##### 



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
    
    
    21Consolidated Financial Statements
    
    
    22Notes to Consolidated Financial Statements
    
    
    27Shareholder Information
    
    
    41Performance Graph
    
    
    42Officers
    
    
    43Board of Directors
    
    
    44
 i.




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##### 



(Dollars in thousands, except per share data)
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003YEAR-END BALANCESTotal assets
    
    $
    266,225
    
    
    $
    273,692
    
    
    $
    303,447
    
    
    $
    296,650
    
    
    $
    272,840Total securities
    
    
    49,489
    
    
    
    51,773
    
    
    
    56,931
    
    
    
    59,883
    
    
    
    48,491Loans, net
    
    
    192,128
    
    
    
    192,407
    
    
    
    224,926
    
    
    
    211,690
    
    
    
    203,771Total deposits
    
    
    238,511
    
    
    
    249,665
    
    
    
    248,506
    
    
    
    249,174
    
    
    
    238,751Total borrowed funds
    
    
    5,000
    
    
    
    
    
    
    
    32,970
    
    
    
    24,600
    
    
    
    11,500Total shareholders equity
    
    
    21,266
    
    
    
    22,447
    
    
    
    21,525
    
    
    
    21,786
    
    
    
    21,155Book value per outstanding share
    
    
    18.71
    
    
    
    19.50
    
    
    
    18.55
    
    
    
    18.58
    
    
    
    18.21Shares outstanding
    
    
    1,136,396
    
    
    
    1,151,335
    
    
    
    1,160,338
    
    
    
    1,172,782
    
    
    
    1,161,952RESULTS OF OPERATIONSInterest income
    
    $
    17,882
    
    
    $
    19,150
    
    
    $
    18,045
    
    
    $
    16,600
    
    
    $
    16,128Interest expense
    
    
    (8,371
    )
    
    
    (8,488
    )
    
    
    (6,303
    )
    
    
    (5,207
    )
    
    
    (5,581
    )Net interest income
    
    
    9,511
    
    
    
    10,662
    
    
    
    11,742
    
    
    
    11,393
    
    
    
    10,547Provision for loan loss
    
    
    (1,332
    )
    
    
    (435
    )
    
    
    (1,355
    )
    
    
    (1,486
    )
    
    
    (1,972
    )Other income
    
    
    2,244
    
    
    
    2,443
    
    
    
    2,487
    
    
    
    2,473
    
    
    
    2,685Salaries and employee benefits
    
    
    (5,776
    )
    
    
    (5,308
    )
    
    
    (5,339
    )
    
    
    (5,180
    )
    
    
    (4,951
    )Other expenses
    
    
    (5,543
    )
    
    
    (5,092
    )
    
    
    (5,424
    )
    
    
    (5,237
    )
    
    
    (4,914
    )Income (loss) before income taxes
    
    
    (896
    )
    
    
    2,270
    
    
    
    2,111
    
    
    
    1,963
    
    
    
    1,395Applicable income (taxes) benefit
    
    
    597
    
    
    
    (490
    )
    
    
    (444
    )
    
    
    (439
    )
    
    
    (122
    )Net income (loss)
    
    $
    (299
    )
    
    $
    1,780
    
    
    $
    1,667
    
    
    $
    1,524
    
    
    $
    1,273PER SHARE DATANet income (loss)Basic
    
    $
    (0.26
    )
    
    $
    1.54
    
    
    $
    1.43
    
    
    $
    1.30
    
    
    $
    1.10Diluted
    
    $
    (0.26
    )
    
    $
    1.54
    
    
    $
    1.43
    
    
    $
    1.29
    
    
    $
    1.09Cash dividend paid
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.76FINANCIAL RATIOSReturn on average total assets
    
    
    -0.11
    %
    
    
    0.61
    %
    
    
    0.57
    %
    
    
    0.55
    %
    
    
    0.48
    %Return on average shareholders equity
    
    
    -1.37
    %
    
    
    8.09
    %
    
    
    7.63
    %
    
    
    7.04
    %
    
    
    5.93
    %Average shareholders equity to
average total assets
    
    
    8.11
    %
    
    
    7.56
    %
    
    
    7.43
    %
    
    
    7.75
    %
    
    
    8.10
    %Dividend payout
    
    
    n/a
    
    
    
    49.40
    %
    
    
    53.14
    %
    
    
    58.71
    %
    
    
    69.10
    %
 2.




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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 INTRODUCTION
      FORWARD-LOOKING STATEMENTS




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##### 



CRITICAL ACCOUNTING POLICIES
  Allowance for loan losses
  OVERVIEW




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##### 



CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS SHOWNThree Months Ended December 31
    
    Twelve Months Ended December 31(dollars in thousands)
    
    2007
    
    2006
    
    $ Chg
    
    % Chg
    
    2007
    
    2006
    
    $ Chg
    
    % ChgInterest and fees on loans
    
    
    3,878
    
    
    
    3,995
    
    
    
    (117
    )
    
    
    (2.93
    )
    
    
    15,395
    
    
    
    16,538
    
    
    
    (1,143
    )
    
    
    (6.91
    )Taxable interest on securities
    
    
    358
    
    
    
    399
    
    
    
    (41
    )
    
    
    (10.28
    )
    
    
    1,472
    
    
    
    1,658
    
    
    
    (186
    )
    
    
    (11.22
    )Tax-free interest on securities
    
    
    203
    
    
    
    190
    
    
    
    13
    
    
    
    6.84
    
    
    
    807
    
    
    
    758
    
    
    
    49
    
    
    
    6.46Other interest income
    
    
    19
    
    
    
    86
    
    
    
    (67
    )
    
    
    (77.91
    )
    
    
    208
    
    
    
    196
    
    
    
    12
    
    
    
    6.12Total interest income
    
    
    4,458
    
    
    
