##### 



OHIO STATE BANCSHARES, INC.
 ANNUAL REPORT




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##### 



Presidents Letter
    
    
    1Comparative Summary of Selected Financial Data
    
    
    2Financial Statements
    
    
    3Report of Independent Registered Public Accounting Firm
    
    
    3Consolidated Financial Statements
    
    
    4Notes to Consolidated Financial Statements
    
    
    8Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    26Board of Directors
    
    
    41Officers
    
    
    42




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(IMAGE)
    
    (IMAGE)
    
    (IMAGE)
       
 1




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2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002STATEMENT OF OPERATIONS DATATotal interest income
    
    $
    8,591
    
    
    $
    8,012
    
    
    $
    6,661
    
    
    $
    6,202
    
    
    $
    6,369Total interest expense
    
    
    4,189
    
    
    
    3,186
    
    
    
    2,198
    
    
    
    2,133
    
    
    
    2,322Net interest income
    
    
    4,402
    
    
    
    4,826
    
    
    
    4,463
    
    
    
    4,069
    
    
    
    4,047Provision for loan losses
    
    
    179
    
    
    
    386
    
    
    
    403
    
    
    
    412
    
    
    
    435Net interest income after provision for
loan losses
    
    
    4,223
    
    
    
    4,440
    
    
    
    4,060
    
    
    
    3,657
    
    
    
    3,612Noninterest income
    
    
    801
    
    
    
    893
    
    
    
    742
    
    
    
    783
    
    
    
    724Noninterest expense
    
    
    4,392
    
    
    
    4,621
    
    
    
    4,002
    
    
    
    3,317
    
    
    
    2,882Income tax expense
    
    
    118
    
    
    
    135
    
    
    
    165
    
    
    
    266
    
    
    
    414Net income
    
    $
    514
    
    
    $
    577
    
    
    $
    635
    
    
    $
    857
    
    
    $
    1,040PER SHARE DATA:Basic and diluted earnings per
common share
    
    $
    2.76
    
    
    $
    3.03
    
    
    $
    3.34
    
    
    $
    4.51
    
    
    $
    6.53Book value per share at year-end
    
    
    60.76
    
    
    
    59.32
    
    
    
    59.07
    
    
    
    57.16
    
    
    
    53.78Cash dividends per share
    
    
    0.80
    
    
    
    0.80
    
    
    
    0.80
    
    
    
    0.80
    
    
    
    0.60Number of shares used in earnings per
share calculations
    
    
    186,395
    
    
    
    190,000
    
    
    
    190,000
    
    
    
    190,000
    
    
    
    159,273BALANCE SHEET DATA:Total assets
    
    $
    147,151
    
    
    $
    143,541
    
    
    $
    125,012
    
    
    $
    110,862
    
    
    $
    104,733Total securities
    
    
    29,816
    
    
    
    34,052
    
    
    
    25,444
    
    
    
    26,506
    
    
    
    31,970Total net loans
    
    
    98,786
    
    
    
    94,792
    
    
    
    88,915
    
    
    
    75,358
    
    
    
    60,545Allowance for loan losses
    
    
    938
    
    
    
    986
    
    
    
    961
    
    
    
    844
    
    
    
    793Total deposits
    
    
    118,128
    
    
    
    113,673
    
    
    
    96,124
    
    
    
    87,007
    
    
    
    84,889Borrowings
    
    
    16,614
    
    
    
    17,408
    
    
    
    16,487
    
    
    
    12,268
    
    
    
    8,928Shareholders equity
    
    
    11,177
    
    
    
    11,272
    
    
    
    11,223
    
    
    
    10,860
    
    
    
    10,219OPERATING RATIOS:Total net loans to total deposits
    
    
    83.63
    %
    
    
    83.39
    %
    
    
    92.50
    %
    
    
    86.61
    %
    
    
    71.32
    %Total shareholders equity to total assets
    
    
    7.60
    
    
    
    7.85
    
    
    
    8.98
    
    
    
    9.80
    
    
    
    9.76Average shareholders equity to
average assets
    
    
    7.84
    
    
    
    7.86
    
    
    
    9.26
    
    
    
    9.74
    
    
    
    8.01Return on average equity
    
    
    4.62
    
    
    
    5.11
    
    
    
    5.77
    
    
    
    8.14
    
    
    
    13.49Return on average assets
    
    
    0.36
    
    
    
    0.40
    
    
    
    0.53
    
    
    
    0.79
    
    
    
    1.08Dividend payout ratio
    
    
    28.98
    
    
    
    26.40
    
    
    
    23.95
    
    
    
    17.75
    
    
    
    9.69Total interest expense to interest income
    
    
    48.76
    
    
    
    39.77
    
    
    
    33.00
    
    
    
    34.40
    
    
    
    36.46Allowance for loan losses
to total loans
    
    
    0.94
    
    
    
    1.03
    
    
    
    1.07
    
    
    
    1.11
    
    
    
    1.29Average assets
    
    $
    142,129
    
    
    $
    143,647
    
    
    $
    118,783
    
    
    $
    108,027
    
    
    $
    96,248Average shareholders equity
    
    
    11,140
    
    
    
    11,288
    
    
    
    11,002
    
    
    
    10,517
    
    
    
    7,707
  2




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3




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##### 



2006
    
    
    2005ASSETSCash and due from financial institutions
    
    $
    3,359,821
    
    
    $
    4,020,399Interest-bearing deposits in other financial institutions
    
    
    606,368
    
    
    
    200,542Federal funds sold
    
    
    5,507,000
    
    
    
    2,471,000Cash and cash equivalents
    
    
    9,473,189
    
    
    
    6,691,941Trading securities
    
    
    176,612
    
    
    
    Securities available for sale
    
    
    29,639,141
    
    
    
    34,051,759Loans, net of allowance of $938,086 and $986,385
    
    
    98,786,165
    
    
    
    94,792,219Premises and equipment, net
    
    
    4,071,922
    
    
    
    3,121,605Cash surrender value of life insurance policies
    
    
    1,688,764
    
    
    
    1,618,400Goodwill
    
    
    270,500
    
    
    
    270,500Intangible assets
    
    
    390,756
    
    
    
    459,713Accrued interest receivable
    
    
    730,385
    
    
    
    700,199Federal Home Loan Bank and other restricted stock
    
    
    628,540
    
    
    
    576,840Other real estate owned
    
    
    435,060
    
    
    
    435,060Other assets
    
    
    860,006
    
    
    
    823,122$
    147,151,040
    
    
    $
    143,541,358LIABILITIES AND SHAREHOLDERS EQUITYDepositsNoninterest-bearing
    
    $
    12,791,036
    
    
    $
    14,070,105Interest-bearing
    
    
    105,336,714
    
    
    
    99,603,204Total
    
    
    118,127,750
    
    
    
    113,673,309Borrowings
    
    
    13,613,858
    
    
    
    14,408,377Subordinated debentures
    
    
    3,000,000
    
    
    
    3,000,000Accrued interest payable
    
    
    277,493
    
    
    
    201,210Other liabilities
    
    
    955,419
    
    
    
    986,940Total liabilities
    
    
    135,974,520
    
    
    
    132,269,836Shareholders equityCommon stock, $10.00 par value, 500,000 shares authorized;
190,000 shares issued
    
    
    1,900,000
    
    
    
    1,900,000Additional paid-in capital
    
    
    5,045,227
    
    
    
    5,045,227Retained earnings
    
    
    4,976,037
    
    
    
    4,609,252Accumulated other comprehensive income (loss)
    
    
    (191,571
    )
    
