activitiesNet income
    
    $
    7,556
    
    
    $
    6,975
    
    
    $
    5,029Adjustments to reconcile net income to net cash
provided by (used in) operating activitiesDepreciation
    
    
    1,049
    
    
    
    1,508
    
    
    
    1,815Provision for loan losses
    
    
    2,000
    
    
    
    1,696
    
    
    
    1,418Deferred income taxes
    
    
    (2,288
    )
    
    
    (80
    )
    
    
    209(Gains) losses on sales of securities
    
    
    
    
    
    
    4
    
    
    
    (51
    )(Gains) on sales of loans
    
    
    (407
    )
    
    
    (179
    )
    
    
    (979
    )(Gains) losses on sale of assets
    
    
    35
    
    
    
    140
    
    
    
    (649
    )Gain on sale of unconsolidated affiliate
    
    
    
    
    
    
    (2,638
    )
    
    
    Net securities amortization
    
    
    868
    
    
    
    1,201
    
    
    
    1,356FHLB stock dividends
    
    
    (153
    )
    
    
    (106
    )
    
    
    (92
    )Net change in loans held for sale
    
    
    (518
    )
    
    
    (1,122
    )
    
    
    6,442Earnings on bank owned life insurance
    
    
    (441
    )
    
    
    (450
    )
    
    
    (108
    )Net changes in other assets and other liabilities
    
    
    144
    
    
    
    (5,166
    )
    
    
    (149
    )Net cash provided by operating activities
    
    
    7,845
    
    
    
    1,783
    
    
    
    14,241Cash flows used in investing activitiesSecurities available for salePurchases
    
    
    (32,413
    )
    
    
    (48,051
    )
    
    
    (87,391
    )Maturities, principal payments, and calls
    
    
    16,080
    
    
    
    18,670
    
    
    
    44,961Sales
    
    
    15,263
    
    
    
    37,039
    
    
    
    27,866Net increase in loans
    
    
    (70,651
    )
    
    
    (79,528
    )
    
    
    (33,360
    )Premises and equipment expenditures
    
    
    (1,057
    )
    
    
    (499
    )
    
    
    (281
    )Proceeds from sale of unconsolidated affiliate
    
    
    
    
    
    
    4,394
    
    
    
    Proceeds from sale of premises and equipment
    
    
    
    
    
    
    91
    
    
    
    575Investment in unconsolidated affiliates
    
    
    (319
    )
    
    
    (100
    )
    
    
    Net cash used in investing activities
    
    
    (73,097
    )
    
    
    (67,984
    )
    
    
    (47,630
    )Cash flows provided by (used in) financing activitiesNet change in deposits
    
    
    49,332
    
    
    
    12,222
    
    
    
    3,729Net change in federal funds purchased
and other short-term borrowings
    
    
    20,395
    
    
    
    596
    
    
    
    2,619Proceeds from Federal Home Loan Bank advances
    
    
    171,261
    
    
    
    154,459
    
    
    
    37,746Repayment of Federal Home Loan Bank advances
    
    
    (164,149
    )
    
    
    (108,339
    )
    
    
    (15,855
    )Purchase of treasury stock, net
    
    
    (2,890
    )
    
    
    
    
    
    
    (5,464
    )Cash dividends paid
    
    
    (1,866
    )
    
    
    (1,848
    )
    
    
    (1,540
    )Net cash provided by financing activities
    
    
    72,083
    
    
    
    57,090
    
    
    
    21,235Net change in cash and cash equivalents
    
    
    6,831
    
    
    
    (9,111
    )
    
    
    (12,154
    )Cash and cash equivalents at beginning of year
    
    
    11,238
    
    
    
    20,349
    
    
    
    32,503Cash and cash equivalents at end of year
    
    $
    18,069
    
    
    $
    11,238
    
    
    $
    20,349
  46




---



##### 



2005
    
    
    2004
    
    
    2003Supplemental cash flow informationInterest paid
    
    $
    12,097
    
    
    $
    7,086
    
    
    $
    7,821Income taxes paid
    
    
    2,950
    
    
    
    3,625
    
    
    