    4,670
    
    
    
    (212
    )
    
    
    (4.54
    )
    
    
    17,882
    
    
    
    19,150
    
    
    
    (1,268
    )
    
    
    (6.62
    )Interest on deposits
    
    
    2,060
    
    
    
    2,067
    
    
    
    (7
    )
    
    
    (0.34
    )
    
    
    8,323
    
    
    
    7,448
    
    
    
    875
    
    
    
    11.75Interest on borrowings
    
    
    26
    
    
    
    50
    
    
    
    (24
    )
    
    
    (48.00
    )
    
    
    48
    
    
    
    1,040
    
    
    
    (992
    )
    
    
    (95.38
    )Total interest expense
    
    
    2,086
    
    
    
    2,117
    
    
    
    (31
    )
    
    
    (1.46
    )
    
    
    8,371
    
    
    
    8,488
    
    
    
    (117
    )
    
    
    (1.38
    )Net interest income
    
    
    2,372
    
    
    
    2,553
    
    
    
    (181
    )
    
    
    (7.09
    )
    
    
    9,511
    
    
    
    10,662
    
    
    
    (1,151
    )
    
    
    (10.80
    )Provision for loan losses
    
    
    381
    
    
    
    52
    
    
    
    329
    
    
    
    632.69
    
    
    
    1,332
    
    
    
    435
    
    
    
    897
    
    
    
    206.21Net interest after PLL
    
    
    1,991
    
    
    
    2,501
    
    
    
    (510
    )
    
    
    (20.39
    )
    
    
    8,179
    
    
    
    10,227
    
    
    
    (2,048
    )
    
    
    (20.03
    )Service and overdraft fees
    
    
    454
    
    
    
    392
    
    
    
    62
    
    
    
    15.82
    
    
    
    1,754
    
    
    
    1,541
    
    
    
    213
    
    
    
    13.82Gains/(losses) on asset sales
    
    
    (54
    )
    
    
    (4
    )
    
    
    (50
    )
    
    
    1250.00
    
    
    
    (51
    )
    
    
    (61
    )
    
    
    10
    
    
    
    (16.39
    )Other income
    
    
    137
    
    
    
    193
    
    
    
    (56
    )
    
    
    (29.02
    )
    
    
    541
    
    
    
    963
    
    
    
    (422
    )
    
    
    (43.82
    )Total other income
    
    
    537
    
    
    
    581
    
    
    
    (44
    )
    
    
    (7.57
    )
    
    
    2,244
    
    
    
    2,443
    
    
    
    (199
    )
    
    
    (8.15
    )Salaries and employee benefits
    
    
    1,471
    
    
    
    1,214
    
    
    
    257
    
    
    
    21.17
    
    
    
    5,776
    
    
    
    5,308
    
    
    
    468
    
    
    
    8.82Premises & equipment
    
    
    421
    
    
    
    442
    
    
    
    (21
    )
    
    
    (4.75
    )
    
    
    1,711
    
    
    
    1,417
    
    
    
    294
    
    
    
    20.75State taxes
    
    
    92
    
    
    
    91
    
    
    
    1
    
    
    
    1.10
    
    
    
    397
    
    
    
    404
    
    
    
    (7
    )
    
    
    (1.73
    )Data processing
    
    
    283
    
    
    
    75
    
    
    
    208
    
    
    
    277.33
    
    
    
    566
    
    
    
    594
    
    
    
    (28
    )
    
    
    (4.71
    )FDIC deposit insurance
    
    
    16
    
    
    
    17
    
    
    
    (1
    )
    
    
    (5.88
    )
    
    
    65
    
    
    
    68
    
    
    
    (3
    )
    
    
    (4.41
    )Professional fees
    
    
    196
    
    
    
    169
    
    
    
    27
    
    
    
    15.98
    
    
    
    629
    
    
    
    436
    
    
    
    193
    
    
    
    44.27Amortization of intangibles
    
    
    0
    
    
    
    4
    
    
    
    (4
    )
    
    
    (100.00
    )
    
    
    4
    
    
    
    17
    
    
    
    (13
    )
    
    
    (76.47
    )Other operating expense
    
    
    499
    
    
    
    493
    
    
    
    6
    
    
    
    1.22
    
    
    
    2,171
    
    
    
    2,156
    
    
    
    15
    
    
    
    0.70Total other expense
    
    
    2,978
    
    
    
    2,505
    
    
    
    473
    
    
    
    18.88
    
    
    
    11,319
    
    
    
    10,400
    
    
    
    919
    
    
    
    8.84Income (loss) before taxes
    
    
    (450
    )
    
    
    577
    
    
    
    (1,027
    )
    
    
    (177.99
    )
    
    
    (896
    )
    
    
    2,270
    
    
    
    (3,166
    )
    
    
    (139.47
    )Income taxes
    
    
    (199
    )
    
    
    132
    
    
    
    (331
    )
    
    
    (250.76
    )
    
    
    (597
    )
    
    
    490
    
    
    
    (1,087
    )
    
    
    (221.84
    )Net income (loss)
    
    
    (251
    )
    
    
    445
    
    
    
    (696
    )
    
    
    (156.40
    )
    
    
    (299
    )
    
    
    1,780
    
    
    
    (2,079
    )
    
    
    (116.80
    )
 RESULTS OF OPERATIONS
 Net Interest Income




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##### 



Provision for Loan Losses




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##### 



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
 2007 Compared to 2006
    
    
    2006 Compared to 2005Increase / (Decrease)
    
    
    Increase / (Decrease)Change
    
    
    Change
    
    
    
    
    
    
    Change
    
    
    ChangeTotal
    
    
    due to
    
    
    due to
    
    
    Total
    
    
    due to
    
    
    due to(Dollars in thousands)
    