    
    (282,957
    )Treasury stock, at cost; 6,061 shares
    
    
    (553,173
    )
    
    
    Total shareholders equity
    
    
    11,176,520
    
    
    
    11,271,522$
    147,151,040
    
    
    $
    143,541,358
  4




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2006
    
    
    2005Interest and dividend incomeLoans, including fees
    
    $
    7,141,443
    
    
    $
    6,600,051Taxable securities
    
    
    1,018,979
    
    
    
    973,202Nontaxable securities
    
    
    259,700
    
    
    
    287,487Dividends
    
    
    34,121
    
    
    
    24,640Federal funds sold and other
    
    
    136,526
    
    
    
    126,194Total interest and dividend income
    
    
    8,590,769
    
    
    
    8,011,574Interest expenseDeposits
    
    
    3,407,545
    
    
    
    2,448,533Subordinated debentures
    
    
    241,287
    
    
    
    186,262Federal Home Loan Bank and other borrowings
    
    
    539,675
    
    
    
    551,683Total interest expense
    
    
    4,188,507
    
    
    
    3,186,478Net interest income
    
    
    4,402,262
    
    
    
    4,825,096Provision for loan losses
    
    
    178,500
    
    
    
    385,500Net interest income after provision for loan losses
    
    
    4,223,762
    
    
    
    4,439,596Noninterest incomeFees for customer services
    
    
    724,398
    
    
    
    743,854Net gains (losses) on sales of securities
    
    
    (5,680
    )
    
    
    1,169Gain on sale of credit card portfolio
    
    
    
    
    
    
    70,471Other
    
    
    82,284
    
    
    
    77,174Total noninterest income
    
    
    801,002
    
    
    
    892,668Noninterest expenseSalaries and employee benefits
    
    
    2,208,478
    
    
    
    2,294,587Occupancy and equipment
    
    
    908,756
    
    
    
    855,478Professional fees
    
    
    207,080
    
    
    
    238,382Office supplies
    
    
    194,530
    
    
    
    186,017Loan collection and repossessions
    
    
    72,995
    
    
    
    79,437Advertising and public relations
    
    
    123,209
    
    
    
    119,630Taxes, other than income
    
    
    152,487
    
    
    
    150,750ATM and debit card processing
    
    
    75,533
    
    
    
    97,783Intangible asset amortization
    
    
    68,957
    
    
    
    73,287Other
    
    
    380,266
    
    
    
    525,321Total noninterest expense
    
    
    4,392,291
    
    
    
    4,620,672Income before income taxes
    
    
    632,473
    
    
    
    711,592Income tax expense
    
    
    118,217
    
    
    
    134,991Net income
    
    $
    514,256
    
    
    $
    576,601Basic and diluted earnings per share
    
    $
    2.76
    
    
    $
    3.03Weighted average shares outstanding
    
    
    186,395
    
    
    
    190,000
  5




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AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    Shareholders'Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    EquityBalance, January 1, 2005
    
    $
    1,900,000
    
    
    $
    5,045,227
    
    
    $
    4,184,651
    
    
    $
    93,058
    
    
    $
    
    
    
    $
    11,222,936Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    576,601
    
    
    
    
    
    
    
    
    
    
    
    576,601Change in net unrealized
gain (loss) on securities
available for sale, net of
reclassification and tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (376,015
    )
    
    
    
    
    
    
    (376,015
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,586Cash dividends declared
($0.80 per share)
    
    
    
    
    
    
    
    
    
    
    (152,000
    )
    
    
    
    
    
    
    
    
    
    
    (152,000
    )Balance, December 31,
2005
    
    
    1,900,000
    
    
    
    5,045,227
    
    
    
    4,609,252
    
    
    
    (282,957
    )
    
    
    
    
    
    
    11,271,522Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    514,256
    
    
    
    
    
    
    
    
    
    
    
    514,256Change in net unrealized
gain (loss) on securities
available for sale, net of
reclassification and tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,386
    
    
    
    
    
    
    
    91,386Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    605,642Purchase of 6,061 shares of
treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (553,173
    )
    
    
    (553,173
    )Cash dividends declared
($0.80 per share)
    
    
    
    
    
    
    
    
    
    
    (147,471
    )
    
    
    
    
    
    
    
    
    
    
    (147,471
    )Balance, December 31,
2006
    
    $
    1,900,000
    
    
    $
    5,045,227
    
    
    $
    4,976,037
    
    
    $
    (191,571
    )
    
    $
    (553,173
    )
    
    $
    11,176,520
  6




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2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    514,256
    
    
    $
    576,601Adjustment to reconcile net income to net cash from operating activities:Depreciation and amortization
    
    
    399,872
    
    
    
    369,163Net amortization of securities
    
    
    26,803
    
    
    
    64,102Provision for loan losses
    
    
    178,500
    
    
    
    385,500Deferred taxes
    
    
    (46,227
    )
    
    
    (88,183
    )Net realized (gains) losses on sales of securities
    
    
    5,680
    
    
    
    (1,169
    )Purchase of trading securities
    
    
    (169,000
    )
    
    
    Net (gain) loss recognized on trading securities
    
    
    (7,612
    )
    
    
    Federal Home Loan Bank stock dividends
    
    
    (31,700
    )
    
    
    (23,400
    )Increase in cash surrender value of bank owned life insurance
    
    
    (60,364
    )
    
    
    (43,092
    )Gain on sale of credit card portfolio
    
    
    
    
    
    
    (70,471
    )Net (gain) loss on sales of other real estate owned
    
    
    
    
    
    
    (3,083
    )Change in deferred loan costs
    
    
    109,742
    
    
    
    77,077Change in accrued interest receivable
    
    
    (30,186
    )
    
    
    (108,069
    )Change in accrued interest payable
    
    
    76,283
    
    
    
    8,959Change in other assets and other liabilities
    
    
    (59,030
    )
    
    
    (46,976
    )Net cash from operating activities
    
    
    907,017
    
    
    
    1,096,959Cash flows from investing activitiesSecurities available for saleSales
    
    
    2,160,827
    
    
    
    298,800Maturities, prepayments and calls
    
    
    3,976,417
    
    
    
    4,018,771Purchases
    
    
    (1,618,646
    )
    
    
    (13,557,657
    )Purchases of Federal Home Loan Bank stock
    
    
    (20,000
    )
    
    
    (15,700
    )Loan originations and payments, net
    
    
    (4,292,413
    )
    
    
    (1,147,909
    )Proceeds from sale of credit card portfolio
    
    
    
    
    
    
    778,474Purchases of premises and equipment
    
    
    (1,281,232
    )
    
    
    (572,384
    )Proceeds from sale of other real estate owned
    
    
    
    
    
    
    177,786Purchase of bank owned life insurance
    
    
    (10,000
    )
    
    
    (30,000
    )Net cash from investing activities
    
    
    (1,085,047
    )
    
    
    (10,049,819
    )Cash flows from financing activitiesNet changes in deposits
    
    
    4,454,441
    
    
    
    (1,370,132
    )Net cash received from branch acquisitions
    
    
    
    
    
    
    11,745,892Proceeds from long-term borrowings
    
    
    5,500,000
    
    
    
    7,200,000Principal repayments of long-term borrowings
    
    
    (6,294,519
    )
    
    
    (6,278,943
    )Repurchase of common stock for treasury
    
    
    (553,173
    )
    
    
    Cash dividends paid
    
    
    (147,471
    )
    
    
    (152,000
    )Net cash from financing activities
    
    
    2,959,278
    
    
    
    11,144,817Net change in cash and cash equivalents
    
    
    2,781,248
    
    
    