    1,137Supplemental non cash disclosuresUnrealized losses on securities designated as
available for sale, net of tax benefits
    
    $
    (807
    )
    
    $
    (515
    )
    
    $
    (847
    )Loan to finance sale of premises and equipment
    
    $
    
    
    
    $
    
    
    
    $
    1,208
  47




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Nature of Operations
 Business Segments
 Use of Estimates
 Cash Flows
 Securities
  48




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Loans
  Allowance for Loan Losses
  Concentrations of Credit Risk
  49




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Investment in Federal Home Loan Bank Stock
 Premises and Equipment
 Foreclosed Assets
 Servicing Assets
 Bank Owned Life Insurance
 Investment in unconsolidated affiliates
 Income Taxes
 Financial Instruments
  50




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Earnings Per Common Share
  2005
    
    
    2004
    
    
    2003Weighted-average common shares
outstanding (basic)
    
    
    3,890,717
    
    
    
    3,934,760
    
    
    
    4,000,161Dilutive effect of assumed exercise
of stock options
    
    
    2,994
    
    
    
    
    
    
    
    Weighted-average common shares
outstanding (diluted)
    
    
    3,893,711
    
    
    
    3,934,760
    
    
    
    4,000,161
  Stock Option Plan
    51




---



##### 



Stock Option Plan (continued
 2005
    
    
    2004
    
    
    2003(In thousands, except per share data)NET INCOME
    
    As reported
    
    $
    7,556
    
    
    $
    6,975
    
    
    $
    5,029Stock-based compensation, net of tax
    
    
    (16
    )
    
    
    (6
    )
    
    
    Pro-forma
    
    $
    7,540
    
    
    $
    6,969
    
    
    $
    5,029EARNINGS PER SHAREBASIC
    
    As reported
    
    $
    1.94
    
    
    $
    1.77
    
    
    $
    1.26Stock-based compensation, net of tax
    
    
    
    
    
    
    
    
    
    
    Pro-forma
    
    $
    1.94
    
    
    $
    1.77
    
    
    $
    1.26DILUTED
    
    As reported
    
    $
    1.94
    
    
    $
    1.77
    
    
    $
    1.26Stock-based compensation, net of tax
    
    
    
    
    
    
    
    
    
    
    Pro-forma
    
    $
    1.94
    
    
    $
    1.77
    
    
    $
    1.26
   2005WEIGHTEDAVERAGEEXERCISESHARES
    
    
    PRICEOutstanding at beginning of year
    
    
    15,105
    
    
    $
    23.40Granted
    
    
    26,219
    
    
    $
    25.74Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (637
    )
    
    $
    23.40Outstanding at end of year
    
    
    40,687
    
    
    $
    25.31Options exercisable at year-end
    
    
    2,894
    
    
    $
    23.40Weighted-average fair value of options
granted during the year
    
    
    
    
    
    $
    4.68
  52




---



##### 



Stock Option Plan (continued
  2004WEIGHTEDAVERAGEEXERCISESHARES
    
    
    PRICEOutstanding at beginning of year
    
    
    
    
    
    
    Granted
    
    
    15,105
    
    
    $
    23.40Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at end of year
    
    
    15,105
    
    
    $
    23.40Options exercisable at year-end
    
    
    
    
    
    
    Weighted-average fair value of options
granted during the year
    
    
    
    
    
    $
    3.44
  NUMBER OUTSTANDING
    
    RANGE OF EXERCISE PRICES40,687
    
    $23.40  $27.50
  Comprehensive Income
 Recent Accounting Standards
  53




---



##### 



Restrictions on Cash
 Dividend Restrictions
 Fair Value of Financial Instruments
 Reclassification
  54




---



##### 



NOTE 2  SECURITIES
  Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses2005U.S. Government and agency obligations
    
    $
    24,732
    
    
    $
    9
    
    
    $
    (351
    )States and municipal obligations
    
    
    25,723
    
    
    
    141
    
    
    
    (225
    )Corporate bonds
    
    
    8,025
    
    
    
    18
    
    
    
    (1
    )Mortgage-backed securities
    
    
    38,016
    
    
    