    Change
    
    
    Volume
    
    
    Rate
    
    
    Change
    
    
    Volume
    
    
    RateShort-term investments
    
    $
    12
    
    
    $
    2
    
    
    $
    10
    
    
    $
    163
    
    
    $
    108
    
    
    $
    55SecuritiesTaxable
    
    
    (186
    )
    
    
    (238
    )
    
    
    52
    
    
    
    (134
    )
    
    
    (243
    )
    
    
    109Tax exempt (1)
    
    
    107
    
    
    
    101
    
    
    
    6
    
    
    
    37
    
    
    
    30
    
    
    
    7Loans (2)
    
    
    (1,143
    )
    
    
    (1,672
    )
    
    
    529
    
    
    
    1,041
    
    
    
    (367
    )
    
    
    1,408Total interest income
    
    
    (1,210
    )
    
    
    (1,807
    )
    
    
    597
    
    
    
    1,107
    
    
    
    (472
    )
    
    
    1,579DepositsInterest-bearing demand
    
    
    562
    
    
    
    222
    
    
    
    340
    
    
    
    1,349
    
    
    
    97
    
    
    
    1,252Savings deposits
    
    
    
    
    
    
    (4
    )
    
    
    4
    
    
    
    (14
    )
    
    
    (9
    )
    
    
    (5
    )Time deposits
    
    
    313
    
    
    
    (329
    )
    
    
    642
    
    
    
    770
    
    
    
    (155
    )
    
    
    925Borrowed funds
    
    
    (992
    )
    
    
    (997
    )
    
    
    5
    
    
    
    80
    
    
    
    (133
    )
    
    
    213Total interest expense
    
    
    (117
    )
    
    
    (1,108
    )
    
    
    991
    
    
    
    2,185
    
    
    
    (200
    )
    
    
    2,385Net interest income
    
    $
    (1,093
    )
    
    $
    (699
    )
    
    $
    (394
    )
    
    $
    (1,078
    )
    
    $
    (272
    )
    
    $
    (806
    )
 
 For purposes of these tables, the changes in interest have been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts of the changes in each
category.(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.




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##### 



DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS EQUITY
 2007
    
    
    2006
    
    
    2005Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    Average(Dollars in thousands)
    
    Balance (4)
    
    
    Expense
    
    
    Yield
    
    
    Balance (4)
    
    
    Expense
    
    
    Yield
    
    
    Balance (4)
    
    
    Expense
    
    
    YieldShort-term investments
    
    $
    3,883
    
    
    $
    208
    
    
    
    5.36
    %
    
    $
    3,852
    
    
    $
    196
    
    
    
    5.09
    %
    
    $
    903
    
    
    $
    33
    
    
    
    3.65
    %SecuritiesTaxable (1)
    
    
    31,249
    
    
    
    1,472
    
    
    
    4.71
    
    
    
    36,492
    
    
    
    1,658
    
    
    
    4.54
    
    
    
    42,212
    
    
    
    1,792
    
    
    
    4.25Tax exempt (1)
    
    
    19,569
    
    
    
    1,201
    
    
    
    6.14
    
    
    
    17,917
    
    
    
    1,094
    
    
    
    6.11
    
    
    
    17,429
    
    
    
    1,057
    
    
    
    6.06Loans (2) (3)
    
    
    188,525
    
    
    
    15,395
    
    
    
    8.17
    
    
    
    208,074
    
    
    
    16,538
    
    
    
    7.95
    
    
    
    213,118
    
    
    
    15,497
    
    
    
    7.27Total earning assets
    
    
    243,226
    
    
    
    18,276
    
    
    
    7.51
    %
    
    
    266,335
    
    
    
    19,486
    
    
    
    7.32
    %
    
    
    273,662
    
    
    
    18,379
    
    
    
    6.72
    %Other assets
    
    
    26,020
    
    
    
    
    
    
    
    
    
    
    
    24,725
    
    
    
    
    
    
    
    
    
    
    
    20,602Total assets
    
    $
    269,246
    
    
    
    
    
    
    
    
    
    
    $
    291,060
    
    
    
    
    
    
    
    
    
    
    $
    294,264Deposits
Interest-bearing
demand depositsInterest-bearing
demand deposits
    
    $
    86,759
    
    
    
    2,907
    
    
    
    3.35
    %
    
    $
    78,335
    
    
    
    2,346
    
    
    
    2.99
    %
    
    $
    71,383
    
    
    
    997
    
    
    
    1.40
    %Savings deposits
    
    
    15,765
    
    
    
    52
    
    
    
    0.33
    
    
    
    17,060
    
    
    
    51
    
    
    
    0.30
    
    
    
    19,633
    
    
    
    65
    
    
    
    0.33Time deposits
    
    
    120,603
    
    
    
    5,364
    
    
    
    4.45
    
    
    
    128,973
    
    
    
    5,051
    
    
    
    3.92
    
    
    
    133,807
    
    
    
    4,281
    
    
    
    3.20Borrowed funds
    
    
    865
    
    
    
    48
    
    
    
    5.55
    
    
    
    21,158
    
    
    
    1,040
    
    
    
    4.92
    
    
    
    24,566
    
    
    
    960
    
    
    
    3.91Total interest-
bearing liabilities
    
    
    223,992
    
    
    
    8,371
    
    
    
    3.74
    %
    
    
    245,526
    
    
    
    8,488
    
    
    
    3.46
    %
    
    
    249,389
    
    
    
    6,303
    
    
    
    2.53
    %Noninterest-bearing
demand deposits
    
    
    21,758
    
    
    
    
    
    
    
    
    
    
    
    21,948
    
    
    
    
    
    
    
    
    
    
    
    21,943Other liabilities
    
    
    1,667
    
    
    
    
    
    
    
    
    
    
    
    1,575
    
    
    
    
    
    
    
    
    
    
    