    2,191,957Beginning cash and cash equivalents
    
    
    6,691,941
    
    
    
    4,499,984Ending cash and cash equivalents
    
    $
    9,473,189
    
    
    $
    6,691,941Supplemental cash flow information:Interest paid
    
    $
    4,112,224
    
    
    $
    3,153,297Income taxes paid
    
    
    300,000
    
    
    
    300,000Supplemental noncash disclosures:Transfers from loans to other real estate owned and repossessions
    
    $
    10,225
    
    
    $
    198,200
  7




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
 Nature of Operations
 Use of Estimates
 Cash Flow Reporting
 Trading Assets:
 Securities
   Loans
  8




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Allowance for Loan Losses
   Foreclosed Assets
 Premises and Equipment
 Bank Owned Life Insurance
 Federal Home Loan Bank (FHLB) and other restricted stock:
  9




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Goodwill and Other Intangible Assets
 Long-term Assets
 Income Taxes
 Loan Commitments and Related Financial Instruments
 Earnings Per Common Share
 Dividend Restriction
 Loss Contingencies
 Restrictions on Cash
 Comprehensive Income
 Fair Values of Financial Instruments
  10




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##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Operating Segments
 Adoption of New Accounting Standards
 Reclassifications
 NOTE 2  SECURITIES AVAILABLE FOR SALE
  2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury
    
    $
    100,485
    
    
    $
    1,499
    
    
    $
    
    
    
    $
    101,984U.S. government sponsored entities
    
    
    15,681,100
    
    
    
    
    
    
    
    (169,681
    )
    
    
    15,511,419Mortgage-backed
    
    
    7,241,604
    
    
    
    
    
    
    
    (168,903
    )
    
    
    7,072,701State and municipal
    
    
    6,391,840
    
    
    
    106,459
    
    
    
    (51,147
    )
    
    
    6,447,152Corporate
    
    
    514,372
    
    
    
    
    
    
    
    (8,487
    )
    
    
    505,885Total debt securities
    
    $
    29,929,401
    
    
    $
    107,958
    
    
    $
    (398,218
    )
    
    $
    29,639,141
 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury
    
    $
    100,579
    
    
    $
    2,234
    
    
    $
    
    
    
    $
    102,813U.S. government sponsored entities
    
    
    17,397,029
    
    
    
    2,752
    
    
    
    (293,781
    )
    
    
    17,106,000Mortgage-backed
    
    
    8,631,902
    
    
    
    
    
    
    
    (208,310
    )
    
    
    8,423,592State and municipal
    
    
    7,821,810
    
    
    
    136,188
    
    
    
    (53,396
    )
    
    
    7,904,602Corporate
    
    
    529,162
    
    
    
    
    
    
    
    (14,410
    )
    
    
    514,752Total debt securities
    
    $
    34,480,482
    
    
    $
    141,174
    
    
    $
    (569,897
    )
    
    $
    34,051,759
  11




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##### 



NOTE 2  SECURITIES AVAILABLE FOR SALE
  2006
    
    2005Proceeds
    
    $
    2,160,827
    
    
    $
    298,800Gross gains
    
    
    22,111
    
    
    
    1,169Gross losses
    
    
    27,791
    
    
    
    
   FairValueDue in one year or less
    
    $
    7,118,697Due from one to five years
    
    
    16,770,796Due from five to ten years
    
    
    4,054,549Due after ten years
    
    
    1,695,099$
    29,639,141
   2006Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossU.S. government
sponsored entities
    
    $
    3,204,612
    
    
    $
    (6,574
    )
    
    $
    11,981,807
    
    
    $
    (163,107
    )
    
    $
    15,186,419
    
    
    $
    (169,681
    )Mortgage-backed
    
    
    
    
    
    
    
    
    
    
    7,072,701
    
    
    
    (168,903
    )
    
    
    7,072,701
    
    
    
    (168,903
    )State and municipal
    
    
    1,030,589
    
    
    
    (1,027
    )
    
    
    2,653,907
    
    
    
    (50,120
    )
    
    
    3,684,496
    
    
    
    (51,147
    )Corporate
    
    
    
    
    
    
    
    
    
    
    505,885
    
    
    
    (8,487
    )
    
    
    505,885
    
    
    
    (8,487
    )Total temporarily impaired
    
    $
    4,235,201
    
    
    $
    (7,601
    )
    
    $
    22,214,300
    
    
    $
    (390,617
    )
    
    $
    26,449,501
    
    
    $
    (398,218
    )
 2005U.S. government
sponsored entities
    
    $
    9,307,211
    
    
    $
    (124,686
    )
    
    $
    6,795,852
    
    
    $
    (169,095
    )
    
    $
    16,103,063
    
    
    $
    (293,781
    )Mortgage-backed
    
    
    5,688,295
    
    
    
    (131,295
    )
    
    
    2,735,297
    
    
    
    (77,015
    )
    
    
    8,423,592
    
    
    
    (208,310
    )State and municipal
    
    
    2,182,460
    
    
    
    (21,514
    )
    
    
    1,418,694
    
    
    
    (31,882
    )
    
    
    3,601,154
    
    
    
    (53,396
    )Corporate
    
    
    
    
    
    
    
    
    
    
    514,752
    
    
    
    (14,410
    )
    
    
    514,752
    
    
    
    (14,410
    )Total temporarily impaired
    
    $
    17,177,966
    
    
    $
    (277,495
    )
    
    $
    11,464,595
    
    
    $
    (292,402
    )
    
    $
    28,642,561
    
    
    $
    (569,897
    )
  12




---



##### 



NOTE 2  SECURITIES AVAILABLE FOR SALE
  NOTE 3  LOANS
  2006
    
    
    2005Commercial
    
    $
    10,798,154
    
    
    $
    9,614,236Installment
    
    
    15,217,977
    
    
    
    18,529,276Residential and non-commercial real estate
    
    
    37,201,951
    
    
    
    37,194,365Commercial real estate
    
    
    36,299,966
    
    
    
    30,107,709Other
    
    
    35,565
    
    
    
    52,63899,553,613
    
    
    
    95,498,224Net deferred loan costs
    
    
    170,638
    
    
    
    280,380Allowance for loan losses
    
    
    (938,086
    )
    
    
    (986,385
    )$
    98,786,165
    
    
    $
    94,792,219
  2006
    
    
    2005Beginning balance
    
    $
    986,385
    
    
    $
    961,404Loans charged-off
    
    
    (281,392
    )
    
    
    (450,700
    )Recoveries of previous charge-offs
    
    
    54,593
    
    
    
    90,181Provision for loan losses
    
    
    178,500
    
    
    
    385,500Ending balance
    
    $
    938,086
    
    
    $
    986,385
  2006
    
    2005Year-end balance of impaired loans with allocated allowance
    
    $
    955,423
    
    
    
    550,492Amount of allowance allocated at year-end
    
    
    155,637
    
    
    
    159,991Average balance of impaired loans
    
    
    778,969
    
    
    
    306,249Interest income recognized during impairment
    
    
    44,641
    
    
    
    Cash-basis interest income recognized
    
    
    43,438
    
    
    
    
  13




---



##### 



NOTE 3  LOANS
  2006
    
    2005Loans past due over 90 days still on accrual
    
    $
    300,953
    
    
    $
    7,772Loans on nonaccrual
    
    
    1,491,008
    
    
    
    1,151,297
  NOTE 4  PREMISES AND EQUIPMENT
  2006
    
    
    2005Land
    
    $
    1,016,647
    
    
    $
    153,875Building and improvements
    
    
    2,596,706
    
    
    
