##### 



EXHIBIT 13
 
 
  Presidents Letter
    
    
    1Comparative Summary of Selected Financial Data
    
    
    2Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    3Report of Independent Registered Public Accounting Firm
    
    
    19Consolidated Financial Statements
    
    
    20Notes to Consolidated Financial Statements
    
    
    25Shareholder Information
    
    
    39Performance Graph
    
    
    40Officers
    
    
    41Board of Directors
    
    
    42
 i.




---



##### 








---



##### 



2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002YEAR END BALANCESTotal assets
    
    $
    273,692
    
    
    $
    303,447
    
    
    $
    296,650
    
    
    $
    272,840
    
    
    $
    256,801Total securities
    
    
    51,773
    
    
    
    56,931
    
    
    
    59,883
    
    
    
    48,491
    
    
    
    39,668Loans, net
    
    
    192,407
    
    
    
    224,926
    
    
    
    211,690
    
    
    
    203,771
    
    
    
    199,974Total deposits
    
    
    249,665
    
    
    
    248,506
    
    
    
    249,174
    
    
    
    238,751
    
    
    
    222,808Total borrowed funds
    
    
    
    
    
    
    32,970
    
    
    
    24,600
    
    
    
    11,500
    
    
    
    11,850Total shareholders equity
    
    
    22,447
    
    
    
    21,525
    
    
    
    21,786
    
    
    
    21,155
    
    
    
    20,778Book value per outstanding share
    
    
    19.50
    
    
    
    18.55
    
    
    
    18.58
    
    
    
    18.21
    
    
    
    17.85Shares outstanding
    
    
    1,151,335
    
    
    
    1,160,338
    
    
    
    1,172,782
    
    
    
    1,161,952
    
    
    
    1,163,704RESULTS OF OPERATIONSInterest income
    
    $
    19,150
    
    
    $
    18,045
    
    
    $
    16,600
    
    
    $
    16,128
    
    
    $
    16,612Interest expense
    
    
    8,488
    
    
    
    6,303
    
    
    
    5,207
    
    
    
    5,581
    
    
    
    6,343Net interest income
    
    
    10,662
    
    
    
    11,742
    
    
    
    11,393
    
    
    
    10,547
    
    
    
    10,269Provision for loan loss
    
    
    (435
    )
    
    
    (1,355
    )
    
    
    (1,486
    )
    
    
    (1,972
    )
    
    
    (1,155
    )Other income
    
    
    2,443
    
    
    
    2,487
    
    
    
    2,473
    
    
    
    2,685
    
    
    
    3,071Salaries and employee benefits
    
    
    (5,308
    )
    
    
    (5,339
    )
    
    
    (5,180
    )
    
    
    (4,951
    )
    
    
    (4,505
    )Other expenses
    
    
    (5,092
    )
    
    
    (5,424
    )
    
    
    (5,237
    )
    
    
    (4,914
    )
    
    
    (5,080
    )Income before income taxes
    
    
    2,270
    
    
    
    2,111
    
    
    
    1,963
    
    
    
    1,395
    
    
    
    2,600Applicable income taxes
    
    
    (490
    )
    
    
    (444
    )
    
    
    (439
    )
    
    
    (122
    )
    
    
    (640
    )Net income
    
    $
    1,780
    
    
    $
    1,667
    
    
    $
    1,524
    
    
    $
    1,273
    
    
    $
    1,960PER SHARE DATANet incomeBasic
    
    $
    1.54
    
    
    $
    1.43
    
    
    $
    1.30
    
    
    $
    1.10
    
    
    $
    1.69Diluted
    
    $
    1.54
    
    
    $
    1.43
    
    
    $
    1.29
    
    
    $
    1.09
    
    
    $
    1.69Cash dividend paid
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.76FINANCIAL RATIOSReturn on average total assets
    
    
    0.61
    %
    
    
    0.57
    %
    
    
    0.55
    %
    
    
    0.48
    %
    
    
    0.79
    %Return on average shareholders equity
    
    
    8.09
    %
    
    
    7.63
    %
    
    
    7.04
    %
    
    
    5.93
    %
    
    
    9.79
    %Average shareholders equity to
average total assets
    
    
    7.56
    %
    
    
    7.43
    %
    
    
    7.75
    %
    
    
    8.10
    %
    
    
    8.11
    %Dividend payout
    
    
    49.40
    %
    
    
    53.14
    %
    
    
    58.71
    %
    
    
    69.10
    %
    
    
    44.99
    %
 2.




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 INTRODUCTION
     FORWARD-LOOKING STATEMENTS
  CRITICAL ACCOUNTING POLICIES
  3.




---



##### 



Allowance for loan losses
 RESULTS OF OPERATIONS
   Net Interest Income
    4.




---



##### 



CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS SHOWNThree Months Ended December 31
    
    Twelve Months Ended December 312006
    
    2005
    
    $ Chg
    
    % Chg
    
    2006
    
    2005
    
    $ Chg
    
    % ChgInterest and fees on loans
    
    
    3,995
    
    
    
    4,218
    
    
    
    (223
    )
    
    
    (5.29
    )
    
    
    16,538
    
    
    
    15,497
    
    
    
    1,041
    
    
    
    6.72Taxable interest on securities
    
    
    399
    
    
    
    438
    
    
    
    (39
    )
    
    
    (8.90
    )
    
    
    1,658
    
    
    
    1,792
    
    
    
    (134
    )
    
    
    (7.48
    )Tax-free interest on securities
    
    
    190
    
    
    
    188
    
    
    
    2
    
    
    
    1.06
    
    
    
    758
    
    
    
    723
    
    
    
    35
    
    
    
    4.84Other interest income
    
    
    86
    
    
    
    15
    
    
    
    71
    
    
    
    473.33
    
    
    
    196
    
    
    
    33
    
    
    
    163
    
    
    
    493.94Total interest income
    
    
    4,670
    
    
    
    4,859
    
    
    
    (189
    )
    
    
    (3.89
    )
    
    
    19,150
    
    
    
    18,045
    
    
    
    1,105
    
    
    
    6.12Interest on deposits
    
    
    2,067
    
    
    
    1,515
    
    
    
    552
    
    
    
    36.44
    
    
    
    7,448
    
    
    
    5,343
    
    
    
    2,105
    
    
    
    39.40Interest on borrowings
    
    
    50
    
    
    
    284
    
    
    
    (234
    )
    
    
    (82.39
    )
    
    
    1,040
    
    
    
    960
    
    
    
    80
    
    
    
    8.33Total interest expense
    
    
    2,117
    
    
    
    1,799
    
    
    
    318
    
    
    
    17.68
    
    
    
    8,488
    
    
    
    6,303
    
    
    
    2,185
    
    
    
    34.67Net interest income
    
    
    2,553
    
    
    
    3,060
    
    
    
    (507
    )
    
    
    (16.57
    )
    
    
    10,662
    
    
    
    11,742
    
    
    
    (1,080
    )
    
    
    (9.20
    )Provision for loan losses
    
    
    52
    
    
    
    405
    
    
    
    (353
    )
    
    
    (87.16
    )
    
    
    435
    
    
    
    1,355
    
    
    
    (920
    )
    
    
    (67.90
    )Net interest after PLL
    
    
    2,501
    
    
    
    2,655
    
    
    
    (154
    )
    
    
    (5.80
    )
    
    
    10,227
    
    
    
    10,387
    
    
    
    (160
    )
    
    
    (1.54
    )Service and overdraft fees
    
    
    392
    
    
    
    468
    
    
    
    (76
    )
    
    
    (16.24
    )
    
    
    1,541
    
    
    
    1,859
    
    
    
    (318
    )
    
    
    (17.11
    )Gains/(losses) on asset sales
    
    
    (4
    )
    
    
    (15
    )
    
    
    11
    
    
    
    (73.33
    )
    
    
    (61
    )
    
    
    (22
    )
    
    
    (39
    )
    
    
    177.27Other income
    
    
    193
    
    
    
    130
    
    
    
    63
    
    
    
    48.46
    
    
    
    963
    
    
    
    650
    
    
    
    313
    
    
    
    48.15Total other income
    
    
    581
    
    
    
    583
    
    
    
    (2
    )
    
    
    (0.34
    )
    
    
    2,443
    
    
    
    2,487
    
    
    
    (44
    )
    
    
    (1.77
    )Salaries and employee benefits
    
    
    1,214
    
    
    
    1,439
    
    
    
    (225
    )
    
    
    (15.64
    )
    
    
    5,308
    
    
    
    5,339
    
    
    
    (31
    )
    
    
    (0.58
    )Occupancy, furniture & equip
    
    
    442
    
    
    
    319
    
    
    
    123
    
    
    
    38.56
    
    
    
    1,417
    
    
    
    1,191
    
    
    
    226
    
    
    
    18.98State taxes
    
    
    91
    
    
    
    100
    
    
    
    (9
    )
    
    
    (9.00
    )
    
    
    404
    
    
    
    427
    
    
    
    (23
    )
    
    
    (5.39
    )Data processing
    
    
    75
    
    
    
    222
    
    
    
    (147
    )
    
    
    (66.22
    )
    
    
    594
    
    
    
    814
    
    
    
    (220
    )
    
    
    (27.03
    )FDIC deposit insurance
    
    
    17
    
    
    
    17
    
    
    
    0
    
    
    
    0.00
    
    
    
    68
    
    
    
    70
    
    
    
    (2
    )
    
    
    (2.86
    )Professional fees
    
    
    169
    
    
    
    162
    
    
    
    7
    
    
    
    4.32
    
    
    
    436
    
    
    
    396
    
    
    
    40
    
    
    
    10.10Amortization of intangibles
    
    
    4
    
    
    
    4
    
    
    
    0
    
    
    
    0.00
    
    
    
    17
    
    
    
    137
    
    
    
    (120
    )
    
    
    (87.59
    )Other operating expense
    
    
    493
    
    
    
    722
    
    
    
    (229
    )
    
    
    (31.72
    )
    
    
    2,156
    
    
    
    2,389
    
    
    
    (233
    )
    
    
    (9.75
    )Total other expense
    
    
    2,505
    
    
    
    2,985
    
    
    
    (480
    )
    
    
    (16.08
    )
    
    
    10,400
    
    
    
    10,763
    
    
    
    (363
    )
    
    
    (3.37
    )Income before taxes
    
    
    577
    
    
    
    253
    
    
    
    324
    
    
    
    128.06
    
    
    
    2,270
    
    
    
    2,111
    
    
    
    159
    
    
    
    7.53Income taxes
    
    
    132
    
    
    
    25
    
    
    
    107
    
    
    
    428.00
    
    
    
    490
    
    
    
    444
    
    
    
    46
    
    
    
    10.36Net income
    
    
    445
    
    
    
    228
    
    
    
    217
    
    
    
    95.18
    
    
    
    1,780
    
    
    
    1,667
    
    
    
    113
    
    
    
    6.78
 5.