    1,066Shareholders equity
    
    
    21,829
    
    
    
    
    
    
    
    
    
    
    
    22,011
    
    
    
    
    
    
    
    
    
    
    
    21,866Total liabilities and
shareholders equity
    
    $
    269,246
    
    
    
    
    
    
    
    
    
    
    $
    291,060
    
    
    
    
    
    
    
    
    
    
    $
    294,264Net interest income
    
    
    
    
    
    $
    9,905
    
    
    
    
    
    
    
    
    
    
    $
    10,998
    
    
    
    
    
    
    
    
    
    
    $
    12,076As a percentage of earning assets:Net interest income
    
    
    
    
    
    
    
    
    
    
    4.07
    %
    
    
    
    
    
    
    
    
    
    
    4.13
    %
    
    
    
    
    
    
    
    
    
    
    4.41
    %
 
 (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 $394,000, $336,000 and $334,000 for 2007, 2006 and 2005 respectively.(2)
    
    Average balance is net of deferred loan fees of $76,000, $94,000, and $103,000 for 2007, 2006
and 2005 respectively, as well as $2,554,000, $4,693,000, and $5,252,000 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
  ENDING BALANCES AS OF THE DATE SHOWN(dollars in thousands)
    
    12/31/07
    
    12/31/06
    
    $ Chg
    
    % Chg
    
    12/31/05
    
    $ Chg
    
    % ChgCash & fed funds
    
    
    6,544
    
    
    
    10,818
    
    
    
    (4,274
    )
    
    
    (39.51
    )
    
    
    6,605
    
    
    
    4,213
    
    
    
    63.79Securities AFS
    
    
    49,489
    
    
    
    51,773
    
    
    
    (2,284
    )
    
    
    (4.41
    )
    
    
    56,931
    
    
    
    (5,158
    )
    
    
    (9.06
    )Gross loans
    
    
    194,539
    
    
    
    194,422
    
    
    
    117
    
    
    
    0.06
    
    
    
    227,681
    
    
    
    (33,259
    )
    
    
    (14.61
    )Allowance for loan losses
    
    
    (2,411
    )
    
    
    (2,015
    )
    
    
    (396
    )
    
    
    19.65
    
    
    
    (2,755
    )
    
    
    740
    
    
    
    (26.86
    )Loans, net
    
    
    192,128
    
    
    
    192,407
    
    
    
    (279
    )
    
    
    (0.15
    )
    
    
    224,926
    
    
    
    (32,519
    )
    
    
    (14.46
    )Premises & equipment
    
    
    8,688
    
    
    
    9,502
    
    
    
    (814
    )
    
    
    (8.57
    )
    
    
    6,385
    
    
    
    3,117
    
    
    
    48.82Accrued interest receivable
    
    
    1,250
    
    
    
    1,329
    
    
    
    (79
    )
    
    
    (5.94
    )
    
    
    1,440
    
    
    
    (111
    )
    
    
    (7.71
    )Other assets
    
    
    8,126
    
    
    
    7,863
    
    
    
    263
    
    
    
    3.34
    
    
    
    7,160
    
    
    
    703
    
    
    
    9.82Total assets
    
    
    266,225
    
    
    
    273,692
    
    
    
    (7,467
    )
    
    
    (2.73
    )
    
    
    303,447
    
    
    
    (29,755
    )
    
    
    (9.81
    )Noninterest-bearing demand
    
    
    22,545
    
    
    
    22,064
    
    
    
    481
    
    
    
    2.18
    
    
    
    27,659
    
    
    
    (5,595
    )
    
    
    (20.23
    )Interest-bearing demand
    
    
    84,233
    
    
    
    86,160
    
    
    
    (1,927
    )
    
    
    (2.24
    )
    
    
    72,695
    
    
    
    13,465
    
    
    
    18.52Savings & time deposits
    
    
    93,529
    
    
    
    97,446
    
    
    
    (3,917
    )
    
    
    (4.02
    )
    
    
    104,466
    
    
    
    (7,020
    )
    
    
    (6.72
    )Time deposits of $100k
    
    
    38,204
    
    
    
    43,995
    
    
    
    (5,791
    )
    
    
    (13.16
    )
    
    
    43,686
    
    
    
    309
    
    
    
    0.71Total deposits
    
    
    238,511
    
    
    
    249,665
    
    
    
    (11,154
    )
    
    
    (4.47
    )
    
    
    248,506
    
    
    
    1,159
    
    
    
    0.47FHLB advances
    
    
    5,000
    
    
    
    0
    
    
    
    5,000
    
    
    
    100.00
    
    
    
    31,100
    
    
    
    (31,100
    )
    
    
    (100.00
    )Other borrowed funds
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0.00
    
    
    
    1,870
    
    
    
    (1,870
    )
    
    
    (100.00
    )Accrued interest payable
    
    
    386
    
    
    
    398
    
    
    
    (12
    )
    
    
    (3.02
    )
    
    
    330
    
    
    
    68
    
    
    
    20.61Other liabilities
    
    
    1,062
    
    
    
    1,182
    
    
    
    (120
    )
    
    
    (10.15
    )
    
    
    116
    
    
    
    1,066
    
    
    
    918.97Total liabilities
    
    
    244,959
    
    
    
    251,245
    
    
    
    (6,286
    )
    
    
    (2.50
    )
    
    
    281,922
    
    
    
    (30,677
    )
    
    
    (10.88
    )Shareholders equity
    
    
    21,266
    
    
    
    22,447
    
    
    
    (1,181
    )
    
    
    (5.26
    )
    
    
    21,525
    
    
    
    922
    
    
    
    4.28Total liabilities & equity
    
    
    266,225
    
    
    
    273,692
    
    
    
    (7,467
    )
    
    
    (2.73
    )
    
    
    303,447
    
    
    
    (29,755
    )
    