    2,337,380Furniture, fixtures and equipment
    
    
    2,215,390
    
    
    
    2,062,456Leasehold improvements
    
    
    65,495
    
    
    
    59,295Total cost
    
    
    5,894,238
    
    
    
    4,613,006Less accumulated depreciation
    
    
    (1,822,316
    )
    
    
    (1,491,401
    )$
    4,071,922
    
    
    $
    3,121,605
     14




---



##### 



NOTE 5  GOODWILL AND INTANGIBLE ASSETS
  2006
    
    
    2005GoodwillBeginning of year
    
    $
    270,500
    
    
    $
    Acquired goodwill
    
    
    
    
    
    
    270,500End of year
    
    $
    270,500
    
    
    $
    270,500Intangible AssetsBeginning of year gross carrying amount
    
    $
    533,000
    
    
    $
    Acquired core deposit intangible
    
    
    
    
    
    
    533,000Accumulated core deposit amortization
    
    
    (142,244
    )
    
    
    (73,287
    )End of year
    
    $
    390,756
    
    
    $
    459,713
  2007
    
    $
    58,6132008
    
    
    49,8212009
    
    
    46,7612010
    
    
    46,7612011
    
    
    46,761
  NOTE 6  DEPOSITS
  2006
    
    
    2005Demand and money market
    
    $
    26,221,693
    
    
    $
    21,742,739Savings
    
    
    16,019,757
    
    
    
    18,301,064Time:In denominations under $100,000
    
    
    32,788,227
    
    
    
    32,359,147In denominations of $100,000 or more
    
    
    30,307,037
    
    
    
    27,200,254Total interest-bearing deposits
    
    $
    105,336,714
    
    
    $
    99,603,204
  15




---



##### 



NOTE 6  DEPOSITS
  1 year or less
    
    $
    44,486,624
    
    
    $
    35,897,5961 through 2 years
    
    
    15,734,017
    
    
    
    15,042,7022 through 3 years
    
    
    1,958,951
    
    
    
    6,975,6333 through 4 years
    
    
    639,446
    
    
    
    1,035,3174 through 5 years
    
    
    267,131
    
    
    
    579,756Greater than 5 years
    
    
    9,095
    
    
    
    28,397$
    63,095,264
    
    
    $
    59,559,401
  NOTE 7  BORROWINGS
  2006
    
    2005Maximum month-end balance during the year
    
    $
    13,790,000
    
    
    $
    16,578,000Average balance during the year
    
    
    12,486,000
    
    
    
    15,037,000Average interest rate during the year
    
    
    4.32
    %
    
    
    3.67
    %Average interest rate at year-end
    
    
    4.67
    %
    
    
    3.99
    %
  2006
    
    
    2005Convertible advance, 4.60%, due January 24, 2011
    
    $
    
    
    
    $
    1,000,000Mortgage-matched advance, 5.91% fixed rate, maturity July 1, 2011
    
    
    25,004
    
    
    
    29,716Constant monthly payment advances with fixed rates
between 3.78% and 4.43%, final maturities ranging from
May, 2007 through January, 2009
    
    
    888,854
    
    
    
    1,578,661Regular fixed rate advances with rates between 3.73% and 5.74%
and maturities through March, 2011 for 2006 and rates between
2.72% and 4.90% and maturities through August, 2008 for 2005
    
    
    12,700,000
    
    
    
    11,800,000$
    13,613,858
    
    
    $
    14,408,377
   16




---



##### 



NOTE 7  BORROWINGS
  Year ended December 31,2007
    
    $
    6,697,3632008
    
    
    3,201,7902009
    
    
    2,205,6232010
    
    
    5,9652011
    
    
    1,503,117$
    13,613,858
  NOTE 8  SUBORDINATED DEBENTURES
   Maturity:
    
    April 23, 2034Coupon Payment:
    
    Quarterly at 285 basis points over the 3-month LIBOR rateCall Options:
    
    Callable quarterly by the Corporation starting April 2009
at par. May be called prior to 2009, at par, if a
material change in tax treatment or the Federal Reserve
capital requirements occurs.Put Options:
    
    None
   17




---



##### 



NOTE 9  EMPLOYEE BENEFITS
     18




---



##### 



NOTE 10  INCOME TAXES
  2006
    
    
    2005Current
    
    $
    164,444
    
    
    $
    223,174Deferred
    
    
    (46,227
    )
    
    
    (88,183
    )$
    118,217
    
    
    $
    134,991
  2006
    
    
    2005Federal statutory rate times pretax income at 34%
    
    $
    215,041
    
    
    $
    241,941Effect of:Tax exempt interest
    
    
    (75,342
    )
    
    
    (87,008
    )Cash surrender value increase of bank owned life insurance
    
    
    (20,524
    )
    
    
    (14,651
    )Other, net
    
    
    (958
    )
    
    
    (5,291
    )Total
    
    $
    118,217
    
    
    $
    134,991Effective tax rate %
    
    
    18.7
    %
    
    
    19.0
    %
  2006
    
    
    2005Deferred tax assetsAllowance for loan losses
    
    $
    187,506
    
    
    $
    193,608Deferred compensation
    
    
    316,437
    
    
    
    290,594Unrealized loss on securities available for sale
    
    
    98,688
    
    
    
    145,766Nonaccrual loan interest
    
    
    47,002
    
    
    
    Deferred loan fees
    
    
    38,685
    
    
    
    29,702Other
    
    
    12,217
    
    
    
    6,705Total deferred tax assets
    
    
    700,535
    
    
    
    666,375Deferred tax liabilitiesDepreciation
    
    
    (137,295
    )
    
    
    (133,214
    )FHLB stock dividend
    
    
    (69,768
    )
    
    
    (58,990
    )Prepaid expenses
    
    
    (48,865
    )
    
    
    (42,488
    )Security accretion
    
    
    (19,412
    )
    
    
    (8,225
    )Other
    
    
    (2,588
    )
    
    
    Total deferred tax liabilities
    
    
    (277,928
    )
    
    
    (242,917
    )Net deferred tax asset (liability)
    
    $
    422,607
    
    
    $
    423,458
  19




---



##### 



NOTE 11  RELATED PARTIES
  Beginning balance
    
    $
    733,705New loans
    
    
    15,695Effect of changes in composition of related parties
    
    
    Repayments
    
    
    (123,192
    )Ending balance
    
    $
    626,208
  NOTE 12  LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES
    2006
    
    2005Commitments to extend credit
    
    $
    9,762,000
    
    
    $
    8,153,000Overdraft protection
    
    
    1,052,000
    
    
    
    1,100,000Letters of credit
    
    
    30,000
    
    
    
    152,000
  20




---



##### 



NOTE 13  FAIR VALUES OF FINANCIAL INSTRUMENTS
  2006
    
    
    2005Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    9,473,189
    
    
    $
    9,473,189
    
    
    $
    6,691,941
    
    
    $
    6,691,941Trading securities
    
    
    176,612
    
    
    
    176,612
    
    
    
    
    
    
    
    Securities available for sale
    
    
    29,639,141
    
    
    
    29,639,141
    
    
    
    34,051,759
    
    
    
    34,051,759Loans, net
    
    
    98,786,165
    
    
    
    96,621,266
    
    
    
    94,792,219
    
    
    
    94,164,512Restricted stock
    
    
    628,540
    
    
    
    628,540
    
    
    
    576,840
    
    
    
    576,840Accrued interest receivable
    
    
    730,385
    
    
    
    730,385
    
    
    
    700,199
    
    
    