---



##### 



The following tables provide an analysis of the average balances, yields and rates on
interest-earning assets and interest-bearing liabilities and the change in net interest income,
identifying the portion of the change in net interest income due to changes in volume versus the
portion due to changes in interest rates.
 VOLUME / RATE ANALYSIS
  2006 Compared to 2005
    
    
    2005 Compared to 2004Increase / (Decrease)
    
    
    Increase / (Decrease)Change
    
    
    Change
    
    
    
    
    
    
    Change
    
    
    ChangeTotal
    
    
    due to
    
    
    due to
    
    
    Total
    
    
    due to
    
    
    due toChange
    
    
    Volume
    
    
    Rate
    
    
    Change
    
    
    Volume
    
    
    RateShort-term investments
    
    $
    163
    
    
    $
    108
    
    
    $
    55
    
    
    $
    (6
    )
    
    $
    (27
    )
    
    $
    21SecuritiesTaxable
    
    
    (134
    )
    
    
    (243
    )
    
    
    109
    
    
    
    533
    
    
    
    447
    
    
    
    86Tax exempt (1)
    
    
    37
    
    
    
    30
    
    
    
    7
    
    
    
    (345
    )
    
    
    (341
    )
    
    
    (4
    )Loans (2)
    
    
    1,041
    
    
    
    (367
    )
    
    
    1,408
    
    
    
    1,148
    
    
    
    191
    
    
    
    957Total interest income
    
    
    1,107
    
    
    
    (472
    )
    
    
    1,579
    
    
    
    1,330
    
    
    
    270
    
    
    
    1,060DepositsInterest-bearing demand
    
    
    1,349
    
    
    
    97
    
    
    
    1,252
    
    
    
    196
    
    
    
    (14
    )
    
    
    210Savings deposits
    
    
    (14
    )
    
    
    (9
    )
    
    
    (5
    )
    
    
    5
    
    
    
    (3
    )
    
    
    8Time deposits
    
    
    770
    
    
    
    (155
    )
    
    
    925
    
    
    
    565
    
    
    
    272
    
    
    
    293Borrowed funds
    
    
    80
    
    
    
    (133
    )
    
    
    213
    
    
    
    330
    
    
    
    323
    
    
    
    7Total interest expense
    
    
    2,185
    
    
    
    (200
    )
    
    
    2,385
    
    
    
    1,096
    
    
    
    578
    
    
    
    518Net interest income
    
    $
    (1,078
    )
    
    $
    (272
    )
    
    $
    (806
    )
    
    $
    234
    
    
    $
    (308
    )
    
    $
    542
  
 (1)
    
    Tax exempt income is adjusted to a fully taxable equivalent basis using a 34% tax rate
and a 20% disallowance of interest expense deductibility under TEFRA rules.
 (2)
    
    Non-accrual loans are included for purposes of computing rate and volume effects
although interest on these balances has been excluded.
 Provision for Loan Losses
  6.




---



##### 



DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS EQUITY
 2006
    
    
    2005
    
    
    2004Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance (4)
    
    
    Expense
    
    
    Yield
    
    
    Balance (4)
    
    
    Expense
    
    
    Yield
    
    
    Balance (4)
    
    
    Expense
    
    
    YieldShort-term investments
    
    $
    3,852
    
    
    $
    196
    
    
    
    5.09
    %
    
    $
    903
    
    
    $
    33
    
    
    
    3.65
    %
    
    $
    3,217
    
    
    $
    38
    
    
    
    1.18
    %SecuritiesTaxable(1)
    
    
    36,492
    
    
    
    1,658
    
    
    
    4.54
    
    
    
    42,212
    
    
    
    1,792
    
    
    
    4.25
    
    
    
    31,157
    
    
    
    1,259
    
    
    
    4.04Tax exempt (1)
    
    
    17,917
    
    
    
    1,094
    
    
    
    6.11
    
    
    
    17,429
    
    
    
    1,057
    
    
    
    6.06
    
    
    
    23,039
    
    
    
    1,402
    
    
    
    6.09Loans (2) (3)
    
    
    208,074
    
    
    
    16,538
    
    
    
    7.95
    
    
    
    213,118
    
    
    
    15,497
    
    
    
    7.27
    
    
    
    203,951
    
    
    
    14,349
    
    
    
    7.04Total earning assets
    
    
    266,335
    
    
    
    19,486
    
    
    
    7.32
    %
    
    
    273,662
    
    
    
    18,379
    
    
    
    6.72
    %
    
    
    261,364
    
    
    
    17,048
    
    
    
    6.52
    %Other assets
    
    
    24,725
    
    
    
    
    
    
    
    
    
    
    
    20,602
    
    
    
    
    
    
    
    
    
    
    
    17,530Total assets
    
    $
    291,060
    
    
    
    
    
    
    
    
    
    
    $
    294,264
    
    
    
    
    
    
    
    
    
    
    $
    278,894DepositsInterest-bearing
demand deposits
    
    $
    78,335
    
    
    
    2,346
    
    
    
    2.99
    %
    
    $
    71,383
    
    
    
    997
    
    
    
    1.40
    %
    
    $
    72,619
    
    
    
    801
    
    
    
    1.10
    %Savings deposits
    
    
    17,060
    
    
    
    51
    
    
    
    0.30
    
    
    
    19,633
    
    
    
    65
    
    
    
    0.33
    
    
    
    20,568
    
    
    
    59
    
    
    
    0.29Time deposits
    
    
    128,973
    
    
    
    5,051
    
    
    
    3.92
    
    
    
    133,807
    
    
    
    4,281
    
    
    
    3.20
    
    
    
    124,694
    
    
    
    3,717
    
    
    
    2.98Borrowed funds
    
    
    21,158
    
    
    
    1,040
    
    
    
    4.92
    
    
    
    24,566
    
    
    
    960
    
    
    
    3.91
    
    
    
    16,236
    
    
    
    630
    
    
    
    3.88Total interest-
bearing liabilities
    
    
    245,526
    
    
    
    8,488
    
    
    
    3.46
    %
    
    
    249,389
    
    
    
    6,303
    
    
    
    2.53
    %
    
    
    234,117
    
    
    
    5,207
    
    
    
    2.22
    %Noninterest-bearing
demand deposits
    
    
    21,948
    
    
    
    
    
    
    
    
    
    
    
    21,943
    
    
    
    
    
    
    
    
    
    
    
    21,474Other liabilities
    
    
    1,575
    
    
    
    
    
    
    
    
    
    
    
    1,066
    
    
    
    
    
    
    
    
    
    
    
    1,676Shareholders equity
    
    
    22,011
    
    
    
    
    
    
    
    
    
    
    
    21,866
    
    
    
    
    
    
    
    
    
    
    
    21,627Total liabilities and
shareholders equity
    
    $
    291,060
    
    
    
    
    
    
    
    
    
    
    $
    294,264
    
    
    
    
    
    
    
    
    
    
    $
    278,894Net interest income
    
    
    
    
    
    $
    10,998
    
    
    
    
    
    
    
    
    
    
    $
    12,076
    
    
    
    
    
    
    
    
    
    
    $
    11,841As a percentage of earning assets:Net interest income
    
    
    
    
    
    
    
    
    
    
    4.13
    %
    
    
    
    
    
    
    
    
    
    
    4.41
    %
    
    
    
    
    
    
    
    
    
    
    4.53
    %
 
 (1)
    
    Securities include federal funds sold for purposes of this yield table. Average
yields on all securities have been computed based on amortized cost. Income on tax exempt
securities has been computed on a fully taxable equivalent basis using a 34% tax rate and a
20% disallowance of interest expense deductibility under TEFRA rules. The amount of such
adjustment was $336,000, $334,000 and $447,000 for 2006, 2005 and 2004 respectively.(2)
    
    Average balance is net of deferred loan fees of $94,000, $103,000, and $110,000 for
2006, 2005 and 2004 respectively, as well as $4,693,000, $5,252,000, and $3,858,000 of
unearned income for the same years.(3)
    
    Average loan balances include non-accruing loans.(4)
    
    Average balances are computed on an average daily basis. Non-Interest Income
  7.




---



##### 



ENDING BALANCES AS OF THE DATE SHOWN12/31/06
    
    
    12/31/05
    
    
    $ Chg
    
    
    % Chg
    
    
    12/31/04
    
    
    $ Chg
    
    
    % ChgCash & fed funds
    
    
    10,818
    
    
    
    6,605
    
    
    
    4,213
    
    
    
    63.79
    
    
    
    10,254
    
    
    
    (3,649
    )
    
    
    (35.59
    )Securities AFS
    
    
    51,773
    
    
    
    56,931
    
    
    
    (5,158
    )
    
    
    (9.06
    )
    
    
    59,883
    
    
    
    (2,952
    )
    
    
    (4.93
    )Gross loans
    
    
    194,422
    
    
    
    227,681
    
    
    
    (33,259
    )
    
    
    (14.61
    )
    
    
    214,193
    
    
    
    13,488
    
    
    
    6.30Allowance for loan losses
    
    
    (2,015
    )
    
    
    (2,755
    )
    
    
    740
    
    
    
    (26.86
    )
    
    
    (2,503
    )
    
    
    (252
    )
    
    
    10.07Loans, net
    
    
    192,407
    
    
    
    224,926
    
    
    
    (32,519
    )
    
    
    (14.46
    )
    
    
    211,690
    
    
    
    13,236
    
    
    
    6.25Premises & equipment
    
    
    9,502
    
    
    
    6,385
    
    
    
    3,117
    
    
    
    48.82
    
    
    
    6,321
    
    
    
    64
    
    
    
    1.01Accrued interest receivable
    
    
    1,329
    
    
    
    1,440
    
    
    
    (111
    )
    
    
    (7.71
    )
    
    
    1,036
    
    
    
    404
    
    
    
    39.00Other assets
    
    
    7,863
    
    
    
    7,160
    
    
    
    703
    
    
    
    9.82
    
    
    
    7,466
    
    
    
    (306
    )
    
    
    (4.10
    )Total assets
    
    
    273,692
    
    
    
    303,447
    
    
    
    (29,755
    )
    
    
    (9.81
    )
    
    
    296,650
    
    
    
    6,797
    
    
    
    2.29Noninterest-bearing demand
    
    
    22,064
    
    
    
    27,659
    
    
    
    (5,595
    )
    
    
    (20.23
    )
    
    
    26,882
    
    
    
    777
    
    
    
    2.89Interest-bearing demand
    
    
    86,160
    
    
    
    72,695
    
    
    
    13,465
    
    
    
    18.52
    
    
    
    72,599
    
    
    