    
    (9.81
    )
  Non-interest expense




---



##### 



AVERAGE DAILY BALANCES FOR THE PERIODS SHOWNThree Months Ended December 31
    
    Twelve Months Ended December 31(dollars in thousands)
    
    2007
    
    2006
    
    $ Chg
    
    % Chg
    
    2007
    
    2006
    
    $ Chg
    
    % ChgCash & fed funds
    
    
    9,361
    
    
    
    13,467
    
    
    
    (4,106
    )
    
    
    (30.49
    )
    
    
    11,291
    
    
    
    10,316
    
    
    
    975
    
    
    
    9.45Securities AFS
    
    
    49,875
    
    
    
    53,039
    
    
    
    (3,164
    )
    
    
    (5.97
    )
    
    
    50,818
    
    
    
    54,409
    
    
    
    (3,591
    )
    
    
    (6.60
    )Gross loans
    
    
    193,873
    
    
    
    195,570
    
    
    
    (1,697
    )
    
    
    (0.87
    )
    
    
    190,540
    
    
    
    210,525
    
    
    
    (19,985
    )
    
    
    (9.49
    )Allowance for loan losses
    
    
    (2,136
    )
    
    
    (2,108
    )
    
    
    (28
    )
    
    
    1.33
    
    
    
    (2,015
    )
    
    
    (2,451
    )
    
    
    436
    
    
    
    (17.79
    )Loans, net
    
    
    191,737
    
    
    
    193,462
    
    
    
    (1,725
    )
    
    
    (0.89
    )
    
    
    188,525
    
    
    
    208,074
    
    
    
    (19,549
    )
    
    
    (9.40
    )Premises & equipment
    
    
    8,795
    
    
    
    9,501
    
    
    
    (706
    )
    
    
    (7.43
    )
    
    
    9,125
    
    
    
    8,342
    
    
    
    783
    
    
    
    9.39Accrued interest receivable
    
    
    1,424
    
    
    
    1,531
    
    
    
    (107
    )
    
    
    (6.99
    )
    
    
    1,415
    
    
    
    1,579
    
    
    
    (164
    )
    
    
    (10.39
    )Other assets
    
    
    8,078
    
    
    
    7,887
    
    
    
    191
    
    
    
    2.42
    
    
    
    8,072
    
    
    
    8,340
    
    
    
    (268
    )
    
    
    (3.21
    )Total assets
    
    
    269,270
    
    
    
    278,887
    
    
    
    (9,617
    )
    
    
    (3.45
    )
    
    
    269,246
    
    
    
    291,060
    
    
    
    (21,814
    )
    
    
    (7.49
    )Noninterest-bearing demand
    
    
    23,752
    
    
    
    22,489
    
    
    
    1,263
    
    
    
    5.62
    
    
    
    21,758
    
    
    
    21,948
    
    
    
    (190
    )
    
    
    (0.87
    )Interest-bearing demand
    
    
    86,734
    
    
    
    85,584
    
    
    
    1,150
    
    
    
    1.34
    
    
    
    86,759
    
    
    
    78,335
    
    
    
    8,424
    
    
    
    10.75Savings & time deposits
    
    
    94,344
    
    
    
    99,164
    
    
    
    (4,820
    )
    
    
    (4.86
    )
    
    
    94,967
    
    
    
    102,264
    
    
    
    (7,297
    )
    
    
    (7.14
    )Time deposits of $100k
    
    
    38,720
    
    
    
    43,921
    
    
    
    (5,201
    )
    
    
    (11.84
    )
    
    
    41,401
    
    
    
    43,769
    
    
    
    (2,368
    )
    
    
    (5.41
    )Total deposits
    
    
    243,550
    
    
    
    251,158
    
    
    
    (7,608
    )
    
    
    (3.03
    )
    
    
    244,885
    
    
    
    246,316
    
    
    
    (1,431
    )
    
    
    (0.58
    )FHLB advances
    
    
    1,685
    
    
    
    3,533
    
    
    
    (1,848
    )
    
    
    (52.31
    )
    
    
    674
    
    
    
    21,050
    
    
    
    (20,376
    )
    
    
    (96.80
    )Other borrowed funds
    
    
    144
    
    
    
    1
    
    
    
    143
    
    
    
    n/a
    
    
    
    191
    
    
    
    108
    
    
    
    83
    
    
    
    76.85Accrued interest payable
    
    
    456
    
    
    
    451
    
    
    
    5
    
    
    
    1.11
    
    
    
    459
    
    
    
    428
    
    
    
    31
    
    
    
    7.24Other liabilities
    
    
    1,765
    
    
    
    1,253
    
    
    
    512
    
    
    
    40.86
    
    
    
    1,208
    
    
    
    1,147
    
    
    
    61
    
    
    
    5.32Total liabilities
    
    
    247,600
    
    
    
    256,396
    
    
    
    (8,796
    )
    
    
    (3.43
    )
    
    
    247,417
    
    
    
    269,049
    
    
    
    (21,632
    )
    
    
    (8.04
    )Shareholders equity
    
    
    21,670
    
    
    
    22,491
    
    
    
    (821
    )
    
    
    (3.65
    )
    
    
    21,829
    
    
    
    22,011
    
    
    
    (182
    )
    
    
    (0.83
    )Total liabilities & equity
    
    
    269,270
    
    
    
    278,887
    
    
    
    (9,617
    )
    
    
    (3.45
    )
    
    
    269,246
    
    
    
    291,060
    
    
    
    (21,814
    )
    
    
    (7.49
    )




---



##### 



FINANCIAL CONDITION
  Loans
 Year-end loans (in thousands) were as follows:
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Commercial loans
    
    $
    138,957
    
    
    $
    136,230
    
    
    $
    154,267
    
    
    $
    140,348
    
    
    $
    129,171Real estate loans  residential
    
    
    8,580
    
    
    