    700,199Financial liabilitiesDemand and savings
deposits
    
    
    (55,032,486
    )
    
    
    (55,032,486
    )
    
    
    (54,113,908
    )
    
    
    (54,113,908
    )Time deposits
    
    
    (63,095,264
    )
    
    
    (63,191,579
    )
    
    
    (59,559,401
    )
    
    
    (59,577,269
    )Borrowings
    
    
    (13,613,858
    )
    
    
    (13,559,544
    )
    
    
    (14,408,377
    )
    
    
    (14,249,885
    )Subordinated debentures
    
    
    (3,000,000
    )
    
    
    (3,087,155
    )
    
    
    (3,000,000
    )
    
    
    (3,686,764
    )Accrued interest payable
    
    
    (277,493
    )
    
    
    (277,493
    )
    
    
    (201,210
    )
    
    
    (201,210
    )
   21




---



##### 



NOTE 14  CAPITAL REQUIREMENTS, RESTRICTIONS ON RETAINED EARNINGS AND REGULATORY MATTERS
    To Be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action RegulationsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)2006Total capital (to risk weighted
assets)
    
    $
    13,625
    
    
    
    13.6
    %
    
    $
    8,020
    
    
    
    8.0
    %
    
    $
    10,024
    
    
    
    10.0
    %Tier 1 capital (to risk weighted
assets)
    
    
    12,687
    
    
    
    12.7
    
    
    
    4,010
    
    
    
    4.0
    
    
    
    6,015
    
    
    
    6.0Tier 1 capital (to average assets)
    
    
    12,687
    
    
    
    8.9
    
    
    
    5,695
    
    
    
    4.0
    
    
    
    7,119
    
    
    
    5.02005Total capital (to risk weighted
assets)
    
    $
    12,874
    
    
    
    13.1
    %
    
    $
    7,869
    
    
    
    8.0
    %
    
    $
    9,836
    
    
    
    10.0
    %Tier 1 capital (to risk weighted
assets)
    
    
    11,887
    
    
    
    12.1
    
    
    
    3,934
    
    
    
    4.0
    
    
    
    5,901
    
    
    
    6.0Tier 1 capital (to average assets)
    
    
    11,887
    
    
    
    8.3
    
    
    
    5,721
    
    
    
    4.0
    
    
    
    7,151
    
    
    
    5.0
   22




---



##### 



NOTE 15  OTHER COMPREHENSIVE INCOME (LOSS)
  2006
    
    
    2005Unrealized holding gains (losses) on available-for-sale
securities
    
    $
    132,783
    
    
    $
    (568,551
    )Reclassification adjustments for (gains) losses later
recognized in income
    
    
    5,680
    
    
    
    (1,169
    )Net unrealized gains (losses)
    
    
    138,463
    
    
    
    (569,720
    )Tax effect
    
    
    (47,077
    )
    
    
    193,705Other comprehensive income (loss)
    
    $
    91,386
    
    
    $
    (376,015
    )
  23




---



##### 



NOTE 16  PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
  
 2006
    
    
    2005AssetsCash and cash equivalents
    
    $
    690,835
    
    
    $
    1,695,093Investment in bank subsidiary
    
    
    13,157,526
    
    
    
    12,334,565Investment in Ohio State Bancshares Capital Trust I
    
    
    37,500
    
    
    
    55,500Other assets
    
    
    338,265
    
    
    
    226,311Total assets
    
    $
    14,224,126
    
    
    $
    14,311,469Liabilities and shareholders equitySubordinated debentures
    
    $
    3,000,000
    
    
    $
    3,000,000Accrued interest payable
    
    
    47,606
    
    
    
    39,947Shareholders equity
    
    
    11,176,520
    
    
    
    11,271,522Total liabilities and shareholders equity
    
    $
    14,224,126
    
    
    $
    14,311,469
 
 2006
    
    
    2005Interest expense
    
    $
    241,287
    
    
    $
    186,262Professional fees
    
    
    6,631
    
    
    
    14,126Fees paid to The Ohio State Bank
    
    
    60,000
    
    
    
    58,700Loss on investment in Ohio State Bancshares Capital Trust I
    
    
    18,000
    
    
    
    18,000Other expenses
    
    
    3,355
    
    
    
    4,117Total expenses
    
    
    329,273
    
    
    
    281,205Income (loss) before income tax and undistributed
subsidiary income
    
    
    (329,273
    )
    
    
    (281,205
    )Income tax benefit
    
    
    111,953
    
    
    
    93,501Equity in undistributed subsidiary income
    
    
    731,576
    
    
    
    764,305Net income
    
    
    514,256
    
    
    
    576,601Other comprehensive income
    
    
    91,386
    
    
    
    (376,015
    )Total comprehensive income
    
    $
    605,642
    
    
    $
    200,586
  24




---



##### 



NOTE 16  PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
 
 2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    514,256
    
    
    $
    576,601Adjustments:Equity in undistributed subsidiary income
    
    
    (731,576
    )
    
    
    (764,305
    )Loss on investment in Ohio State Bancshares Capital Trust I
    
    
    18,000
    
    
    
    18,000Change in other assets
    
    
    (111,953
    )
    
    
    (93,501
    )Change in accrued interest payable
    
    
    7,659
    
    
    
    11,822Net cash from operating activities
    
    
    (303,614
    )
    
    
    (251,383
    )Cash flows from investing activitiesCapital contributions to subsidiary
    
    
    
    
    
    
    (1,000,000
    )Net cash from investing activities
    
    
    
    
    
    
    (1,000,000
    )Cash flows from financing activitiesRepurchase of common stock for treasury
    
    
    (553,173
    )
    
    
    Cash dividends paid
    
    
    (147,471
    )
    
    
    (152,000
    )Net cash from financing activities
    
    
    (700,644
    )
    
    
    (152,000
    )Net change in cash and cash equivalents
    
    
    (1,004,258
    )
    
    
    (1,403,383
    )Beginning cash and cash equivalents
    
    
    1,695,093
    
    
    
    3,098,476Ending cash and cash equivalents
    
    $
    690,835
    
    
    $
    1,695,093
 25




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    CRITICAL ACCOUNTING ESTIMATES
 Allowance for loan losses Allowance and Provision for Loan Losses.
 Supplemental Defined Benefit Plan
  26




---



##### 



RESULTS OF OPERATIONS
  NET INTEREST INCOME
   Year-to-yearAverage
    
    Average
    
    Change in2006
    
    2005
    
    basis pointsFederal Funds Target
    
    
    4.96
    
    
    
    3.19
    
    
    
    +1773-month LIBOR
    
    
    5.20
    
    
    
    3.57
    
    
    
    +1633-year Treasury
    
    
    4.77
    
    
    
    3.93
    
    
    
    +84
 Asset/Liability Management
   27




---



##### 



Average Balance Sheets and Analysis of Net Interest Income for the Years Ended December 31,
 2006
    
    
    2005Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestAverage
    
    
    Yield or
    
    
    Earned
    
    
    Average
    
    
    Yield or
    
    
    EarnedBalance
    
    
    Rate Paid
    
    
    or Paid
    
    
    Balance
    
    
    Rate Paid
    
    
    or PaidASSETS:Interest-Earning Assets:Federal funds sold
    
    $
    2,234
    
    
    
    5.08
    %
    
    $
    114
    
    
    $
    3,030
    
    
    
    3.04
    %
    
    $
    92Interest-earning deposits
    
    
    386
    
    
    
    5.95
    
    
    
    23
    
    
    
    1,203
    
    
    
    2.83
    
    
    
    34Taxable securities
    
    
    24,945
    
    
    
    4.08
    
    
    