    96
    
    
    
    0.13Savings and time deposits
    
    
    97,446
    
    
    
    104,466
    
    
    
    (7,020
    )
    
    
    (6.72
    )
    
    
    107,416
    
    
    
    (2,950
    )
    
    
    (2.75
    )Time deposits of $100k
    
    
    43,995
    
    
    
    43,686
    
    
    
    309
    
    
    
    0.71
    
    
    
    42,277
    
    
    
    1,409
    
    
    
    3.33Total deposits
    
    
    249,665
    
    
    
    248,506
    
    
    
    1,159
    
    
    
    0.47
    
    
    
    249,174
    
    
    
    (668
    )
    
    
    (0.27
    )FHLB advances
    
    
    0
    
    
    
    31,100
    
    
    
    (31,100
    )
    
    
    0.00
    
    
    
    24,600
    
    
    
    6,500
    
    
    
    26.42Other borrowed funds
    
    
    0
    
    
    
    1,870
    
    
    
    (1,870
    )
    
    
    0.00
    
    
    
    0
    
    
    
    1,870
    
    
    
    0.00Accrued interest payable
    
    
    398
    
    
    
    330
    
    
    
    68
    
    
    
    20.61
    
    
    
    303
    
    
    
    27
    
    
    
    8.91Other liabilities
    
    
    1,182
    
    
    
    116
    
    
    
    1,066
    
    
    
    918.97
    
    
    
    787
    
    
    
    (671
    )
    
    
    (85.26
    )Total liabilities
    
    
    251,245
    
    
    
    281,922
    
    
    
    (30,677
    )
    
    
    (10.88
    )
    
    
    274,864
    
    
    
    7,058
    
    
    
    2.57Shareholders equity
    
    
    22,447
    
    
    
    21,525
    
    
    
    922
    
    
    
    4.28
    
    
    
    21,786
    
    
    
    (261
    )
    
    
    (1.20
    )Total liabilities & equity
    
    
    273,692
    
    
    
    303,447
    
    
    
    (29,755
    )
    
    
    (9.81
    )
    
    
    296,650
    
    
    
    6,797
    
    
    
    2.29
 Non-interest expense
   8.




---



##### 



Income Taxes
  AVERAGE DAILY BALANCES FOR THE PERIODS SHOWNThree Months Ended December 31
    
    
    Twelve Months Ended December 312006
    
    
    2005
    
    
    $ Chg
    
    
    % Chg
    
    
    2006
    
    
    2005
    
    
    $ Chg
    
    
    % ChgCash & fed funds
    
    
    13,467
    
    
    
    7,069
    
    
    
    6,398
    
    
    
    90.51
    
    
    
    10,316
    
    
    
    7,062
    
    
    
    3,254
    
    
    
    46.08Securities AFS
    
    
    53,039
    
    
    
    57,872
    
    
    
    (4,833
    )
    
    
    (8.35
    )
    
    
    54,409
    
    
    
    59,641
    
    
    
    (5,232
    )
    
    
    (8.77
    )Gross loans
    
    
    195,570
    
    
    
    220,931
    
    
    
    (25,361
    )
    
    
    (11.48
    )
    
    
    210,525
    
    
    
    215,694
    
    
    
    (5,169
    )
    
    
    (2.40
    )Allowance for loan losses
    
    
    (2,108
    )
    
    
    (2,718
    )
    
    
    610
    
    
    
    (22.44
    )
    
    
    (2,451
    )
    
    
    (2,576
    )
    
    
    125
    
    
    
    (4.85
    )Loans, net
    
    
    193,462
    
    
    
    218,213
    
    
    
    (24,751
    )
    
    
    (11.34
    )
    
    
    208,074
    
    
    
    213,118
    
    
    
    (5,044
    )
    
    
    (2.37
    )Premises & equipment
    
    
    9,501
    
    
    
    6,242
    
    
    
    3,259
    
    
    
    52.21
    
    
    
    8,342
    
    
    
    6,213
    
    
    
    2,129
    
    
    
    34.27Accrued interest receivable
    
    
    1,531
    
    
    
    1,563
    
    
    
    (32
    )
    
    
    (2.05
    )
    
    
    1,579
    
    
    
    1,469
    
    
    
    110
    
    
    
    7.49Other assets
    
    
    7,887
    
    
    
    6,724
    
    
    
    1,163
    
    
    
    17.30
    
    
    
    8,340
    
    
    
    6,761
    
    
    
    1,579
    
    
    
    23.35Total assets
    
    
    278,887
    
    
    
    297,683
    
    
    
    (18,796
    )
    
    
    (6.31
    )
    
    
    291,060
    
    
    
    294,264
    
    
    
    (3,204
    )
    
    
    (1.09
    )Noninterest-bearing demand
    
    
    22,489
    
    
    
    22,607
    
    
    
    (118
    )
    
    
    (0.52
    )
    
    
    21,948
    
    
    
    21,943
    
    
    
    5
    
    
    
    0.02Interest-bearing demand
    
    
    85,584
    
    
    
    73,636
    
    
    
    11,948
    
    
    
    16.23
    
    
    
    78,335
    
    
    
    71,383
    
    
    
    6,952
    
    
    
    9.74Savings and time deposits
    
    
    99,164
    
    
    
    107,267
    
    
    
    (8,103
    )
    
    
    (7.55
    )
    
    
    102,264
    
    
    
    116,492
    
    
    
    (14,228
    )
    
    
    (12.21
    )Time deposits of $100k
    
    
    43,921
    
    
    
    43,633
    
    
    
    288
    
    
    
    0.66
    
    
    
    43,769
    
    
    
    36,948
    
    
    
    6,821
    
    
    
    18.46Total deposits
    
    
    251,158
    
    
    
    247,143
    
    
    
    4,015
    
    
    
    1.62
    
    
    
    246,316
    
    
    
    246,766
    
    
    
    (450
    )
    
    
    (0.18
    )FHLB advances
    
    
    3,533
    
    
    
    27,477
    
    
    
    (23,944
    )
    
    
    (87.14
    )
    
    
    21,050
    
    
    
    23,921
    
    
    
    (2,871
    )
    
    
    (12.00
    )Other borrowed funds
    
    
    1
    
    
    
    332
    
    
    
    (331
    )
    
    
    (99.70
    )
    
    
    108
    
    
    
    645
    
    
    
    (537
    )
    
    
    (83.26
    )Accrued interest payable
    
    
    451
    
    
    
    389
    
    
    
    62
    
    
    
    15.94
    
    
    
    428
    
    
    
    358
    
    
    
    70
    
    
    
    19.55Other liabilities
    
    
    1,253
    
    
    
    545
    
    
    
    708
    
    
    
    129.91
    
    
    
    1,147
    
    
    
    708
    
    
    
    439
    
    
    
    62.01Total liabilities
    
    
    256,396
    
    
    
    275,886
    
    
    
    (19,490
    )
    
    
    (7.06
    )
    
    
    269,049
    
    
    
    272,398
    
    
    
    (3,349
    )
    
    
    (1.23
    )Shareholders equity
    
    
    22,491
    
    
    
    21,797
    
    
    
    694
    
    
    
    3.18
    
    
    
    22,011
    
    
    
    21,866
    
    
    
    145
    
    
    
    0.66Total liabilities & equity
    
    
    278,887
    
    
    
    297,683
    
    
    
    (18,796
    )
    
    
    (6.31
    )
    
    
    291,060
    
    
    
    294,264
    
    
    
    (3,204
    )
    
    
    (1.09
    )
 9.




---



##### 



FINANCIAL CONDITION
  Loans
 Year-end loans (in thousands) were as follows:
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Commercial loans
    
    $
    136,230
    
    
    $
    154,267
    
    
    $
    140,348
    
    
    $
    129,171
    
    
    $
    115,813Real estate loans  residential
    
    
    9,117
    
    
    
    10,907
    
    
    
    10,959
    
    
    
    12,323
    
    
    
    20,177Consumer and credit card loans
    
    
    12,440
    
    
    
    15,255
    
    
    
    21,449
    
    
    
    32,810
    
    
    
    45,468Home equity loans
    
    
    17,551
    
    
    
    18,982
    
    
    
    18,331
    
    
    
    13,445
    
    
    
    9,631Consumer finance loans
    
    
    19,084
    
    
    
    28,270
    
    
    
    23,106
    
    
    
    18,525
    
    
    
    10,976Total loans
    
    $
    194,422
    
    
    $
    227,681
    
    
    $
    214,193
    
    
    $
    206,274
    
    
    $
    202,065
   The following is a schedule of maturities of commercial loans (in thousands) based on contract
terms as of December 31, 2006.
 One Year
    
    One Through
    
    Overor Less
    
    Five Years
    
    Five Years$19,853
    
    $14,089
    
    $102,288
  10.




---



##### 



Allowance for Loan Losses
   The following schedule presents an analysis (in thousands) of the allowance for loan losses,
average loan data, and related ratios for each of the five years in the period ended December 31,
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Balance at beginning of period
    
    $
    2,755
    
    
    $
    2,503
    
    
    $
    2,503
    
    
    $
    2,091
    
    
    $
    1,743Loans charged off:Commercial
    
    
    (302
    )
    
    
    (354
    )
    
    
    (642
    )
    
    
    (693
    )
    
    
    (319
    )Real estate
    
    
    (101
    )
    
    
    
    
    
    
    (71
    )
    
    
    (3
    )
    
    
    Consumer
    
    
    (1,071
    )
    
    
    (1,086
    )
    
    
    (1,072
    )
    
    
    (971
    )
    
    
    (619
    )Total loans charged off
    
    
    (1,474
    )
    
    
    (1,440
    )
    
    
    (1,785
    )
    
    
    (1,667
    )
    
    
    (938
    )Recoveries of loans previously charged off:Commercial
    
    
    69
    
    
    
    75
    
    
    
    164
    
    
    
    15
    
    
    
    37Real estate
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Consumer
    
    
    217
    
    
    
    262
    
    
    
    135
    
    
    
    92
    
    
    
    92Total loan recoveries
    
    
    299
    
    
    
    337
    
    
    
    299
    
    
    
    107
    
    
    
    131Net loans charged off
    
    
    (1,175
    )
    
    
    (1,103
    )
    
    
    (1,486
    )
    
    
    (1,560
    )
    
    
    (807
    )Provision charged to operating expense
    
    
    435
    
    
    
    1,355
    
    
    
    1,486
    
    
    
    1,972
    
    
    
    1,155Balance at end of period
    
    $
    2,015
    
    
    $
    2,755
    
    
    $
    2,503
    
    
    $
    2,503
    
    
    $
    2,091Ratio of net charge-offs to average
loans outstanding for period
    
    
    0.56
    %
    
    
    0.51
    %
    
    
    0.72
    %
    
    
    0.77
    %
    
    
    0.41
    %
 11.