    9,117
    
    
    
    10,907
    
    
    
    10,959
    
    
    
    12,323Consumer and credit card loans
    
    
    18,499
    
    
    
    12,440
    
    
    
    15,255
    
    
    
    21,449
    
    
    
    32,810Home equity loans
    
    
    19,160
    
    
    
    17,551
    
    
    
    18,982
    
    
    
    18,331
    
    
    
    13,445Indirect finance loans
    
    
    9,343
    
    
    
    19,084
    
    
    
    28,270
    
    
    
    23,106
    
    
    
    18,525Total loans
    
    $
    194,539
    
    
    $
    194,422
    
    
    $
    227,681
    
    
    $
    214,193
    
    
    $
    206,274




---



##### 



The following is a schedule of maturities of commercial loans (in thousands) based on contract
terms as of December 31, 2007.
 One Year
    
    One Through
    
    Overor Less
    
    Five Years
    
    Five Years$19,414
    
    $
    13,935
    
    
    $
    105,608
   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,
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Balance at beginning of period
    
    $
    2,015
    
    
    $
    2,755
    
    
    $
    2,503
    
    
    $
    2,503
    
    
    $
    2,091Loans charged off:Commercial
    
    
    (501
    )
    
    
    (302
    )
    
    
    (354
    )
    
    
    (642
    )
    
    
    (693
    )Real estate
    
    
    (22
    )
    
    
    (101
    )
    
    
    
    
    
    
    (71
    )
    
    
    (3
    )Consumer
    
    
    (764
    )
    
    
    (1,071
    )
    
    
    (1,086
    )
    
    
    (1,072
    )
    
    
    (971
    )Total loans charged off
    
    
    (1,287
    )
    
    
    (1,474
    )
    
    
    (1,440
    )
    
    
    (1,785
    )
    
    
    (1,667
    )Recoveries of loans previously charged off:Commercial
    
    
    228
    
    
    
    69
    
    
    
    75
    
    
    
    164
    
    
    
    15Real estate
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    




---



##### 



2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Consumer
    
    
    123
    
    
    
    217
    
    
    
    262
    
    
    
    135
    
    
    
    92Total loan recoveries
    
    
    351
    
    
    
    299
    
    
    
    337
    
    
    
    299
    
    
    
    107Net loans charged off
    
    
    (936
    )
    
    
    (1,175
    )
    
    
    (1,103
    )
    
    
    (1,486
    )
    
    
    (1,560
    )Provision charged to operating expense
    
    
    1,332
    
    
    
    435
    
    
    
    1,355
    
    
    
    1,486
    
    
    
    1,972Balance at end of period
    
    $
    2,411
    
    
    $
    2,015
    
    
    $
    2,755
    
    
    $
    2,503
    
    
    $
    2,503Ratio of net charge-offs to average
loans outstanding for period
    
    
    0.49
    %
    
    
    0.56
    %
    
    
    0.51
    %
    
    
    0.72
    %
    
    
    0.77
    %
    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, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003Commercial
    
    $
    1,679
    
    
    
    71
    %
    
    $
    1,112
    
    
    
    69
    %
    
    $
    1,269
    
    
    
    68
    %
    
    $
    1,268
    
    
    
    65
    %
    
    $
    1,391
    
    
    
    63
    %Real estate
    
    
    64
    
    
    
    04
    
    
    
    177
    
    
    
    14
    
    
    
    195
    
    
    
    13
    
    
    
    148
    
    
    
    14
    
    
    
    121
    
    
    
    12Consumer
    
    
    668
    
    
    
    25
    
    
    
    726
    
    
    
    17
    
    
    
    1,291
    
    
    
    19
    
    
    
    1,087
    
    
    
    21
    
    
    
    991
    
    
    
    25Unallocated
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    n/aTotal
    
    $
    2,411
    
    
    
    100
    %
    
    $
    2,015
    
    
    
    100
    %
    
    $
    2,755
    
    
    
    100
    %
    
    $
    2,503
    
    
    
    100
    %
    
    $
    2,503
    
    
    
    100
    %




---



##### 



The following schedule summarizes impaired and non-performing loans (in thousands) as of December
31,
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Impaired loans
    
    $
    3,445
    
    
    $
    2,267
    
    
    $
    1,912
    
    
    $
    1,283
    
    
    $
    2,462Loans accounted for on a non-accrual basis
(includes substantially all impaired loans)
    
    $
    3,445
    
    
    $
    1,984
    
    
    $
    1,912
    
    
    $
    1,283
    
    
    $
    2,377Accruing loans which are contractually past
due 90 days or more as to interest or
principal payments
    
    
    5
    
    
    
    283
    
    
    
    124
    
    
    
    80
    
    
    
    83Total non-performing loans
    
    $
    3,450
    
    
    $
    2,267
    
    
    $
    2,036
    
    
    $
    1,363
    
    
    $
    2,460Non-performing loans to
Allowance for losses
    
    
    1.43
    
    
    
    1.13
    
    
    
    0.74
    
    
    
    0.54
    
    
    
    0.98
   Securities




---



##### 



Summarized below is the carrying value of securities available for sale (in thousands) as of
December 31,
 2007
    
    
    2006
    
    
    2005U.S. Treasury and U.S. Government 
Agency securities
    
    $
    8,530
    
    
    $
    8,383
    
    
    $
    9,287Obligations of states and political subdivisions
    
    
    19,767
    
    
    
    18,469
    
    
    
    18,072Mortgage-backed securities
    
    
    19,021
    
    
    
    22,750
    
    
    
    27,522Equity investments
    
    
    2,171
    
    
    
    2,171
    
    
    
    2,050$
    49,489
    
    
    $
    51,773
    
    
    $
    56,931
 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, 2007:
 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
    