    109
    
    
    
    (598
    )Total debt securities
    
    
    96,496
    
    
    
    277
    
    
    
    (1,175
    )Other securities
    
    
    84
    
    
    
    38
    
    
    
    (7
    )Total
    
    $
    96,580
    
    
    $
    315
    
    
    $
    (1,182
    )
 Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses2004U.S. Government and agency obligations
    
    $
    26,787
    
    
    $
    50
    
    
    $
    (143
    )States and municipal obligations
    
    
    19,710
    
    
    
    380
    
    
    
    (80
    )Corporate bonds
    
    
    8,073
    
    
    
    3
    
    
    
    (72
    )Mortgage-backed securities
    
    
    41,470
    
    
    
    374
    
    
    
    (187
    )Total debt securities
    
    
    96,040
    
    
    
    807
    
    
    
    (482
    )Other securities
    
    
    83
    
    
    
    30
    
    
    
    Total
    
    $
    96,123
    
    
    $
    837
    
    
    $
    (482
    )
  55




---



##### 



NOTE 2  SECURITIES
  2005
    
    (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
    
    
    losses(Dollars in thousands)U.S. Government and
agency obligations
    
    
    12
    
    
    $
    10,805
    
    
    $
    (87
    )
    
    
    17
    
    
    $
    13,008
    
    

    $
    (264
    )
    
    
    29
    
    
    $
    23,813
    
    
    $
    (351
    )State and municipal
obligations
    
    
    23
    
    
    
    9,851
    
    
    
    (149
    )
    
    
    14
    
    
    
    5,824
    
    
    
    (76
    )
    
    
    37
    
    
    
    15,675
    
    
    
    (225
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    3,008
    
    
    
    (1
    )
    
    
    2
    
    
    
    3,008
    
    
    
    (1
    )Mortgage-backed
securities and other
    
    
    65
    
    
    
    17,582
    
    
    
    (240
    )
    
    
    40
    
    
    
    13,936
    
    
    
    (365
    )
    
    
    105
    
    
    
    31,518
    
    
    
    (605
    )Total temporarily
impaired securities
    
    
    100
    
    
    $
    38,238
    
    
    $
    (476
    )
    
    
    73
    
    
    $
    35,776
    
    
    $
    (706
    )
    
    
    173
    
    
    $
    74,014
    
    
    $
    (1,182
    )
 2004
    
    (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
    
    
    losses(Dollars in thousands)U.S. Government
agencies obligations
    
    
    23
    
    
    $
    19,299
    
    
    $
    (134
    )
    
    
    1
    
    
    $
    491
    
    
    $
    (9
    )
    
    
    24
    
    
    $
    19,790
    
    
    $
    (143
    )State and political
subdivisions
    
    
    13
    
    
    
    5,452
    
    
    
    (44
    )
    
    
    3
    
    
    
    1,654
    
    
    
    (36
    )
    
    
    16
    
    
    
    7,106
    
    
    
    (80
    )Corporate bonds
    
    
    1
    
    
    
    4,962
    
    
    
    (37
    )
    
    
    1
    
    
    
    2,978
    
    
    
    (35
    )
    
    
    2
    
    
    
    7,940
    
    
    
    (72
    )Mortgage-backed
securities and related
    
    
    46
    
    
    
    12,896
    
    
    
    (78
    )
    
    
    13
    
    
    
    5,492
    
    
    
    (109
    )
    
    
    59
    
    
    
    18,388
    
    
    
    (187
    )Total temporarily
impaired securities
    
    
    83
    
    
    $
    42,609
    
    
    $
    (293
    )
    
    
    18
    
    
    $
    10,615
    
    
    $
    (189
    )
    
    
    101
    
    
    $
    53,224
    
    
    $
    (482
    )
   56




---



##### 



NOTE 2  SECURITIES
  FairValueDue in one year or less
    
    $
    6,733Due from one to five years
    
    
    14,182Due from five to ten years
    
    
    15,379Due after ten years
    
    
    22,186Mortgage-backed securities
    
    
    38,016$
    96,496
  2005
    
    2004
    
    2003Proceeds
    
    $
    15,263
    
    
    $
    37,039
    
    
    $
    27,866Gross gains
    
    
    1
    
    
    