    1,019
    
    
    
    25,473
    
    
    
    3.82
    
    
    
    973Nontaxable securities
    
    
    6,767
    
    
    
    4.95
    
    
    
    335
    
    
    
    7,436
    
    
    
    5.04
    
    
    
    374FHLB and other bank stock
    
    
    610
    
    
    
    5.59
    
    
    
    34
    
    
    
    562
    
    
    
    4.38
    
    
    
    25Loans
    
    
    97,071
    
    
    
    7.36
    
    
    
    7,141
    
    
    
    96,724
    
    
    
    6.82
    
    
    
    6,600Total Interest-Earning Assets
    
    
    132,013
    
    
    
    6.56
    
    
    
    8,666
    
    
    
    134,428
    
    
    
    6.02
    
    
    
    8,098Noninterest-Earning Assets:Cash and due from
financial institutions
    
    
    3,251
    
    
    
    
    
    
    
    
    
    
    
    3,128Premises and equipment, net
    
    
    3,691
    
    
    
    
    
    
    
    
    
    
    
    3,042Accrued interest and other assets
    
    
    4,618
    
    
    
    
    
    
    
    
    
    
    
    4,119Unrealized gains (losses) on securities
    
    
    (487
    )
    
    
    
    
    
    
    
    
    
    
    (108
    )Less: Allowance for loan losses
    
    
    (957
    )
    
    
    
    
    
    
    
    
    
    
    (962
    )Total Noninterest-Earning Assets
    
    
    10,116
    
    
    
    
    
    
    
    
    
    
    
    9,219TOTAL ASSETS
    
    $
    142,129
    
    
    
    
    
    
    
    
    
    
    $
    143,647LIABILITIES AND SHAREHOLDERS EQUITY:Interest-Bearing Liabilities:Demand deposits
    
    $
    25,097
    
    
    
    2.00
    
    
    
    501
    
    
    $
    24,216
    
    
    
    0.97
    
    
    
    234Savings deposits
    
    
    17,137
    
    
    
    2.36
    
    
    
    404
    
    
    
    18,650
    
    
    
    1.49
    
    
    
    278Time deposits
    
    
    60,203
    
    
    
    4.16
    
    
    
    2,503
    
    
    
    59,039
    
    
    
    3.28
    
    
    
    1,936Other borrowings
    
    
    12,486
    
    
    
    4.32
    
    
    
    540
    
    
    
    15,037
    
    
    
    3.67
    
    
    
    552Subordinated debentures
    
    
    3,000
    
    
    
    8.04
    
    
    
    241
    
    
    
    3,000
    
    
    
    6.21
    
    
    
    186Total Interest-Bearing Liabilities
    
    
    117,923
    
    
    
    3.55
    
    
    
    4,189
    
    
    
    119,942
    
    
    
    2.66
    
    
    
    3,186Noninterest-Bearing Liabilities:Demand deposits
    
    
    11,784
    
    
    
    
    
    
    
    
    
    
    
    11,159Accrued interest payable
and other liabilities
    
    
    1,282
    
    
    
    
    
    
    
    
    
    
    
    1,258Total Noninterest-Bearing Liabilities
    
    
    13,066
    
    
    
    
    
    
    
    
    
    
    
    12,417TOTAL LIABILITIES
    
    
    130,989
    
    
    
    
    
    
    
    
    
    
    
    132,359TOTAL SHAREHOLDERS EQUITY
    
    
    11,140
    
    
    
    
    
    
    
    
    
    
    
    11,288TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    142,129
    
    
    
    
    
    
    
    
    
    
    $
    143,647NET INTEREST INCOME
    
    
    
    
    
    
    
    
    
    $
    4,477
    
    
    
    
    
    
    
    
    
    
    $
    4,912NET INTEREST SPREAD
    
    
    
    
    
    
    3.01
    %
    
    
    
    
    
    
    
    
    
    
    3.36
    %NET YIELD ON INTEREST
EARNING ASSETS
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    3.65
    %
  28




---



##### 



INTEREST RATES AND INTEREST DIFFERENTIAL
 2006 Compared to 2005
    
    
    2005 Compared to 2004Increase/(Decrease)
    
    
    Increase/(Decrease)(In thousands)Change
    
    
    Change
    
    
    
    
    
    
    Change
    
    
    ChangeTotal
    
    
    due to
    
    
    due to
    
    
    Total
    
    
    due to
    
    
    due toChange
    
    
    Volume
    
    
    Rate
    
    
    Change
    
    
    Volume
    
    
    RateFederal funds sold
    
    $
    22
    
    
    $
    (29
    )
    
    $
    51
    
    
    $
    63
    
    
    $
    6
    
    
    $
    57Interest-earning deposits
    
    
    (11
    )
    
    
    (33
    )
    
    
    22
    
    
    
    10
    
    
    
    (2
    )
    
    
    12Taxable securities
    
    
    46
    
    
    
    (21
    )
    
    
    67
    
    
    
    308
    
    
    
    283
    
    
    
    25Nontaxable securities (1)
    
    
    (39
    )
    
    
    (33
    )
    
    
    (6
    )
    
    
    (8
    )
    
    
    7
    
    
    
    (15
    )FHLB and other bank stock
    
    
    9
    
    
    
    2
    
    
    
    7
    
    
    
    3
    
    
    
    1
    
    
    
    2Loans (2)
    
    
    541
    
    
    
    24
    
    
    
    517
    
    
    
    971
    
    
    
    1,033
    
    
    
    (62
    )Total interest income
    
    
    568
    
    
    
    (90
    )
    
    
    658
    
    
    
    1,347
    
    
    
    1,328
    
    
    
    19Demand deposits
    
    
    267
    
    
    
    9
    
    
    
    258
    
    
    
    40
    
    
    
    (5
    )
    
    
    45Savings deposits
    
    
    126
    
    
    
    (24
    )
    
    
    150
    
    
    
    130
    
    
    
    36
    
    
    
    94Time deposits
    
    
    567
    
    
    
    39
    
    
    
    528
    
    
    
    583
    
    
    
    520
    
    
    
    63Other borrowings
    
    
    (12
    )
    
    
    (102
    )
    
    
    90
    
    
    
    166
    
    
    
    121
    
    
    
    45Subordinated debentures
    
    
    55
    
    
    
    
    
    
    
    55
    
    
    
    69
    
    
    
    24
    
    
    
    45Total interest expense
    
    
    1,003
    
    
    
    (78
    )
    
    
    1,081
    
    
    
    988
    
    
    
    696
    
    
    
    292Net interest income
    
    $
    (435
    )
    
    $
    (12
    )
    
    $
    (423
    )
    
    $
    359
    
    
    $
    632
    
    
    $
    (273
    )
 
 (1)
    
    Nontaxable income is adjusted to a fully tax equivalent basis using a 34% tax
rate.(2)
    
    Nonaccrual loan balances are included for purposes of computing the rate and volume
effects although interest on these balances has been excluded.  29




---



##### 



ALLOWANCE AND PROVISION FOR LOAN LOSSES
   Nonaccrual, Past Due and Impaired Loans at December 31,2006
    
    
    2005(In thousands)Nonaccrual loans not included in impaired loans
    
    $
    706
    
    
    $
    601Loans past due 90 days or more,
excluding nonaccrual and impaired loans
    
    
    131
    
    
    
    8Impaired loans
    
    
    955
    
    
    
    550Total
    
    $
    1,792
    
    
    $
    1,159
    30




---



##### 



2006
    
    
    2005(in thousands)Allowance for loan losses:Balance at beginning of period
    
    $
    986
    
    
    $
    961Loans charged-off:Commercial
    
    
    (10
    )
    