---



##### 



The following schedule is a breakdown of the allowance for loan losses (in thousands) allocated by
type of loan and related ratios.
 Percentage of
    
    
    
    
    
    
    Percentage of
    
    
    
    
    
    
    Percentage of
    
    
    
    
    
    
    Percentage of
    
    
    
    
    
    
    Percentage ofLoans in Each
    
    
    
    
    
    
    Loans in Each
    
    
    
    
    
    
    Loans in Each
    
    
    
    
    
    
    Loans in Each
    
    
    
    
    
    
    Loans in EachCategory to
    
    
    
    
    
    
    Category to
    
    
    
    
    
    
    Category to
    
    
    
    
    
    
    Category to
    
    
    
    
    
    
    Category toAllowance
    
    
    Total
    
    
    Allowance
    
    
    Total
    
    
    Allowance
    
    
    Total
    
    
    Allowance
    
    
    Total
    
    
    Allowance
    
    
    TotalAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansDecember 31, 2006
    
    
    December 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003
    
    
    December 31, 2002Commercial
    
    $
    1,112
    
    
    
    69
    %
    
    $
    1,269
    
    
    
    68
    %
    
    $
    1,268
    
    
    
    65
    %
    
    $
    1,391
    
    
    
    63
    %
    
    $
    885
    
    
    
    57
    %Real estate
    
    
    177
    
    
    
    14
    
    
    
    195
    
    
    
    13
    
    
    
    148
    
    
    
    14
    
    
    
    121
    
    
    
    12
    
    
    
    116
    
    
    
    15Consumer
    
    
    726
    
    
    
    17
    
    
    
    1,291
    
    
    
    19
    
    
    
    1,087
    
    
    
    21
    
    
    
    991
    
    
    
    25
    
    
    
    1,090
    
    
    
    28Unallocated
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    n/aTotal
    
    $
    2,015
    
    
    
    100
    %
    
    $
    2,755
    
    
    
    100
    %
    
    $
    2,503
    
    
    
    100
    %
    
    $
    2,503
    
    
    
    100
    %
    
    $
    2,091
    
    
    
    100
    %
  12.




---



##### 



The following schedule summarizes impaired and non-performing loans (in thousands) as of December
31,
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Impaired loans
    
    $
    1,984
    
    
    $
    1,912
    
    
    $
    1,283
    
    
    $
    2,462
    
    
    $
    3,352Loans accounted for on a non-accrual basis
(includes substantially all impaired loans)
    
    $
    1,984
    
    
    $
    1,912
    
    
    $
    1,283
    
    
    $
    2,377
    
    
    $
    3,865Accruing loans which are contractually past
due 90 days or more as to interest or
principal payments
    
    
    283
    
    
    
    124
    
    
    
    80
    
    
    
    83
    
    
    
    46Loans that are troubled debt restructurings
as defined in Statement of Financial
Accounting Standard No. 15
(exclusive of loans listed above)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-performing loans
    
    $
    2,267
    
    
    $
    2,036
    
    
    $
    1,363
    
    
    $
    2,460
    
    
    $
    3,911Non-performing loans to
Allowance for losses
    
    
    1.13
    
    
    
    0.74
    
    
    
    0.54
    
    
    
    0.98
    
    
    
    1.87
   Securities
  Summarized below is the carrying value of securities available for sale (in thousands) as of
December 31,
 2006
    
    
    2005
    
    
    2004U.S. Treasury and U.S. Government
Agency securities
    
    $
    8,383
    
    
    $
    9,287
    
    
    $
    8,472Obligations of states and political subdivisions
    
    
    18,469
    
    
    
    18,072
    
    
    
    18,098Corporate bonds
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    22,750
    
    
    
    27,522
    
    
    
    31,359Equity investments
    
    
    2,171
    
    
    
    2,050
    
    
    
    1,954$
    51,773
    
    
    $
    56,931
    
    
    $
    59,883
 13.




---



##### 



The following is a schedule, by carrying value, of maturities (or, if applicable, earliest call
dates) by category of debt securities (in thousands) and the related weighted average yield of such
securities as of December 31, 2006:
 Maturing
    
    
    MaturingMaturing in
    
    
    After One
    
    
    After Five
    
    
    MaturingOne Year
    
    
    Year Through
    
    
    Years Through
    
    
    Afteror Less
    
    
    Five Years
    
    
    Ten Years
    
    
    Ten YearsAmount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldU.S. Treasury and U.S. Government
Agency securities
    
    $
    7,424
    
    
    
    4.80
    %
    
    $
    959
    
    
    
    3.18
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %Obligations of states and political
subdivisions
    
    
    1,128
    
    
    
    4.57
    %
    
    
    5,674
    
    
    
    4.51
    %
    
    
    9,570
    
    
    
    4.00
    %
    
    
    2,097
    
    
    
    4.34
    %Mortgage-backed securities
    
    
    45
    
    
    
    4.48
    %
    
    
    
    
    
    
    0.00
    %
    
    
    1,768
    
    
    
    3.68
    %
    
    
    20,937
    
    
    
    4.55
    %Total
    
    $
    8,597
    
    
    
    4.77
    %
    
    $
    6,633
    
    
    
    4.32
    %
    
    $
    11,338
    
    
    
    3.95
    %
    
    $
    23,034
    
    
    
    4.53
    %
  Deposits
  The following is a schedule of maturities of time certificates of deposit (in thousands) in amounts
of more than $100,000 as of December 31, 2006:
 Three months or less
    
    $
    7,589Over three months through six months
    
    
    10,575Over six months through twelve months
    
    
    11,536Over twelve months
    
    
    14,295Total
    
    $
    43,995
 The average amount of deposits (in thousands) and average rates paid are summarized as follows for
the years ended December 31,
 2006
    
    
    2005
    
    
    2004Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    AverageAmount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateInterest-bearing demand deposits
    
    $
    78,335
    
    
    
    2.99
    %
    
    $
    71,383
    
    
    
    1.40
    %
    
    $
    72,619
    
    
    
    1.10
    %Savings deposits
    
    
    17,060
    
    
    
    0.30
    
    
    
    19,633
    
    
    
    0.33
    
    
    
    20,568
    
    
    
    0.29Time deposits
    
    
    128,973
    
    
    
    3.92
    
    
    
    133,807
    
    
    
    3.20
    
    
    
    124,694
    
    
    
    2.98Demand deposits (noninterest-bearing)
    
    
    21,948
    
    
    
    
    
    
    
    21,943
    
    
    
    
    
    
    
    21,474Total
    
    $
    246,316
    
    
    
    
    
    
    $
    246,766
    
    
    
    
    
    
    $
    239,355
 14.




---



##### 



Other Assets
  CAPITAL RESOURCES
   CONTRACTUAL OBLIGATIONS AND COMMITMENTS
  Contractual obligations
 Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    After(in thousands)
    
    Total
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    5 YearsTime deposits and
certificates of
deposit
    
    $
    125,164
    
    
    $
    82,568
    
    
    $
    37,335
    
    
    $
    4,358
    
    
    $
    903Borrowed funds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    125,164
    
    
    $
    82,568
    
    
    $
    37,335
    
    
    $
    4,358
    
    
    $
    903
 Other commitments
 Amount of Commitment  Expiration by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    After(in thousands)
    
    Total
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    5 YearsCommitments to extend commercial credit
    
    $
    12,757
    
    
    $
    8,475
    
    
    $
    1,211
    
    
    $
    
    
    
    $
    3,071Commitments to extend consumer credit
    
    
    11,655
    
    
    
    373
    
    
    
    1,255
    
    
    
    132
    
    
    
    9,895Standby letters of credit
    
    
    2,156
    
    
    
    2,156
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    26,568
    
    
    $
    11,004
    
    
    $
    2,466
    
    
    $
    132
    
    
    $
    12,966
 15.




---



##### 



LIQUIDITY
   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   16.




---



##### 



The Wall Street
Journal
 Principal/Notional Amount with expected Maturities in:
 For the Year Ended December 31, 2006:
 Fair2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Thereafter
    
    Total
    
    ValueRate-sensitive assets:Fixed interest rate loans
    
    $
    5,425
    
    
    $
    6,137
    
    
    $
    10,281
    
    
    $
    9,862
    
    
    $
    9,192
    
    
    $
    10,824
    
    
    $
    51,721
    
    
    $
    51,817Average interest rate
    
    
    10.21
    %
    
    
    9.37
    %
    
    
    9.89
    %
    
    
    10.09
    %
    
    
    8.69
    %
    
    
    8.41
    %
    
    
    9.38
    %Variable interest rate loans
    
    $
    16,339
    
    
    $
    1,799
    
    
    $
    5,035
    
    
    $
    1,249
    
    
    $
    946
    
    
    $
    117,333
    
    
    $
    142,701
    
    
    $
    142,970Average interest rate
    
    
    9.19
    %
    
    
    9.05
    %
    
    
    7.20
    %
    
    
    10.33
    %
    
    
    8.00
    %
    
    
    7.37
    %
    
    
    7.60
    %Fixed interest rate securities
    
    $
    8,597
    
    
    $
    16
    
    
    $
    1,686
    
    
    $
    2,371
    
    
    $
    2,561
    
    
    $
    23,779
    
    
    $
    39,010
    
    
    $
    39,010Average interest rate
    
    
    4.77
    %
    
    
    3.36
    %
    
    
    3.47
    %
    
    
    5.10
    %
    
    
    4.16
    %
    
    
    4.26
    %
    
    
    4.38
    %Variable interest rate securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,763
    
    
    $
    12,763
    
    
    $
    12,763Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.72
    %
    
    
    4.72
    %Rate-sensitive liabilities:Non-interest-bearing deposits
    
    $
    5,516
    
    
    $
    4,412
    
    
    $
    3,309
    
    
    $
    2,759
    
    
    $
    2,759
    
    
    $
    3,309
    
    
    $
    22,064
    
    
    $
    22,064Int-bearing demand deposits
    
    $
    18,620
    
    
    $
    18,620
    
    
    $
    18,620
    
    
    $
    18,620
    
    
    $
    18,620
    
    
    $
    9,337
    
    
    $
    102,437
    
    
    $
    102,437Average interest rate
    
    
    2.51
    %
    
    
    2.51
    %
    
    
    2.51
    %
    
    
    2.51
    %
    
    
    2.51
    %
    
    
    2.51
    %
    
    
    2.51
    %Interest-bearing time deposits
    
    $
    82,568
    
    
    $
    30,930
    
    
    $
    6,404
    
    
    $
    3,451
    
    
    $
    908
    
    
    $
    903
    
    
    $
    125,164
    
    
    $
    125,041Average interest rate
    
    
    4.22
    %
    
    
    4.30
    %
    
    
    4.36
    %
    
    
    4.47
    %
    
    
    4.69
    %
    
    
    3.66
    %
    
    
    4.25
    %Fixed interest rate borrowings
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Average interest rateVariable interest rate borrowings
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Average interest rate
 For the Year Ended December 31, 2005:
 Fair2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    Total
    