    
    
    
    
    53Gross losses
    
    
    (1
    )
    
    
    (4
    )
    
    
    (2
    )
    57




---



##### 



NOTE 3  LOANS
  2005
    
    
    2004Commercial and industrial
    
    $
    47,498
    
    
    $
    49,184Commercial real estate
    
    
    202,649
    
    
    
    175,796Residential real estate and home equity
    
    
    193,787
    
    
    
    170,010Real estate construction and land development
    
    
    49,553
    
    
    
    34,199Consumer and credit card
    
    
    58,653
    
    
    
    53,156552,140
    
    
    
    482,345Add: Net deferred loan origination costs
    
    
    905
    
    
    
    960Total loans receivable
    
    $
    553,045
    
    
    $
    483,305
   Beginning balance
    
    $
    12,406New loans
    
    
    4,069Repayments
    
    
    (3,497
    )Ending balance
    
    $
    12,978
  58




---



##### 



NOTE 4  ALLOWANCE FOR LOAN LOSSES
 2005
    
    
    2004
    
    
    2003Activity in the allowance for loan losses was as follows.Beginning balance of year
    
    $
    4,818
    
    
    $
    4,331
    
    
    $
    4,094Provision for loan losses
    
    
    2,000
    
    
    
    1,696
    
    
    
    1,418Loans charged off
    
    
    (1,457
    )
    
    
    (1,385
    )
    
    
    (1,345
    )Recoveries
    
    
    174
    
    
    
    176
    
    
    
    164Balance at end of year
    
    $
    5,535
    
    
    $
    4,818
    
    
    $
    4,331
 2005
    
    
    2004
    
    
    2003Impaired loans were as follows at year-end.Year-end loans with no allocated allowance for loan
losses
    
    $
    1,845
    
    
    $
    
    
    
    $
    Year-end loans with allocated allowance for loan losses
    
    
    2,185
    
    
    
    601
    
    
    
    1,813Total
    
    $
    4,030
    
    
    $
    601
    
    
    $
    1,813Amount of the allowance for loan losses allocated
    
    $
    1,060
    
    
    $
    360
    
    
    $
    580
 2005
    
    
    2004
    
    
    2003Average of impaired loans during the year
    
    $
    1,807
    
    
    $
    709
    
    
    $
    2,731Interest income recognized during impairment
    
    
    
    
    
    
    
    
    
    
    Cash basis interest income recognized
    
    
    101
    
    
    
    
    
    
    
    
 2005
    
    
    2004
    
    
    2003Allowance on impaired loans was as follows at year-end.Beginning balance
    
    $
    360
    
    
    $
    580
    
    
    $
    1,088Provision related to impaired loans
    
    
    940
    
    
    
    535
    
    
    
    158Loans charge-offs (net of recoveries)
    
    
    (240
    )
    
    
    (756
    )
    
    
    (665
    )Ending balance
    
    $
    1,060
    
    
    $
    360
    
    
    $
    580
   59




---



##### 



NOTE 4  ALLOWANCE FOR LOAN LOSSES (continued)
 2005
    
    
    2004
    
    
    2003Nonperforming loans were as follows at year-end.Loans past due over 90 days still accruing interest
    
    $
    2,648
    
    
    $
    1,544
    
    
    $
    1,252Nonaccrual loans
    
    
    2,185
    
    
    
    1,879
    
    
    
    1,813Total
    
    $
    4,833
    
    
    $
    3,423
    
    
    $
    3,065
   60




---



##### 



NOTE 5  PREMISES AND EQUIPMENT
  2005
    
    
    2004Land
    
    $
    1,266
    
    
    $
    667Buildings
    
    
    8,403
    
    
    
    8,427Furniture and equipment
    
    
    8,542
    
    
    
    8,11818,211
    
    
    
    17,212Accumulated depreciation
    
    
    (9,357
    )
    