    
    (16
    )Real estate
    
    
    (57
    )
    
    
    (56
    )Credit card
    
    
    
    
    
    
    (43
    )Installment
    
    
    (214
    )
    
    
    (336
    )Total loans charged-off:
    
    
    (281
    )
    
    
    (451
    )Recoveries of loans previously charged-off:Commercial
    
    
    
    
    
    
    26Real estate
    
    
    1
    
    
    
    6Credit card
    
    
    2
    
    
    
    1Installment
    
    
    51
    
    
    
    57Total loan recoveries
    
    
    54
    
    
    
    90Net loans charged-off
    
    
    (227
    )
    
    
    (361
    )Provision for loan losses
    
    
    179
    
    
    
    386Balance at end of period
    
    $
    938
    
    
    $
    986
 Ratios:
    
    2006
    
    2005Net loans charged-off to average loans
    
    
    0.23
    %
    
    
    0.37
    %Net loans charged-off to total loans at end of period
    
    
    0.23
    
    
    
    0.38Allowance for loan losses to average loans
    
    
    0.97
    
    
    
    1.02Allowance for loan losses to total loans at end of period
    
    
    0.94
    
    
    
    1.03Net loans charged-off to allowance for loan losses at end of period
    
    
    24.18
    
    
    
    36.55Net loans charged-off to provision for loan losses
    
    
    127.06
    
    
    
    93.52Allowance for loan losses to nonperforming loans (1)
    
    
    52.35
    
    
    
    85.10
 
 (1)
    
    Nonperforming loans consist of nonaccrual loans, loans past due 90 days or more and still accruing interest, and impaired loans.  Percentage of
    
    
    
    
    
    
    Percentage ofLoans in Each
    
    
    
    
    
    
    Loans in EachAllowance
    
    
    Category to
    
    
    Allowance
    
    
    Category toAmount
    
    
    Total Loans
    
    
    Amount
    
    
    Total LoansDecember 31, 2006
    
    
    December 31, 2005Commercial
    
    $
    24,543
    
    
    
    10.85
    %
    
    $
    148,790
    
    
    
    10.07
    %Real Estate
    
    
    347,316
    
    
    
    73.83
    
    
    
    248,369
    
    
    
    70.47Installment
    
    
    435,397
    
    
    
    15.29
    
    
    
    463,846
    
    
    
    19.40Other
    
    
    
    
    
    
    0.03
    
    
    
    
    
    
    
    0.06Unallocated
    
    
    130,830
    
    
    
    N/A
    
    
    
    125,380
    
    
    
    N/ATotal
    
    $
    938,086
    
    
    
    100.00
    %
    
    $
    986,385
    
    
    
    100.00
    %
  31




---



##### 



NONINTEREST INCOME
  NONINTEREST EXPENSE
     FINANCIAL CONDITION
 TOTAL ASSETS
  LOANS
   32




---



##### 



2006
    
    2005
    
    2006
    
    2006Balance
    
    Balance
    
    $Growth
    
    % GrowthCommercial
    
    $
    10,798,000
    
    
    $
    9,614,000
    
    
    $
    1,184,000
    
    
    
    12.31
    %Installment
    
    
    15,218,000
    
    
    
    18,529,000
    
    
    
    (3,311,000
    )
    
    
    (17.87
    )Residential and non- commercial
real estate
    
    
    37,202,000
    
    
    
    37,194,000
    
    
    
    8,000
    
    
    
    0.02Commercial real estate
    
    
    36,300,000
    
    
    
    30,108,000
    
    
    
    6,192,000
    
    
    
    20.57Other
    
    
    36,000
    
    
    
    53,000
    
    
    
    (17,000
    )
    
    
    (32.43
    )
       33




---



##### 



One
    
    
    OneYear
    
    
    Through
    
    
    After Five(In thousands)
    
    or Less
    
    
    Five Years
    
    
    Years
    
    
    TotalResidential Real EstateFixed Rate
    
    $
    1,429
    
    
    $
    518
    
    
    $
    1,535
    
    
    $
    3,482Variable Rate
    
    
    7,817
    
    
    
    1,381
    
    
    
    24,522
    
    
    
    33,720Total Real Estate
    
    
    9,246
    
    
    
    1,899
    
    
    
    26,057
    
    
    
    37,202Commercial Real EstateFixed Rate
    
    
    
    
    
    
    951
    
    
    
    577
    
    
    
    1,528Variable Rate
    
    
    4,157
    
    
    
    5,286
    
    
    
    25,329
    
    
    
    34,772Total Real Estate
    
    
    4,157
    
    
    
    6,237
    
    
    
    25,906
    
    
    
    36,300CommercialFixed Rate
    
    
    371
    
    
    
    2,185
    
    
    
    15
    
    
    
    2,571Variable Rate
    
    
    3,092
    
    
    
    1,064
    
    
    
    4,071
    
    
    
    8,227Total Commercial
    
    
    3,463
    
    
    
    3,249
    
    
    
    4,086
    
    
    
    10,798InstallmentFixed Rate
    
    
    552
    
    
    
    13,833
    
    
    
    773
    
    
    
    15,158Variable Rate
    
    
    
    
    
    
    46
    
    
    
    14
    
    
    
    60Total Installment
    
    
    552
    
    
    
    13,879
    
    
    
    787
    
    
    
    15,218OtherFixed Rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Variable Rate
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Total Other
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Total All Loans
    
    $
    17,454
    
    
    $
    25,264
    
    
    $
    56,836
    
    
    $
    99,554Fixed Rate
    
    $
    2,352
    
    
    $
    17,487
    
    
    $
    2,900
    
    
    $
    22,739Variable
    
    
    15,102
    
    
    
    7,777
    
    
    
    53,936
    
    
    
    76,815
  34




---



##### 



SECURITIES
    2006
    
    
    2005Amortized
    
    
    Fair
    
    
    Average
    
    
    Amortized
    
    
    Fair
    
    
    AverageCost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    Yield(Dollars in thousands)U.S. Treasury:Over 1 year through 5 years
    
    $
    100
    
    
    $
    102
    
    
    
    4.88
    %
    
    $
    
    
    
    $
    Over 5 years through 10 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    103
    
    
    
    4.88
    %Total U.S. Treasury
    
    
    100
    
    
    
    102
    
    
    
    4.88
    
    
    
    101
    
    
    
    103
    
    
    
    4.88U.S. Government Sponsored Entities:Less than one year
    
    
    5,201
    
    
    
    5,168
    
    
    
    3.93
    
    
    
    2,070
    
    
    
    2,055
    
    
    
    3.05Over 1 year through 5 years
    
    
    9,432
    
    
    
    9,298
    
    
    
    4.36
    
    
    
    13,605
    
    
    
    13,364
    
    
    
    4.01Over 5 years through 10 years
    
    
    1,048
    
    
    
    1,045
    
    
    
    5.67
    
    
    
    1,722
    
    
    
    1,687
    
    
    
    5.24Total U.S. Government
Sponsored Entities
    
    
    15,681
    
    
    
    15,511
    
    
    
    4.30
    
    
    
    17,397
    
    
    
    17,106
    
    
    
    4.02Corporate Debt Securities:Less than one year
    
    
    514
    
    
    
    506
    
    
    
    3.37
    
    
    
    
    
    
    
    Over 1 year through 5 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    529
    
    
    
    515
    
    
    
    3.37Total Corporate Securities
    
    
    514
    
    
    
    506
    
    
    
    3.37
    
    
    
    529
    
    
    