    $
    7,541
    
    
    
    4.86
    %
    
    $
    989
    
    
    
    3.18
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %Obligations of states and political
subdivisions
    
    
    1,019
    
    
    
    4.70
    %
    
    
    9,096
    
    
    
    4.25
    %
    
    
    7,708
    
    
    
    4.09
    %
    
    
    1,944
    
    
    
    4.19
    %Mortgage-backed securities
    
    
    30
    
    
    
    4.24
    %
    
    
    
    
    
    
    0.00
    %
    
    
    1,380
    
    
    
    3.68
    %
    
    
    17,611
    
    
    
    4.60
    %Total
    
    $
    8,590
    
    
    
    4.84
    %
    
    $
    10,085
    
    
    
    4.15
    %
    
    $
    9,088
    
    
    
    4.03
    %
    
    $
    19,555
    
    
    
    4.56
    %
  Premises and equipment
  Other Assets




---



##### 



Deposits and borrowings
  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, 2007:
 Three months or less
    
    $
    9,388Over three months through six months
    
    
    9,230Over six months through twelve months
    
    
    8,771Over twelve months
    
    
    10,815Total
    
    $
    38,204
 The average amount of deposits (in thousands) and average rates paid are summarized as follows for
the years ended December 31,
 2007
    
    
    2006
    
    
    2005Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    AverageAmount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateInterest-bearing demand deposits
    
    $
    86,759
    
    
    
    3.35
    %
    
    $
    78,335
    
    
    
    2.99
    %
    
    $
    71,383
    
    
    
    1.40
    %Savings deposits
    
    
    15,765
    
    
    
    0.33
    
    
    
    17,060
    
    
    
    0.30
    
    
    
    19,633
    
    
    
    0.33Time deposits
    
    
    120,603
    
    
    
    4.45
    
    
    
    128,973
    
    
    
    3.92
    
    
    
    133,807
    
    
    
    3.20Demand deposits (noninterest-bearing)
    
    
    21,758
    
    
    
    
    
    
    
    21,948
    
    
    
    
    
    
    
    21,943Total
    
    $
    244,885
    
    
    
    
    
    
    $
    246,316
    
    
    
    
    
    
    $
    246,766
 CAPITAL RESOURCES




---



##### 



CONTRACTUAL OBLIGATIONS AND COMMITMENTS
  Contractual obligations  (In thousands)
 Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    AfterTotal
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    5 YearsTime deposits and certificates of deposit
    
    $
    116,324
    
    
    $
    88,880
    
    
    $
    24,327
    
    
    $
    2,469
    
    
    $
    648Borrowed funds
    
    
    5,000
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    121,324
    
    
    $
    93,880
    
    
    $
    24,327
    
    
    $
    2,469
    
    
    $
    648
 Other commitments  (In thousands)
 Amount of Commitment - Expiration by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    AfterTotal
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    5 YearsCommitments to extend commercial credit
    
    $
    14,478
    
    
    $
    11,754
    
    
    $
    1,375
    
    
    $
    388
    
    
    $
    961Commitments to extend consumer credit
    
    
    11,653
    
    
    
    791
    
    
    
    442
    
    
    
    1,278
    
    
    
    9,142Standby letters of credit
    
    
    282
    
    
    
    282
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    26,413
    
    
    $
    12,827
    
    
    $
    1,817
    
    
    $
    1,666
    
    
    $
    10,103




---



##### 



LIQUIDITY
   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   The Wall Street
Journal
 18.




---



##### 



Principal/Notional Amount with expected Maturities in:  (Dollars in thousands)
 For the Year Ended December 31, 2007:
 Fair2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter
    
    
    Total
    
    
    ValueRate-sensitive assets:Fixed interest rate loans
    
    $
    6,339
    
    
    $
    5,558
    
    
    $
    7,973
    
    
    $
    8,627
    
    
    $
    4,852
    
    
    $
    17,971
    
    
    $
    51,320
    
    
    $
    51,751Average interest rate
    
    
    10.27
    %
    
    
    10.22
    %
    
    
    10.21
    %
    
    
    8.83
    %
    
    
    8.06
    %
    
    
    8.43
    %
    
    
    9.16
    %Variable interest rate loans
    
    $
    11,676
    
    
    $
    1,618
    
    
    $
    2,539
    
    
    $
    524
    
    
    $
    3,170
    
    
    $
    123,692
    
    
    $
    143,219
    
    
    $
    144,425Average interest rate
    
    
    7.84
    %
    
    
    7.52
    %
    
    
    7.26
    %
    
    
    9.31
    %
    
    
    8.12
    %
    
    
    7.43
    %
    
    
    7.49
    %Fixed interest rate securities
    
    $
    45
    
    
    $
    1,006
    
    
    $
    632
    
    
    $
    534
    
    
    $
    1,141
    
    
    $
    35,292
    
    
    $
    38,650
    
    
    $
    38,650Average interest rate
    
    
    3.94
    %
    
    
    3.19
    %
    
    
    7.39
    %
    
    
    4.49
    %
    
    
    4.94
    %
    
    
    4.35
    %
    
    
    4.39
    %Variable interest rate securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10,839
    