    
    (8,366
    )$
    8,854
    
    
    $
    8,846
  2006
    
    $
    8582007
    
    
    7882008
    
    
    5862009
    
    
    5242010
    
    
    521Thereafter
    
    
    4,181$
    7,458
 NOTE 6  INTEREST-BEARING DEPOSITS
  2005
    
    
    2004Interest-bearing demand
    
    $
    84,194
    
    
    $
    105,635Money market
    
    
    132,025
    
    
    
    86,248Savings deposits
    
    
    46,159
    
    
    
    58,527Time depositsIn denominations under $100,000
    
    
    74,377
    
    
    
    71,198In denominations of $100,000 or more
    
    
    98,174
    
    
    
    67,818$
    434,929
    
    
    $
    389,426
  61




---



##### 



NOTE 6  INTEREST-BEARING DEPOSITS
  2006
    
    $
    127,2032007
    
    
    34,8592008
    
    
    4,8682009
    
    
    5,1822010
    
    
    439$
    172,551
  NOTE 7  BORROWED FUNDS
   Interest
    
    Maturing year
    
    2005
    
    2004rate range
    
    ending December 31,
    
    (Dollars in Thousands)2.38%
    
    2005
    

$      
    
    $25,7752.76% - 4.33%
    
    2006
    
    11,985
    
    3,0003.84% - 4.84%
    
    2007
    
    14,000
    
    3.01% - 3.98%
    
    2008
    
    2,964
    
    4,1073.01% - 3.98%
    
    2009
    
    5,585
    
    2.59% - 5.72%
    
    Thereafter
    
    68,391
    
    62,931$102,925
    
    $95,813Weighted average interest rate
    
    
    
    4.08
    %
    3.56
%
  62




---



##### 



NOTE 7  BORROWED FUNDS
  2006
    
    $
    11,9852007
    
    
    14,0002008
    
    
    2,9642009
    
    
    5,5852010
    
    
    1,617Thereafter
    
    
    66,774$
    102,925
 NOTE 8  RETIREMENT PLANS
     63




---



##### 



NOTE 9  INCOME TAXES
  2005
    
    
    2004
    
    
    2003Current
    
    $
    5,537
    
    
    $
    3,053
    
    
    $
    2,078Deferred
    
    
    (2,288
    )
    
    
    (80
    )
    
    
    209$
    3,249
    
    
    $
    2,973
    
    
    $
    2,287
  2005
    
    
    2004
    
    
    2003Income taxes computed at the statutory federal
income tax rate
    
    $
    3,674
    
    
    $
    3,382
    
    
    $
    2,487Tax exempt income
    
    
    (486
    )
    
    
    (468
    )
    
    
    (195
    )Other
    
    
    61
    
    
    
    59
    
    
    
    (5
    )$
    3,249
    
    
    $
    2,973
    
    
    $
    2,287Effective tax rate
    
    
    30.1
    %
    
    
    29.9
    %
    
    
    31.3
    %
  2005
    
    
    2004Deferred tax assetsAllowance for loan losses
    
    $
    1,882
    
    
    $
    1,638Deferred compensation
    
    
    130
    
    
    
    74Unrealized losses on securities available for sale
    
    
    296
    
    
    
    2,308
    
    
    
    1,712Deferred tax liabilitiesFHLB stock dividends
    
    
    (334
    )
    
    
    (282
    )Unrealized gains on securities available for sale
    
    
    
    
    
    
    (121
    )Deferred loan origination fees and costs
    
    
    (97
    )
    
    
    (102
    )Leases
    
    
    (234
    )
    
    
    (935
    )Depreciation
    
    
    (304
    )
    
    
    (1,208
    )Mortgage servicing rights
    
    
    (26
    )
    
    
    (34
    )Other
    
    
    (4
    )
    
    
    (10
    )(999
    )
    
    
    (2,692
    )Net deferred tax asset (liability)
    
    $
    1,309
    
    
    $
    (980
    )
  64




---



##### 



NOTE 10  COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
    2005
    
    2004Fixed
    
    Variable
    
    Fixed
    
    VariableRate
    
    Rate
    
    Rate
    
    RateCommitments to extend credit
    
    $
    8,552
    
    
    $
    51,490
    
    
    $
    4,978
    
    
    $
    51,787Unused lines of credit and letters of credit
    
    
    