    515
    
    
    
    3.37State and MunicipalLess than one year
    
    
    568
    
    
    
    568
    
    
    
    3.18
    
    
    
    634
    
    
    
    632
    
    
    
    2.76Over 1 year through 5 years
    
    
    2,430
    
    
    
    2,385
    
    
    
    3.10
    
    
    
    2,249
    
    
    
    2,220
    
    
    
    3.20Over 5 years through 10 years
    
    
    1,841
    
    
    
    1,880
    
    
    
    4.11
    
    
    
    2,455
    
    
    
    2,483
    
    
    
    3.97Over 10 years
    
    
    1,553
    
    
    
    1,614
    
    
    
    4.67
    
    
    
    2,484
    
    
    
    2,570
    
    
    
    4.78Total State and Municipal
    
    
    6,392
    
    
    
    6,447
    
    
    
    3.78
    
    
    
    7,822
    
    
    
    7,905
    
    
    
    3.91Mortgage-Backed Securities
    
    
    7,242
    
    
    
    7,073
    
    
    
    4.28
    
    
    
    8,631
    
    
    
    8,423
    
    
    
    4.28Total Securities
    
    $
    29,929
    
    
    $
    29,639
    
    
    
    4.10
    %
    
    $
    34,480
    
    
    $
    34,052
    
    
    
    4.05
    %
  35




---



##### 



FUNDING
    ASSET/LIABILITY MANAGEMENT
   36




---



##### 



One
    
    
    Three
    
    
    Over0-3
    
    
    3-12
    
    
    Through
    
    
    Through
    
    
    FiveMonths
    
    
    Months
    
    
    Three Years
    
    
    Five Years
    
    
    Years
    
    
    TotalAssetsLoans (1)
    
    $
    27,056
    
    
    $
    22,610
    
    
    $
    43,049
    
    
    $
    3,991
    
    
    $
    1,357
    
    
    $
    98,063Securities (2)
    
    
    8,803
    
    
    
    6,089
    
    
    
    7,994
    
    
    
    2,923
    
    
    
    3,830
    
    
    
    29,639Interest-earning deposits
    
    
    606
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    606Federal funds sold
    
    
    5,507
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,507Rate sensitive assets (RSA)
    
    
    41,972
    
    
    
    28,699
    
    
    
    51,043
    
    
    
    6,914
    
    
    
    5,187
    
    
    
    133,815Liabilities
Interest-bearing demand
    
    
    26,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,222Savings
    
    
    16,020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,020Time deposits
    
    
    11,775
    
    
    
    32,711
    
    
    
    17,693
    
    
    
    907
    
    
    
    9
    
    
    
    63,095Other borrowings
    
    
    2,158
    
    
    
    4,540
    
    
    
    5,407
    
    
    
    1,509
    
    
    
    
    
    
    
    13,614Subordinated debentures
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Rate sensitive liabilities (RSL)
    
    
    59,175
    
    
    
    37,251
    
    
    
    23,100
    
    
    
    2,416
    
    
    
    9
    
    
    
    121,951Period gap (3)
    
    $
    (17,203
    )
    
    $
    (8,552
    )
    
    $
    27,943
    
    
    $
    4,498
    
    
    $
    5,178
    
    
    $
    11,864Cumulative gap
    
    $
    (17,203
    )
    
    $
    (25,755
    )
    
    $
    2,188
    
    
    $
    6,686
    
    
    $
    11,864Percentage of RSA
    
    
    (12.86
    )%
    
    
    (19.25
    )%
    
    
    1.64
    %
    
    
    5.00
    %
    
    
    8.87
    %
 
 (1)
    
    Loans are presented gross less loans on nonaccrual and do not include net deferred loan
costs and the allowance for loan losses.(2)
    
    Securities are assumed to adjust based on their expected life. Maturities may be shortened
due to early calls or faster prepayment speeds based on interest rates that existed at
year-end.(3)
    
    Gap is defined as rate sensitive assets less rate sensitive liabilities and may be expressed
in dollars or as a percentage.  37




---



##### 



Year-end
    
    
    
    
    
    Year-end
    
    
    
    
    
    Year-end2006
    
    
    
    
    
    2005
    
    
    
    
    
    2004Projections
    
    % Change
    
    Projections
    
    % Change
    
    Projections
    
    % Change1-year Net Interest Income+200 Basis points
    
    $
    4,157,000
    
    
    
    (7.2
    )%
    
    $
    4,454,000
    
    
    
    (6.6
    )%
    
    $
    4,559,000
    
    
    
    (5.7
    )%+100 Basis points
    
    
    4,320,000
    
    
    
    (3.6
    )
    
    
    4,612,000
    
    
    
    (3.3
    )
    
    
    4,701,000
    
    
    
    (2.8
    )Base case
    
    
    4,481,000
    
    
    
    0.0
    
    
    
    4,769,000
    
    
    
    0.0
    
    
    
    4,836,000
    
    
    
    0.0-100 Basis points
    
    
    4,589,000
    
    
    
    2.4
    
    
    
    4,862,000
    
    
    
    2.0
    
    
    
    4,917,000
    
    
    
    1.7-200 Basis points
    
    
    4,651,000
    
    
    
    3.8
    
    
    
    4,910,000
    
    
    
    2.9
    
    
    
    4,922,000
    
    
    
    1.8
 CAPITAL RESOURCES
  Market for Common Equity and Related Shareholder Matters
 LIQUIDITY
   38




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##### 



IMPACT OF INFLATION
    39




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##### 



MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
   Low Bid
    
    High Bid
    
    Low Ask
    
    High Ask20061st Qtr.
    
    $
    90.00
    
    
    $
    90.00
    
    
    $
    93.00
    
    
    $
    93.002nd Qtr.
    
    
    90.00
    
    
    
    92.00
    
    
    
    93.00
    
    
    
    95.003rd Qtr.
    
    
    92.00
    
    
    
    92.00
    
    
    
    95.00
    
    
    
    95.004th Qtr.
    
    
    92.00
    
    
    
    92.00
    
    
    
    95.00
    
    
    
    95.0020051st Qtr.
    
    $
    84.00
    
    
    $
    84.00
    
    
    $
    87.00
    
    
    $
    87.002nd Qtr.
    
    
    84.00
    
    
    
    88.00
    
    
    
    87.00
    
    
    
    91.003rd Qtr.
    
    
    88.00
    
    
    
    88.00
    
    
    
    91.00
    
    
    
    91.004th Qtr.
    
    
    88.00
    
    
    
    90.00
    
    
    
    91.00
    
    
    
    93.00
    40




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##### 



BOARD OF DIRECTORS (1)
 Fred K. White  Chairman
    
    Retired, Division Manager,Ohio EdisonReal Estate Sales,HER Kinney PropertiesMarion, OhioGary E. Pendleton
    
    President and CEO,The Ohio State BankMarion, OhioLois J. Fisher
    
    Real Estate DeveloperMarion, OhioTheodore L. Graham
    
    Managing Partner, GrahamInvestment Co.Marion, OhioTed M. McKinniss
    
    Attorney of counsel withKegler Brown Hill and RitterMarion, OhioThurman R. Mathews
    
    Owner, Mathews-Kennedy Ford/Lincoln  MercuryMarion, OhioLowell E. Thurston
    
    President, Carrolls JewelersMarion, Ohio
 
 (1)
    
    All are Directors of Ohio State Bancshares, Inc. and The Ohio State Bank (formerly The
Marion Bank) 41




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##### 



OHIO STATE BANCSHARES, INC.
  
 THE OHIO STATE BANK
  
  
     42