    ValueRate-sensitive assets:Fixed interest rate loans
    
    $
    5,201
    
    
    $
    5,743
    
    
    $
    10,379
    
    
    $
    14,019
    
    
    $
    10,871
    
    
    $
    14,309
    
    
    $
    60,522
    
    
    $
    59,783Average interest rate
    
    
    8.40
    %
    
    
    10.04
    %
    
    
    9.86
    %
    
    
    10.21
    %
    
    
    9.94
    %
    
    
    8.51
    %
    
    
    9.53
    %Variable interest rate loans
    
    $
    23,468
    
    
    $
    2,663
    
    
    $
    2,581
    
    
    $
    5,750
    
    
    $
    2,625
    
    
    $
    130,072
    
    
    $
    167,159
    
    
    $
    165,118Average interest rate
    
    
    7.56
    %
    
    
    7.05
    %
    
    
    6.93
    %
    
    
    6.98
    %
    
    
    7.15
    %
    
    
    6.65
    %
    
    
    6.81
    %Fixed interest rate securities
    
    $
    72
    
    
    $
    
    
    
    $
    16
    
    
    $
    966
    
    
    $
    990
    
    
    $
    39,237
    
    
    $
    41,281
    
    
    $
    41,281Average interest rate
    
    
    4.68
    %
    
    
    
    
    
    
    3.40
    %
    
    
    3.19
    %
    
    
    3.01
    %
    
    
    4.32
    %
    
    
    4.26
    %Variable interest rate securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    15,650
    
    
    $
    15,650
    
    
    $
    15,650Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.68
    %
    
    
    4.68
    %Rate-sensitive liabilities:Non-interest-bearing deposits
    
    $
    6,914
    
    
    $
    5,531
    
    
    $
    4,149
    
    
    $
    3,458
    
    
    $
    3,458
    
    
    $
    4,149
    
    
    $
    27,659
    
    
    $
    27,659Int-bearing demand deposits
    
    $
    16,466
    
    
    $
    16,466
    
    
    $
    16,466
    
    
    $
    16,466
    
    
    $
    16,466
    
    
    $
    8,258
    
    
    $
    90,588
    
    
    $
    90,588Average interest rate
    
    
    1.19
    %
    
    
    1.19
    %
    
    
    1.19
    %
    
    
    1.19
    %
    
    
    1.19
    %
    
    
    1.19
    %
    
    
    1.19
    %Interest-bearing time deposits
    
    $
    64,926
    
    
    $
    38,301
    
    
    $
    19,686
    
    
    $
    3,864
    
    
    $
    2,295
    
    
    $
    1,186
    
    
    $
    130,258
    
    
    $
    129,766Average interest rate
    
    
    3.10
    %
    
    
    3.78
    %
    
    
    4.04
    %
    
    
    3.85
    %
    
    
    4.23
    %
    
    
    4.26
    %
    
    
    3.48
    %Fixed interest rate borrowings
    
    $
    3,000
    
    
    $
    
    
    
    $
    11,500
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    14,500
    
    
    $
    14,468Average interest rate
    
    
    3.01
    %
    
    
    
    
    
    
    4.60
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.27
    %Variable interest rate borrowings
    
    $
    18,470
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18,470
    
    
    $
    18,434Average interest rate
    
    
    4.36
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.36
    %
 17.




---



##### 



FAIR VALUE OF FINANCIAL INSTRUMENTS
  IMPACT OF INFLATION
   18.




---



##### 



19.




---



##### 



2006
    
    
    2005ASSETSCash and cash equivalents
    
    $
    5,650
    
    
    $
    6,605Federal funds sold
    
    
    5,168
    
    
    
    Cash equivalents and federal funds sold
    
    
    10,818
    
    
    
    6,605Securities available for sale
    
    
    51,773
    
    
    
    56,931Total loans
    
    
    194,422
    
    
    
    227,681Allowance for loan loss
    
    
    (2,015
    )
    
    
    (2,755
    )Loans, net
    
    
    192,407
    
    
    
    224,926Premises and equipment, net
    
    
    9,502
    
    
    
    6,385Accrued interest receivable
    
    
    1,329
    
    
    
    1,440Other assets
    
    
    7,863
    
    
    
    7,160Total assets
    
    $
    273,692
    
    
    $
    303,447LIABILITIESDepositsNoninterest-bearing demand
    
    $
    22,064
    
    
    $
    27,659Interest-bearing demand
    
    
    86,160
    
    
    
    72,695Savings and time deposits
    
    
    97,446
    
    
    
    104,466Time deposits $100,000 and greater
    
    
    43,995
    
    
    
    43,686Total deposits
    
    
    249,665
    
    
    
    248,506FHLB advances
    
    
    
    
    
    
    31,100Federal funds purchased
    
    
    
    
    
    
    1,870Accrued interest payable
    
    
    398
    
    
    
    330Other liabilities
    
    
    1,182
    
    
    
    116Total liabilities
    
    
    251,245
    
    
    
    281,922SHAREHOLDERS EQUITYCommon stock, no par value, 4,000,000 shares authorized,
1,178,938 shares issued in 2006 and 2005
    
    
    11,213
    
    
    
    11,159Retained earnings
    
    
    12,886
    
    
    
    11,985Deferred compensation plan shares,
18,964 shares in 2006, 17,086 shares in 2005
    
    
    (475
    )
    
    
    (424
    )Treasury stock, 27,603 shares in 2006, 18,600 shares in 2005
    
    
    (756
    )
    
    
    (497
    )Accumulated other comprehensive income (loss)
    
    
    (421
    )
    
    
    (698
    )Total shareholders equity
    
    
    22,447
    
    
    
    21,525Total liabilities and shareholders equity
    
    $
    273,692
    
    
    $
    303,447
  20.




---



##### 



2006
    
    
    2005
    
    
    2004Interest and dividend incomeInterest and fees on loans
    
    $
    16,538
    
    
    $
    15,497
    
    
    $
    14,349Interest on securities:Taxable
    
    
    1,658
    
    
    
    1,792
    
    
    
    1,259Nontaxable
    
    
    758
    
    
    
    723
    
    
    
    954Other
    
    
    196
    
    
    
    33
    
    
    
    38Total interest income
    
    
    19,150
    
    
    
    18,045
    
    
    
    16,600Interest expenseInterest on deposits
    
    
    7,448
    
    
    
    5,343
    
    
    
    4,577Interest on borrowings
    
    
    1,040
    
    
    
    960
    
    
    
    630Total interest expense
    
    
    8,488
    
    
    
    6,303
    
    
    
    5,207Net interest income
    
    
    10,662
    
    
    
    11,742
    
    
    
    11,393Provision for loan loss
    
    
    435
    
    
    
    1,355
    
    
    
    1,486Net interest income after provision for loan loss
    
    
    10,227
    
    
    
    10,387
    
    
    
    9,907Noninterest incomeService fees and overdraft charges
    
    
    1,541
    
    
    
    1,859
    
    
    
    1,940Gains/(loss) on sale of securities, net
    
    
    
    
    
    
    31
    
    
    
    198Gains/(loss) on sale of other assets, net
    
    
    (61
    )
    
    
    (53
    )
    
    
    (17
    )Other income
    
    
    963
    
    
    
    650
    
    
    
    352Total noninterest income
    
    
    2,443
    
    
    
    2,487
    
    
    
    2,473Noninterest expensesSalaries and employee benefits
    
    
    5,308
    
    
    
    5,339
    
    
    
    5,180Occupancy, furniture and equipment
    
    
    1,417
    
    
    
    1,191
    
    
    
    1,064Data processing
    
    
    594
    
    
    
    814
    
    
    
    805State taxes
    
    
    404
    
    
    
    427
    
    
    
    413FDIC deposit insurance
    
    
    68
    
    
    
    70
    
    
    
    68Professional fees
    
    
    436
    
    
    
    396
    
    
    
    329Amortization of intangibles
    
    
    17
    
    
    
    137
    
    
    
    257Other operating expense
    
    
    2,156
    
    
    
    2,389
    
    
    
    2,301Total noninterest expense
    
    
    10,400
    
    
    
    10,763
    
    
    
    10,417Income before income taxes
    
    
    2,270
    
    
    
    2,111
    
    
    
    1,963Income tax expense
    
    
    490
    
    
    
    444
    
    
    
    439Net income
    
    $
    1,780
    
    
    $
    1,667
    
    
    $
    1,524Basic earnings per common share
    
    $
    1.54
    
    
    $
    1.43
    
    
    $
    1.30Diluted earnings per common share
    
    $
    1.54
    
    
    $
    1.43
    
    
    $
    1.29
  21.




---



##### 



AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    Stock
    
    
    
    
    
    
    TotalOutstanding
    
    
    Common
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Ownership
    
    
    Treasury
    
    
    ShareholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    Plan Shares
    
    
    Stock
    
    
    EquityBalance at January 1, 2004
    
    
    1,161,952
    
    
    $
    10,414
    
    
    $
    270
    
    
    $
    10,607
    
    
    $
    204
    
    
    $
    (270
    )
    
    $
    (70
    )
    
    $
    21,155Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,524
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,524Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification and tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (196
    )
    
    
    
    
    
    
    
    
    
    
    (196
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,328Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (895
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (895
    )Shares acquired for deferred compensation: 954 shares
    
    
    
    
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    (108
    )
    
    
    
    
    
    
    Shares divested for deferred compensation: 755 shares
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    (8,465
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (224
    )
    
    
    (224
    )Issuance of treasury stock under stock option plans
    
    
    5,079
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    131
    
    
    
    101Issuance of treasury stock for
deferred compensation plan
    
    
    3,439
    
    
    
    83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83Issuance of stock under stock option plans
    
    
    10,777
    
    
    
    238
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    238Balance at December 31, 2004
    
    
    1,172,782
    
    
    $
    10,735
    
    
    $
    360
    
    
    $
    11,206
    
    
    $
    8
    
    
    $
    (360
    )
    
    $
    (163
    )
    
    $
    21,786Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,667
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,667Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification and tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (706
    )
    
    
    
    
    
    
    
    
    
    
    (706
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    961Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (886
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (886
    )Shares acquired for deferred compensation: 1,584 shares
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    (42
    )
    
    
    
    
    
    
    Shares divested for deferred compensation: -0- shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    (13,468
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (361
    )
    
    
    (361
    )Issuance of treasury stock under stock option plans
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    3Issuance of treasury stock for
deferred compensation plan
    
    
    831
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    22
    
    
    
    22Balance at December 31, 2005
    
    
    1,160,338
    
    
    $
    10,735
    
    
    $
    424
    
    
    $
    11,985
    
    
    $
    (698
    )
    
    $
    (424
    )
    
    $
    (497
    )
    
    $
    21,525
  22.