    
    
    
    73,887
    
    
    
    
    
    
    
    57,792
  Legal Proceedings
   65




---



##### 



NOTE 11  REGULATORY CAPITAL
     66




---



##### 



NOTE 11  REGULATORY CAPITAL
  To Be WellCapitalized UnderFor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio2005Total capital to risk-weighted assetsConsolidated
    
    $
    62,353
    
    
    
    11.5
    %
    
    $
    43,331
    
    
    
    8.0
    %
    
    $
    54,163
    
    
    
    10.0
    %Bank
    
    
    60,422
    
    
    
    11.2
    
    
    
    43,237
    
    
    
    8.0
    
    
    
    54,046
    
    
    
    10.0Tier 1 (core) capital to risk
weighted assetsConsolidated
    
    
    56,818
    
    
    
    10.5
    
    
    
    21,665
    
    
    
    4.0
    
    
    
    32,498
    
    
    
    6.0Bank
    
    
    39,887
    
    
    
    7.4
    
    
    
    21,618
    
    
    
    4.0
    
    
    
    32,427
    
    
    
    6.0Tier 1 (core) capital to average assets
Consolidated
    
    
    56,818
    
    
    
    8.3
    
    
    
    27,263
    
    
    
    4.0
    
    
    
    34,079
    
    
    
    5.0Bank
    
    
    39,887
    
    
    
    5.9
    
    
    
    27,263
    
    
    
    4.0
    
    
    
    34,079
    
    
    
    5.02004Total capital to risk-weighted assetsConsolidated
    
    $
    58,834
    
    
    
    11.6
    %
    
    $
    40,760
    
    
    
    8.0
    %
    
    $
    50,950
    
    
    
    10.0
    %Bank
    
    
    55,563
    
    
    
    10.9
    
    
    
    40,727
    
    
    
    8.0
    
    
    
    50,909
    
    
    
    10.0Tier 1 (core) capital to risk
weighted assetsConsolidated
    
    
    54,016
    
    
    
    10.6
    
    
    
    20,380
    
    
    
    4.0
    
    
    
    30,570
    
    
    
    6.0Bank
    
    
    35,745
    
    
    
    7.0
    
    
    
    20,364
    
    
    
    4.0
    
    
    
    30,545
    
    
    
    6.0Tier 1 (core) capital to average assetsConsolidated
    
    
    54,016
    
    
    
    8.8
    
    
    
    24,690
    
    
    
    4.0
    
    
    
    30,863
    
    
    
    5.0Bank
    
    
    35,745
    
    
    
    5.8
    
    
    
    24,690
    
    
    
    4.0
    
    
    
    30,863
    
    
    
    5.0
   67




---



##### 



NOTE 12  DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
  2005
    
    2004Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    18,069
    
    
    $
    18,069
    
    
    $
    11,238
    
    
    $
    11,238Securities available for sale
    
    
    96,580
    
    
    
    96,580
    
    
    
    96,123
    
    
    
    96,123Loans held for sale
    
    
    1,640
    
    
    
    1,640
    
    
    
    1,122
    
    
    
    1,122Loans
    
    
    553,045
    
    
    
    552,973
    
    
    
    483,305
    
    
    
    480,637FHLB stock
    
    
    3,327
    
    
    
    3,327
    
    
    
    2,856
    
    
    
    2,856Financial liabilitiesNoninterest-bearing deposits
    
    $
    (68,977
    )
    
    $
    (68,977
    )
    
    $
    (65,148
    )
    
    $
    (65,148
    )Interest-bearing deposits
    
    
    (434,929
    )
    
    
    (437,234
    )
    
    
    (389,426
    )
    
    
    (391,490
    )Federal funds purchased and
other short-term borrowings
    
    
    (25,610
    )
    
    
    (25,610
    )
    
    
    (5,215
    )
    
    
    (5,215
    )FHLB advances
    
    
    (102,925
    )
    
    
    (106,249
    )
    