---



##### 



AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    Stock
    
    
    
    
    
    
    TotalOutstanding
    
    
    Common
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Ownership
    
    
    Treasury
    
    
    ShareholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    Plan Shares
    
    
    Stock
    
    
    EquityBalance at January 1, 2006
    
    
    1,160,338
    
    
    $
    10,735
    
    
    $
    424
    
    
    $
    11,985
    
    
    $
    (698
    )
    
    $
    (424
    )
    
    $
    (497
    )
    
    $
    21,525Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,780
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,780Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification and tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    277
    
    
    
    
    
    
    
    
    
    
    
    277Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,057Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (879
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (879
    )Shares acquired for deferred compensation: 1,628 shares
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    Shares divested for deferred compensation:  0  shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Purchase of treasury stock
    
    
    (11,448
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (318
    )
    
    
    (318
    )Issuance of treasury stock under stock option plans
    
    
    2,195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52
    
    
    
    52Issuance of treasury stock for
deferred compensation plan
    
    
    250
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    7
    
    
    
    7Balance at December 31, 2006
    
    
    1,151,335
    
    
    $
    10,735
    
    
    $
    478
    
    
    $
    12,886
    
    
    $
    (421
    )
    
    $
    (475
    )
    
    $
    (756
    )
    
    $
    22,447
  23.




---



##### 



2006
    
    
    2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    1,780
    
    
    $
    1,667
    
    
    $
    1,524Adjustments to reconcile net income to net cash from
operating activitiesDepreciation
    
    
    910
    
    
    
    680
    
    
    
    598Provisions for loan loss
    
    
    435
    
    
    
    1,355
    
    
    
    1,486Deferred income taxes
    
    
    294
    
    
    
    (195
    )
    
    
    (1
    )Gain on sale of securities
    
    
    
    
    
    
    (31
    )
    
    
    (198
    )Gain on other real estate owned
    
    
    61
    
    
    
    53
    
    
    
    17Stock dividends on FHLB stock
    
    
    (121
    )
    
    
    (96
    )
    
    
    (78
    )Net amortization on securities
    
    
    204
    
    
    
    302
    
    
    
    224Amortization of intangible assets
    
    
    17
    
    
    
    137
    
    
    
    257Increased cash value of Bank-owned life insurance
    
    
    (261
    )
    
    
    (227
    )
    
    
    (58
    )Stock-based compensation
    
    
    3
    
    
    
    
    
    
    
    Changes in:Interest receivable
    
    
    111
    
    
    
    (404
    )
    
    
    107Interest payable
    
    
    68
    
    
    
    27
    
    
    
    (111
    )Other assets and liabilities
    
    
    (13
    )
    
    
    573
    
    
    
    (739
    )Net cash from operating activities
    
    
    3,488
    
    
    
    3,841
    
    
    
    3,028Cash flows from investing activitiesSecurities available for salePurchases
    
    
    (412
    )
    
    
    (10,506
    )
    
    
    (32,348
    )Maturities and repayments
    
    
    5,906
    
    
    
    8,069
    
    
    
    5,978Sales
    
    
    
    
    
    
    4,144
    
    
    
    14,733Net change in loans
    
    
    31,637
    
    
    
    (15,108
    )
    
    
    (10,079
    )Purchase of Bank-owned life insurance
    
    
    
    
    
    
    (470
    )
    
    
    (4,500
    )Proceeds from sale of OREO and repossessed assets
    
    
    599
    
    
    
    647
    
    
    
    557Proceeds from sale of premises and equipment
    
    
    136
    
    
    
    19
    
    
    
    Bank premises and equipment expenditures, net
    
    
    (4,192
    )
    
    
    (764
    )
    
    
    (539
    )Net cash from investing activities
    
    
    33,674
    
    
    
    (13,969
    )
    
    
    (26,198
    )Cash flows from financing activitiesNet change in deposits
    
    
    1,159
    
    
    
    (669
    )
    
    
    10,397Proceeds from additional FHLB advances
    
    
    8,000
    
    
    
    15,000
    
    
    
    13,100Repayments of FHLB advances and federal funds
    
    
    (40,970
    )
    
    
    (6,630
    )
    
    
    Cash dividends paid
    
    
    (879
    )
    
    
    (886
    )
    
    
    (895
    )Issuance of common stock
    
    
    7
    
    
    
    22
    
    
    
    321Purchase of treasury stock
    
    
    (318
    )
    
    
    (361
    )
    
    
    (224
    )Options exercised
    
    
    52
    
    
    
    3
    
    
    
    101Net cash from financing activities
    
    
    (32,949
    )
    
    
    6,479
    
    
    
    22,800Net change in cash equivalents and federal funds sold
    
    
    4,213
    
    
    
    (3,649
    )
    
    
    (370
    )Cash equivalents and federal funds sold at beginning of year
    
    
    6,605
    
    
    
    10,254
    
    
    
    10,624Cash equivalents and federal funds sold at end of year
    
    $
    10,818
    
    
    $
    6,605
    
    
    $
    10,254Supplemental disclosures:Cash paid for interest
    
    $
    8,421
    
    
    $
    6,276
    
    
    $
    5,318Cash paid for income taxes
    
    
    223
    
    
    
    855
    
    
    
    515Non-cash transfer of loans to foreclosed/repossessed assets
    
    
    503
    
    
    
    532
    
    
    
    674
  24.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Nature of Operations:
 Use of Estimates
 Cash and Cash Equivalents
 Securities
  Loans Receivable
 Allowance for Loan Losses
 25.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    Premises and Equipment
 Other Real Estate
 Income Taxes
 Long-Term Assets
 Benefit Plans
  Stock Compensation Accounting for Stock-Based Compensation .
 26.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Accounting for Stock-Based Compensation
 2006
    
    
    2005
    
    
    2004Income as reported
    
    $
    1,780
    
    
    $
    1,667
    
    
    $
    1,524Deduct: Stock-based compensation expense
    
    
    (3
    )Determined under fair value based method
    
    
    3
    
    
    
    6
    
    
    
    19Pro forma net income
    
    
    1,780
    
    
    
    1,661
    
    
    
    1,505Pro forma earnings per shareBasic
    
    $
    1.54
    
    
    $
    1.43
    
    
    $
    1.28Diluted
    
    
    1.54
    
    
    
    1.42
    
    
    
    1.28Earnings per share as reportedBasic
    
    $
    1.54
    
    
    $
    1.43
    
    
    $
    1.30Diluted
    
    
    1.54
    
    
    
    1.43
    
    
    
    1.29
 Financial Instruments
 Fair Values of Financial Instruments
 Comprehensive Income
 Loss Contingencies
 Earnings Per Share
 Industry Segments
 27.




---



##### 



NOTE 2  SECURITIES
  Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses2006Obligations of U.S. Government
and federal agencies
    
    $
    8,383
    
    
    $
    
    
    
    $
    (249
    )Obligations of state and political
subdivisions
    
    
    18,469
    
    
    
    332
    
    
    
    (30
    )Mortgage-backed securities
    
    
    22,750
    
    
    
    1
    
    
    
    (692
    )Total debt securities available for sale
    
    
    49,602
    
    
    
    333
    
    
    
    (971
    )Equity investments
    
    
    2,171
    
    
    
    
    
    
    
    Total securities available for sale
    
    $
    51,773
    
    
    $
    333
    
    
    $
    (971
    )2005Obligations of U.S. Government
and federal agencies
    
    $
    9,287
    
    
    $
    
    
    
    $
    (342
    )Obligations of state and political
subdivisions
    
    
    18,072
    
    
    
    279
    
    
    
    (95
    )Mortgage-backed securities
    
    
    27,522
    
    
    
    
    
    
    
    (900
    )Total debt securities available for sale
    
    
    54,881
    
    
    
    279
    
    
    
    (1,337
    )Equity investments
    
    
    2,050
    
    
    
    
    
    
    
    Total securities available for sale
    
    $
    56,931
    
    
    $
    279
    
    
    $
    (1,337
    )
  Fair ValueDue less than one year
    
    $
    16Due after one year through five years
    
    
    2,200Due after five years through ten years
    
    
    12,058Due after ten years
    
    
    12,578Mortgage-backed securities
    
    
    22,750Equity securities
    
    
    2,171$
    51,773
  2006
    
    
    2005
    
    
    2004Proceeds
    
    $
    
    
    
    $
    4,144
    
    
    $
    14,733Gross gains
    
    
    
    
    
    
    42
    
    
    
    249Gross losses
    
    
    
    
    
    
    11
    
    
    
    51
 28.




---



##### 



(in thousands)
    
    Less Than Twelve Months
    
    
    Over Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedLosses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair ValueAvailable for Sale Securities:U.S. Government and Agency
    
    $
    0
    
    
    $
    0
    
    
    $
    (249
    )
    
    $
    8,383State and political subdivisions
    
    
    (3
    )
    
    
    542
    
    
    
    (27
    )
    
    
    3,846Mortgage-backed securities
    
    
    0
    
    
    
    0
    
    
    
    (692
    )
    
    
    21,649Total Available for Sale
    
    $
    (3
    )
    
    $
    542
    
    
    $
    (968
    )
    
    $
    33,878
  (in thousands)
    
    Less Than Twelve Months
    
    
    Over Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedLosses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair ValueAvailable for Sale Securities:U.S. Government and Agency
    
    $
    (39
    )
    
    $
    1,562
    
    
    $
    (303
    )
    
    $
    7,725State and political subdivisions
    
    
    (67
    )
    
    
    6,000
    
    
    
    (28
    )
    
    
    1,594Mortgage-backed securities
    
    
    (258
    )
    
    
    10,019
    
    
    
    (642
    )
    
    
    17,405Total Available for Sale
    
    $
    (364
    )
    
    $
    17,581
    
    
    $
    (973
    )
    
    $
    26,724
  NOTE 3  LOANS
  2006
    
    
    2005Commercial loans
    
    $
    136,230
    
    
    $
    154,267Real estate loans  residential
    
    
    8,152
    
    
    
    10,291Construction loans
    
    
    965
    
    
    
    616Consumer and credit card loans
    
    
    12,440
    
    
    
    15,255Home equity loans
    
    
    17,551
    
    
    
    18,982Consumer finance loans
    
    
    19,084
    
    
    
    28,270Total loans
    
    $
    194,422
    
    
    $
    227,681
 29.