    
    (95,813
    )
    
    
    (98,908
    )
   68




---



##### 



NOTE 13  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
  CONDENSED BALANCE SHEETS
 2005
    
    
    2004AssetsCash and cash equivalents
    
    $
    41
    
    
    $
    67Investment in Bank
    
    
    39,302
    
    
    
    35,970Subordinated note from Bank
    
    
    16,902
    
    
    
    16,152Investment in unconsolidated affiliates
    
    
    614
    
    
    
    295Other assets
    
    
    1,746
    
    
    
    1,972Total assets
    
    $
    58,605
    
    
    $
    54,456LiabilitiesOther liabilities
    
    $
    2,351
    
    
    $
    195Shareholders Equity
    
    
    56,254
    
    
    
    54,261Total liabilities and shareholders equity
    
    $
    58,605
    
    
    $
    54,456
 CONDENSED STATEMENTS OF INCOME
 2005
    
    
    2004
    
    
    2003Income
Equity in earnings of Bank
    
    $
    7,548
    
    
    $
    5,411
    
    
    $
    5,586Gain on sale of ProCentury Corporation
    
    
    
    
    
    
    2,638
    
    
    
    Other
    
    
    276
    
    
    
    46
    
    
    
    68Total income
    
    
    7,824
    
    
    
    8,095
    
    
    
    5,654Operating expenses
    
    
    268
    
    
    
    323
    
    
    
    625Income before income taxes
    
    
    7,556
    
    
    
    7,772
    
    
    
    5,029Federal income tax expense
    
    
    
    
    
    
    797
    
    
    
    Net income
    
    $
    7,556
    
    
    $
    6,975
    
    
    $
    5,029
  69




---



##### 



NOTE 14  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
 CONDENSED STATEMENTS OF CASH FLOWS
 2005
    
    
    2004
    
    
    2003Cash flows from operating activitiesNet income
    
    $
    7,556
    
    
    $
    6,975
    
    
    $
    5,029Adjustments to reconcile net income
to cash provided by operations:(Undistributed earnings of) excess distributions
from Bank
    
    
    (808
    )
    
    
    452
    
    
    
    1,102Net change in other assets and liabilities
    
    
    (949
    )
    
    
    (3,330
    )
    
    
    4,885Net cash from operating activities
    
    
    5,799
    
    
    
    4,097
    
    
    
    11,016Cash flows used in investing activitiesInvestment in unconsolidated affiliates
    
    
    (319
    )
    
    
    (100
    )
    
    
    Issuance of subordinated note to Bank
    
    
    (750
    )
    
    
    (2,652
    )
    
    
    (3,500
    )Net cash used in investing activities
    
    
    (1,069
    )
    
    
    (2,752
    )
    
    
    (3,500
    )Cash flows from financing activitiesCash dividends paid
    
    
    (1,866
    )
    
    
    (1,848
    )
    
    
    (1,540
    )Purchase of treasury stock, net
    
    
    (2,890
    )
    
    
    
    
    
    
    (5,464
    )Net cash from financing activities
    
    
    (4,756
    )
    
    
    (1,848
    )
    
    
    (7,004
    )Net change in cash and cash equivalents
    
    
    (26
    )
    
    
    (503
    )
    
    
    512Cash and cash equivalents at beginning of year
    
    
    67
    
    
    
    570
    
    
    
    58Cash and cash equivalents at end of year
    
    $
    41
    
    
    $
    67
    
    
    $
    570
   70




---



##### 



NOTE 15  CONCENTRATIONS
  NOTE 16  DETAILS OF OPERATING EXPENSES
  2005
    
    
    2004
    
    
    2003Bank premises rent
    
    $
    482
    
    
    $
    477
    
    
    $
    463Bank premises maintenance
    
    
    415
    
    
    
    380
    
    
    
    304Bank depreciation
    
    
    279
    
    
    
    286
    
    
    
    221Equipment lease
    
    
    339
    
    
    
    437
    
    
    
    371Equipment maintenance
    
    
    
    
    
    
    
    
    
    
    361Equipment depreciation
    
    
    453
    
    
    
    629
    
    
    
    665Software maintenance
    
    
    507
    
    
    
    498
    
    
    
    532Other
    
    
    769
    
    
    
    1,095
    
    
    
    1,113Total
    
    $
    3,244
    
    
    $
    3,802
    
    
    $
    4,030
  2005
    
    
    2004
    
    
    2003ATM and debit cards
    
    $
    342
    
    
    $
    472
    
    
    $
    420Telephone
    
    
    338
    
    
    
    422
    
    
    
    358Other
    
    
    1,323
    
    
    
    1,574
    
    
    
    1,487Total
    
    $
    2,003
    
    
    $
    2,468
    
    
    $
    2,265
  71




---



##### 



NOTE 17  QUARTERLY FINANCIAL DATA (Unaudited)
 
 THREE MONTHS ENDEDDecember 31,
    
    
    September 30,
    
    
    June 30,
    
    
    March 31,(In thousands, except per share data)2005:Total interest income
    
    $
    10,055
    
    
    $
    9,559
    
    
    $
    8,846
    
    
    $
    8,106Total interest expense
    
    
    4,231
    
    
    
    3,700
    
    
    
    3,152
    
    
    
    2,667Net interest income
    
    $
    5,824
    
    
    $
    5,859
    
    
    $
    5,694
    
    
    $
    5,439Provision for losses on loans
    
    
    465
    
    
    
    545
    
    
    
    520
    
    
    
    470Noninterest income
    
    
    1,435
    
    
    
    1,350
    
    
    
    1,397
    
    
    
    1,472Noninterest expense
    
    
    3,861
    
    
    
    3,805
    
    
    
    3,901
    
    
    
    4,098Income before income taxes
    
    $
    2,933
    
    
    $
    2,859
    
    
    $
    2,670
    
    
    $
    2,343Federal income tax expense
    
    
    878
    
    
    
    877
    
    
    
    786
    
    
    
    708Net income
    
    $
    2,055
    
    
    $
    1,982
    
    
    $
    1,884
    
    
    $
    1,635Earnings per share:Basic
    
    $
    0.54
    
    
    $
    0.51
    
    
    $
    0.48
    
    
    $
    0.41Diluted
    
    $
    0.54
    
    
    $
    0.51
    
    
    $
    0.48
    
    
    $
    0.41
  72




---



##### 



NOTE 17  QUARTERLY FINANCIAL DATA (Unaudited)
 THREE MONTHS ENDEDDecember 31,
    
    
    September 30,
    
    
    June 30,
    
    
    March 31,(In thousands, except per share data)2004:Total interest income
    
    $
    7,660
    
    
    $
    7,071
    
    
    $
    6,385
    
    
    $
    6,697Total interest expense
    
    
    2,258
    
    
    
    1,946
    
    
    
    1,799
    
    
    
    1,799Net interest income
    
    $
    5,402
    
    
    $
    5,125
    
    
    $
    4,586
    
    
    $
    4,898Provision for losses on loans
    
    
    378
    
    
    
    497
    
    
    
    443
    
    
    
    378Noninterest income
    
    
    1,267
    
    
    
    1,316
    
    
    
    3,874
    
    
    
    1,161Noninterest expense
    
    
    4,007
    
    
    
    3,828
    
    
    
    4,328
    
    
    
    3,822Income before income taxes
    
    $
    2,284
    
    
    $
    2,116
    
    
    $
    3,689
    
    
    $
    1,859Federal income tax expense
    
    
    680
    
    
    
    609
    
    
    
    1,131
    
    
    
    553Net income
    
    $
    1,604
    
    
    $
    1,507
    
    
    $
    2,558
    
    
    $
    1,306Earnings per share:Basic
    
    $
    0.41
    
    
    $
    0.38
    
    
    $
    0.65
    
    
    $
    0.33Diluted
    
    $
    0.41
    
    
    $
    0.38
    
    
    $
    0.65
    
    
    $
    0.33
  73




---



##### 



Internal Control 
Integrated Framework
 
 
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Internal Control  Integrated
Framework Internal Control  Integrated Framework
   
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