---



##### 



2006
    
    
    2005Year-end loans with no allocated allowance for loan losses
    
    $
    1,843
    
    
    $
    1,627Year-end loans with allocated allowance for loan losses
    
    
    424
    
    
    
    285Total
    
    $
    2,267
    
    
    $
    1,912
 Amount of the allowance for loan losses allocated
    
    $
    76
    
    
    $
    9
 2006
    
    
    2005
    
    
    2004Average of impaired loans during the year
    
    $
    2,370
    
    
    $
    1,452
    
    
    $
    1,421Income recognized on impaired loans
    
    
    14
    
    
    
    2
    
    
    
    13Cash-basis interest recognized on impaired loans
    
    
    14
    
    
    
    2
    
    
    
    13
  2006
    
    
    2005Loans past due over 90 days still on accrual
    
    $
    283
    
    
    $
    124Nonaccrual loans
    
    
    1,984
    
    
    
    1,912
  NOTE 4  ALLOWANCE FOR LOAN LOSS
  2006
    
    
    2005
    
    
    2004Beginning balance
    
    $
    2,755
    
    
    $
    2,503
    
    
    $
    2,503Provision for loan loss
    
    
    435
    
    
    
    1,355
    
    
    
    1,486Loans charged off
    
    
    (1,474
    )
    
    
    (1,440
    )
    
    
    (1,785
    )Recoveries of loans previously charged off
    
    
    299
    
    
    
    337
    
    
    
    299Ending balance
    
    $
    2,015
    
    
    $
    2,755
    
    
    $
    2,503
 30.




---



##### 



NOTE 5  PREMISES AND EQUIPMENT
  2006
    
    
    2005Land
    
    $
    1,191
    
    
    $
    1,220Buildings
    
    
    8,429
    
    
    
    6,720Furniture and equipment
    
    
    4,754
    
    
    
    3,456Construction in process
    
    
    
    
    
    
    254Total
    
    
    14,374
    
    
    
    11,650Accumulated depreciation
    
    
    4,872
    
    
    
    5,265Premises and equipment, net
    
    $
    9,502
    
    
    $
    6,385
 NOTE 6  DEPOSITS
  2007
    
    $
    82,5682008
    
    
    31,2992009
    
    
    6,0362010
    
    
    3,4512011
    
    
    9072012 and thereafter
    
    
    903$
    125,164
 NOTE 7  FHLB ADVANCES AND OTHER BORROWED FUNDS
  CurrentInterestRate
    
    
    2006
    
    
    2005FHLB quarterly variable advance, with monthly interest payments: matured August 2006
    
    
    0.00
    %
    
    
    
    
    
    
    2,000FHLB fixed rate advance, with monthly interest payments: matured August 2006
    
    
    0.00
    %
    
    
    
    
    
    
    3,000FHLB fixed rate advance, with monthly interest payments: called October 2006
    
    
    0.00
    %
    
    
    
    
    
    
    6,500FHLB fixed rate advance, with monthly interest payments: called October 2006
    
    
    0.00
    %
    
    
    
    
    
    
    5,000FHLB daily variable rate advance, with monthly interest payments
    
    
    0.00
    %
    
    
    
    
    
    
    14,600Total FHLB advances
    
    
    
    
    
    $
    
    
    
    $
    31,100
  31.




---



##### 



NOTE 8  INCOME TAXES
  2006
    
    
    2005
    
    
    2004Current provision
    
    $
    196
    
    
    $
    639
    
    
    $
    440Deferred provision (benefit)
    
    
    294
    
    
    
    (195
    )
    
    
    (1
    )Total income tax expense
    
    $
    490
    
    
    $
    444
    
    
    $
    439
  2006
    
    
    2005Items giving rise to deferred tax assetsAllowance for loan losses in excess of tax reserve
    
    $
    355
    
    
    $
    604Deferred compensation
    
    
    141
    
    
    
    197Unrealized loss on securities available for sale
    
    
    217
    
    
    
    360Other
    
    
    30
    
    
    
    2Total
    
    
    743
    
    
    
    1,163Items giving rise to deferred tax liabilitiesDepreciation
    
    
    (188
    )
    
    
    (207
    )Deferred loan fees and costs
    
    
    (53
    )
    
    
    (62
    )FHLB stock dividend
    
    
    (280
    )
    
    
    (239
    )Unrealized gain on securities available for sale
    
    
    
    
    
    
    Prepaid expenses and other
    
    
    (69
    )
    
    
    (65
    )Total
    
    
    (590
    )
    
    
    (573
    )Net deferred tax benefit/(liability)
    
    $
    153
    
    
    $
    590
  2006
    
    
    2005
    
    
    2004Tax at statutory rates
    
    $
    772
    
    
    $
    717
    
    
    $
    667Increase (decrease) in tax resulting from:Tax-exempt interest
    
    
    (249
    )
    
    
    (233
    )
    
    
    (277
    )Other
    
    
    (33
    )
    
    
    (40
    )
    
    
    49Total income tax expense
    
    $
    490
    
    
    $
    444
    
    
    $
    439
  32.




---



##### 



NOTE 9  STOCK OPTION PLAN
   2006
    
    
    2005
    
    
    2004Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at
beginning
of year
    
    
    34,849
    
    
    $
    25.21
    
    
    
    35,567
    
    
    $
    25.13
    
    
    
    66,961
    
    
    $
    24.67Granted
    
    
    2,000
    
    
    
    26.75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (2,195
    )
    
    
    23.64
    
    
    
    (193
    )
    
    
    17.57
    
    
    
    (15,856
    )
    
    
    21.36Forfeited or expired
    
    
    (2,835
    )
    
    
    18.23
    
    
    
    (525
    )
    
    
    22.75
    
    
    
    (15,538
    )
    
    
    Outstanding at
end of year
    
    
    31,819
    
    
    $
    26.04
    
    
    
    34,849
    
    
    $
    25.21
    
    
    
    35,567
    
    
    $
    25.13Options exercisable
at year-end
    
    
    27,613
    
    
    
    
    
    
    
    32,283
    
    
    
    
    
    
    
    25,768Weighted average
fair value of
options granted
during the year
    
    
    4.16
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    n/a
   Outstanding
    
    
    ExercisableWeighted Average
    
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    Remaining
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Contractual
    
    
    
    
    
    
    ExercisePrices
    
    Number
    
    
    Life
    
    
    Number
    
    
    Price$22  $25
    
    
    16,619
    
    
    2.47 years
    
    
    14,413
    
    
    
    24.06$28  $30
    
    
    15,200
    
    
    2.92 years
    
    
    13,200
    
    
    
    28.64Outstanding at year-end
    
    
    31,819
    
    
    
    
    
    
    
    27,613
 33.




---



##### 



NOTE 10  SALARY DEFERRAL  401(k) PLAN
  NOTE 11  COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES
      2006
    
    
    2005Commitments to extend commercial credit
    
    $
    12,757
    
    
    $
    17,860Commitments to extend consumer credit
    
    
    11,655
    
    
    
    11,374Standby letters of credit
    
    
    2,156
    
    
    
    2,173$
    26,568
    
    
    $
    31,407
 2006
    
    
    2005Fixed rate
    
    $
    813
    
    
    $
    366Variable rate
    
    
    25,755
    
    
    
    31,041$
    26,568
    
    
    $
    31,407
   34.




---



##### 



NOTE 12  REGULATORY MATTERS
   Capital to risk-weighted assetsTier 1 capitalTotal
    
    Tier 1
    
    to average assetsWell capitalized
    
    
    10
    %
    
    
    6
    %
    
    
    5
    %Adequately capitalized
    
    
    8
    %
    
    
    4
    %
    
    
    4
    %Undercapitalized
    
    
    6
    %
    
    
    3
    %
    
    
    3
    %
  Minimum Required
    
    Minimum RequiredFor Capital
    
    To Be WellActual
    
    Adequacy Purposes
    
    CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital (to risk weighted assets)Corporation
    
    $
    24,879
    
    
    
    11.6
    %
    
    $
    17,101
    
    
    
    8.0
    %
    
    $
    21,377
    
    
    
    10.0
    %Bank
    
    $
    23,366
    
    
    
    11.0
    %
    
    $
    16,988
    
    
    
    8.0
    %
    
    $
    21,235
    
    
    
    10.0
    %Tier 1 capital (to risk weighted assets)Corporation
    
    $
    22,864
    
    
    
    10.7
    %
    
    $
    8,551
    
    
    
    4.0
    %
    
    $
    12,826
    
    
    
    6.0
    %Bank
    
    $
    21,351
    
    
    
    10.1
    %
    
    $
    8,494
    
    
    
    4.0
    %
    
    $
    12,741
    
    
    
    6.0
    %Tier 1 capital (to average assets)Corporation
    
    $
    22,864
    
    
    
    7.9
    %
    
    $
    11,642
    
    
    
    4.0
    %
    
    $
    14,553
    
    
    
    5.0
    %Bank
    
    $
    21,351
    
    
    
    7.4
    %
    
    $
    11,608
    
    
    
    4.0
    %
    
    $
    14,510
    
    
    
    5.0
    %
  Minimum Required
    
    Minimum RequiredFor Capital
    
    To Be WellActual
    
    Adequacy Purposes
    
    CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital (to risk weighted assets)Corporation
    
    $
    24,958
    
    
    
    10.3
    %
    
    $
    19,429
    
    
    
    8.0
    %
    
    $
    24,286
    
    
    
    10.0
    %Bank
    
    $
    24,524
    
    
    
    10.1
    %
    
    $
    19,429
    
    
    
    8.0
    %
    
    $
    24,286
    
    
    
    10.0
    %Tier 1 capital (to risk weighted assets)Corporation
    
    $
    22,202
    
    
    
    9.1
    %
    
    $
    9,715
    
    
    
    4.0
    %
    
    $
    14,572
    
    
    
    6.0
    %Bank
    
    $
    21,768
    
    
    
    9.0
    %
    
    $
    9,715
    
    
    
    4.0
    %
    
    $
    14,572
    
    
    
    6.0
    %Tier 1 capital (to average assets)Corporation
    
    $
    22,202
    
    
    
    7.5
    %
    
    $
    11,891
    
    
    
    4.0
    %
    
    $
    14,863
    
    
    
    5.0
    %Bank
    
    $
    21,768
    
    
    
    7.3
    %
    
    $
    11,891
    
    
    
    4.0
    %
    
    $
    14,863
    
    
    
    5.0
    %
 35.




---



##### 



NOTE 13  RELATED PARTY TRANSACTIONS
  2006Beginning balance
    
    $
    3,024New loans and advances
    
    
    187Change in status
    
    
    (803
    )Payments
    
    
    (459
    )Ending balance
    
    $
    1,949
  NOTE 14  FAIR VALUES OF FINANCIAL INSTRUMENTS
  2006
    
    2005Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assetsCash equivalents and federal funds sold
    
    $
    10,818
    
    
    $
    10,818
    
    
    $
    6,605
    
    
    $
    6,605Securities available for sale
    
    
    51,773
    
    
    
    51,733
    
    
    
    56,931
    
    
    
    56,931Loans, net of allowance for loan loss
    
    
    192,407
    
    
    
    192,772
    
    
    
    224,926
    
    
    
    222,146Accrued interest receivable
    
    
    1,329
    
    
    
    1,329
    
    
    
    1,440
    
    
    
    1,440Financial liabilitiesDemand and savings deposits
    
    $
    (124,501
    )
    
    $
    (124,501
    )
    
    $
    (118,247
    )
    
    $
    (118,247
    )Time deposits
    
    
    (125,164
    )
    
    
    (125,041
    )
    
    
    (130,258
    )
    
    
    (129,766
    )Borrowed funds
    
    
    
    
    
    
    
    
    
    
    (32,970
    )
    
    
    (32,902
    )Accrued interest payable
    
    
    (398
    )
    
    
    (398
    )
    
    
    (330
    )
    
    
    (330
    )
  36.




---



##### 



NOTE 15  OTHER COMPREHENSIVE INCOME
  2006
    
    
    2005
    
    
    2004Unrealized holding gains and losses
on available-for-sale securities
    
    $
    420
    
    
    $
    (1,039
    )
    
    $
    (98
    )Less reclassification adjustments for gains
and losses later recognized in income
    
    
    
    
    
    
    31
    
    
    
    198Net unrealized gains and losses
    
    
    420
    
    
    
    (1,070
    )
    
    
    (296
    )Tax effect
    
    
    143
    
    
    
    (364
    )
    
    
    (100
    )Other comprehensive income
    
    $
    277
    
    
    $
    (706
    )
    
    $
    (196
    )
 NOTE 16  EARNINGS PER SHARE
  2006
    
    
    2005
    
    
    2004Weighted average shares outstanding during the year
    
    
    1,157,192
    
    
    
    1,165,853
    
    
    
    1,175,669Dilutive effect of stock options
    
    
    1,983
    
    
    
    2,716
    
    
    
    2,818Weighted average shares considering dilutive effect
    
    
    1,159,175
    
    
    
    1,168,569
    
    
    
    1,178,487
  NOTE 17  PARENT CORPORATION STATEMENTS
  CONDENSED BALANCE SHEETS
 2006
    
    
    2005ASSETSCash on deposit with subsidiary
    
    $
    31
    
    
    $
    130Investment in common stock of subsidiaries
    
    
    20,951
    
    
    
    21,100Other assets
    
    
    1,465
    
    
    
    295Total assets
    
    $
    22,447
    
    
    $
    21,525LIABILITIES AND SHAREHOLDERS EQUITYLiabilities & shareholders equity
    
    $
    22,447
    
    
    $
    21,525
 37.




---



##### 



NOTE 17  PARENT CORPORATION STATEMENTS
 CONDENSED STATEMENTS OF INCOME
 2006
    
    
    2005
    
    
    2004INCOMEDividends from Bank subsidiary
    
    $
    2,280
    
    
    $
    886
    
    
    $
    894Other income
    
    
    30
    
    
    
    
    
    
    
    Total income
    
    
    2,310
    
    
    
    886
    
    
    
    894EXPENSESProfessional fees
    
    
    79
    
    
    
    32
    
    
    
    70Other
    
    
    63
    
    
    
    32
    
    
    
    38Total expenses
    
    
    142
    
    
    
    64
    
    
    
    108Tax (benefit)
    
    
    (38
    )
    
    
    (22
    )
    
    
    (37
    )Income before equity in undistributed earnings of subsidiaries
    
    
    2,206
    
    
    
    844
    
    
    
    823Equity in undistributed earnings of subsidiaries
    
    
    -426
    
    
    
    823
    
    
    
    701NET INCOME
    
    $
    1,780
    
    
    $
    1,667
    
    
    $
    1,524
 CONDENSED STATEMENTS OF CASH FLOW
 2006
    
    
    2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    1,780
    
    
    $
    1,667
    
    
    $
    1,524Adjustments to reconcile net income to net cash
from operating activitiesEquity in undistributed earnings of subsidiaries
    
    
    426
    
    
    
    (823
    )
    
    
    (701
    )Other
    
    
    (1,167
    )
    
    
    42
    
    
    
    42Net cash from operating activities
    
    
    1,039
    
    
    
    886
    
    
    
    865CASH FLOWS FROM INVESTING ACTIVITIESCapital infusion from/(to) subsidiary
    
    
    
    
    
    
    273
    
    
    
    (90
    )Net cash from investing activities
    
    
    
    
    
    
    273
    
    
    
    (90
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of common stock / options exercised
    
    
    59
    
    
    
    25
    
    
    
    422Treasury repurchase of common stock
    
    
    (318
    )
    
    
    (361
    )
    
    
    (224
    )Cash dividends paid
    
    
    (879
    )
    
    
    (886
    )
    
    
    (895
    )Net cash from financing activities
    
    
    (1,138
    )
    
    
    (1,222
    )
    
    
    (697
    )Net change in cash
    
    
    (99
    )
    
    
    (63
    )
    
    
    78Cash at beginning of period
    
    
    130
    
    
    
    193
    
    
    
    115Cash at end of period
    
    $
    31
    
    
    $
    130
    
    
    $
    193
 38.




---



##### 



NOTE 18  QUARTERLY INFORMATION
  2006
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Total interest income
    
    $
    4,805
    
    
    $
    4,908
    
    
    $
    4,766
    
    
    $
    4,671Total interest expense
    
    
    1,988
    
    
    
    2,160
    
    
    
    2,223
    
    
    
    2,117Net interest income
    
    $
    2,817
    
    
    $
    2,748
    
    
    $
    2,543
    
    
    $
    2,554Provision for loan losses
    
    
    180
    
    
    
    105
    
    
    
    98
    
    
    
    52Net income (loss)
    
    $
    515
    
    
    $
    511
    
    
    $
    309
    
    
    $
    445Basic earnings (loss) per common share
    
    
    0.44
    
    
    
    0.44
    
    
    
    0.27
    
    
    
    0.39Diluted earnings (loss) per common share
    
    
    0.44
    
    
    
    0.44
    
    
    
    0.27
    
    
    
    0.39
 2005
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Total interest income
    
    $
    4,184
    
    
    $
    4,441
    
    
    $
    4,560
    
    
    $
    4,860Total interest expense
    
    
    1,420
    
    
    
    1,485
    
    
    
    1,599
    
    
    
    1,799Net interest income
    
    $
    2,764
    
    
    $
    2,956
    
    
    $
    2,961
    
    
    $
    3,061Provision for loan losses
    
    
    220
    
    
    
    365
    
    
    
    365
    
    
    
    405Net income (loss)
    
    $
    431
    
    
    $
    492
    
    
    $
    516
    
    
    $
    228Basic earnings (loss) per common share
    
    
    0.37
    
    
    
    0.42
    
    
    
    0.44
    
    
    
    0.20Diluted earnings (loss) per common share
    
    
    0.37
    
    
    
    0.42
    
    
    
    0.44
    
    
    
    0.20
 SHAREHOLDER INFORMATION
  Dividends2006
    
    Declared
    
    Low Bid
    
    High BidThree months ended March 31
    
    $
    0.19
    
    
    $
    26.00
    
    
    $
    30.00Three months ended June 30
    
    
    0.19
    
    
    
    26.70
    
    
    
    30.00Three months ended September 30
    
    
    0.19
    
    
    
    26.85
    
    
    
    27.50Three months ended December 31
    
    
    0.19
    
    
    
    26.00
    
    
    
    28.00
 Dividends2005
    
    Declared
    
    Low Bid
    
    High BidThree months ended March 31
    
    $
    0.19
    
    
    $
    26.10
    
    
    $
    27.00Three months ended June 30
    
    
    0.19
    
    
    
    25.30
    
    
    
    27.25Three months ended September 30
    
    
    0.19
    
    
    
    26.25
    
    
    
    27.25Three months ended December 31
    
    
    0.19
    
    
    
    26.00
    
    
    
    27.25
   39.




---



##### 



Performance Graph
  
 12/31/01
    
    12/31/02
    
    12/31/03
    
    12/31/04
    
    12/31/05
    
    12/31/06Commercial Bancshares
    
    $
    100.00
    
    
    $
    115.59
    
    
    $
    134.84
    
    
    $
    140.47
    
    
    $
    148.17
    
    
    $
    153.85Russell 3000
    
    $
    100.00
    
    
    $
    78.46
    
    
    $
    102.83
    
    
    $
    115.11
    
    
    $
    122.16
    
    
    $
    141.35SNL $100M  $500M Pink Sheets
    
    $
    100.00
    
    
    $
    119.96
    
    
    $
    162.94
    
    
    $
    196.93
    
    
    $
    218.70
    
    
    $
    239.39SNL Banks < $500M
    
    $
    100.00
    
    
    $
    128.07
    
    
    $
    186.94
    
    
    $
    215.79
    
    
    $
    228.47
    
    
    $
    240.02
 40.




---



##### 



COMMERCIAL BANCSHARES, INC.
  
   
   
  info@rtco.com  www.rtco.com
   41.




---



##### 



BOARD OF DIRECTORS
 Richard Sheaffer  Chairman
    
    President, R. A. Sheaffer, Inc.Morral, OhioDaniel E. Berg
    
    Director of Operations, Tower AutomotiveJ. William Bremyer
    
    Foot and Ankle SurgeryMercy Health Systems, Tiffin, OhioLynn R. Child
    
    CEO, Aardvark, Inc. and CentraCommCommunications, LLC, Findlay, OhioMark Dillon
    
    President and CEO, Fairborn U.S.A., Inc.Upper Sandusky, OhioEdwin G. Emerson
    
    Of Counsel, Shumaker, Loop & Kendrick, LLPToledo, OhioDeborah J. Grafmiller
    
    President, Bill Gillen Realty, Inc.Co-owner, Certified Appraisal ServiceCo-owner/Operating Manager,Gillen-Grafmiller Realty, LLCUpper Sandusky, OhioKurt D. Kimmel
    
    President/Co-owner, Kimmel CleanersUpper Sandusky, OhioStanley K. Kinnett
    
    Division Vice President, Whirlpool CorporationMarion, OhioMichael A. Mastro
    
    President, TLM Management, Inc.Owner/Operator, Buffalo Wild WingsMarion, Ohio and Findlay, OhioMichael A. Shope
    
    Retired CFO, Walbro CorporationNorwalk, OhioDouglas C. Smith
    
    President, Checkmate Marine, Inc.Bucyrus, Ohio
 42.