    
    $
    10,839
    
    
    $
    10,839Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.80
    %
    
    
    4.80
    %Rate-sensitive liabilities:Non-interest-bearing deposits
    
    $
    5,636
    
    
    $
    4,509
    
    
    $
    3,381
    
    
    $
    2,819
    
    
    $
    2,819
    
    
    $
    3,381
    
    
    $
    22,545
    
    
    $
    22,545Int-bearing demand deposits
    
    $
    18,112
    
    
    $
    18,112
    
    
    $
    18,112
    
    
    $
    18,112
    
    
    $
    18,112
    
    
    $
    9,081
    
    
    $
    99,641
    
    
    $
    99,641Average interest rate
    
    
    2.62
    %
    
    
    2.62
    %
    
    
    2.62
    %
    
    
    2.62
    %
    
    
    2.62
    %
    
    
    2.62
    %
    
    
    2.62
    %Interest-bearing time deposits
    
    $
    88,881
    
    
    $
    18,882
    
    
    $
    5,444
    
    
    $
    946
    
    
    $
    1,522
    
    
    $
    649
    
    
    $
    116,324
    
    
    $
    116,509Average interest rate
    
    
    4.51
    %
    
    
    4.63
    %
    
    
    4.49
    %
    
    
    4.59
    %
    
    
    4.81
    %
    
    
    3.56
    %
    
    
    4.53
    %Fixed interest rate borrowings
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Average interest rateVariable interest rate borrowings
    
    $
    5,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,000
    
    
    $
    5,013Average interest rate
    
    
    4.64
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.64
    %
 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
 19.




---



##### 



FAIR VALUE OF FINANCIAL INSTRUMENTS
  IMPACT OF INFLATION
   20.




---



##### 



21.




---



##### 



(Dollars in thousands)
 2007
    
    
    2006ASSETSCash and cash equivalents
    
    $
    4,956
    
    
    $
    5,650Federal funds sold
    
    
    1,588
    
    
    
    5,168Cash equivalents and federal funds sold
    
    
    6,544
    
    
    
    10,818Securities available for sale
    
    
    49,489
    
    
    
    51,773Total loans
    
    
    194,539
    
    
    
    194,422Allowance for loan losses
    
    
    (2,411
    )
    
    
    (2,015
    )Loans, net
    
    
    192,128
    
    
    
    192,407Premises and equipment, net
    
    
    8,688
    
    
    
    9,502Accrued interest receivable
    
    
    1,250
    
    
    
    1,329Other assets
    
    
    8,126
    
    
    
    7,863Total assets
    
    $
    266,225
    
    
    $
    273,692LIABILITIESDepositsNoninterest-bearing demand
    
    $
    22,545
    
    
    $
    22,064Interest-bearing demand
    
    
    84,233
    
    
    
    86,160Savings and time deposits
    
    
    93,529
    
    
    
    97,446Time deposits $100,000 and greater
    
    
    38,204
    
    
    
    43,995Total deposits
    
    
    238,511
    
    
    
    249,665FHLB advances
    
    
    5,000
    
    
    
    Accrued interest payable
    
    
    386
    
    
    
    398Other liabilities
    
    
    1,062
    
    
    
    1,182Total liabilities
    
    
    244,959
    
    
    
    251,245SHAREHOLDERS EQUITYCommon stock, no par value; 4,000,000 shares authorized,
1,178,938 shares issued in 2007 and 2006
    
    
    11,233
    
    
    
    11,213Retained earnings
    
    
    11,722
    
    
    
    12,886Deferred compensation plan shares; at cost,
19,947 shares in 2007 and 18,964 shares in 2006
    
    
    (492
    )
    
    
    (475
    )Treasury stock; 42,542 shares in 2007 and 27,603 shares in 2006
    
    
    (1,163
    )
    
    
    (756
    )Accumulated other comprehensive income (loss)
    
    
    (34
    )
    
    
    (421
    )Total shareholders equity
    
    
    21,266
    
    
    
    22,447Total liabilities and shareholders equity
    
    $
    266,225
    
    
    $
    273,692
  22.




---



##### 



(Dollars in thousands, except per share data)
 2007
    
    
    2006
    
    
    2005Interest incomeInterest and fees on loans
    
    $
    15,395
    
    
    $
    16,538
    
    
    $
    15,497Interest on securities:Taxable
    
    
    1,472
    
    
    
    1,658
    
    
    
    1,792Nontaxable
    
    
    807
    
    
    
    758
    
    
    
    723Other interest income
    
    
    208
    
    
    
    196
    
    
    
    33Total interest income
    
    
    17,882
    
    
    
    19,150
    
    
    
    18,045Interest expenseInterest on deposits
    
    
    8,323
    
    
    
    7,448
    
    
    
    5,343Interest on borrowings
    
    
    48
    
    
    
    1,040
    
    
    
    960Total interest expense
    
    
    8,371
    
    
    
    8,488
    
    
    
    6,303Net interest income
    
    
    9,511
    
    
    
    10,662
    
    
    
    11,742Provision for loan losses
    
    
    1,332
    
    
    
    435
    
    
    
    1,355Net interest income after provision for loan loss
    
    
    8,179
    
    
    
    10,227
    
    
    
    10,387Noninterest incomeService fees and overdraft charges
    
    
    1,754
    
    
    
    1,541
    
    
    
    1,859Gains on security sales, net
    
    
    
    
    
    
    
    
    
    
    31Losses on repossessed asset sales, net
    
    
    (51
    )
    
    
    (61
    )
    
    
    (53
    )Other income
    
    
    541
    
    
    
    963
    
    
    
    650Total noninterest income
    
    
    2,244
    
    
    
    2,443
    
    
    
    2,487Noninterest expensesSalaries and employee benefits
    
    
    5,776
    
    
    
    5,308
    
    
    
    5,339Premises and equipment
    
    
    1,711
    
    
    
    1,417
    
    
    
    1,191State and local taxes
    
    
    397
    
    
    
    404
    
    
    
    427Data processing
    
    
    566
    
    
    
    594
    
    
    
    814FDIC deposit insurance
    
    
    65
    
    
    
    68
    
    
    
    70Professional fees
    
    
    629
    
    
    
    436
    
    
    
    396Amortization of intangibles
    
    
    4
    
    
    
    17
    
    
    
    137Other operating expense
    
    
    2,171
    
    
    
    2,156
    
    
    
    2,389Total noninterest expense
    
    
    11,319
    
    
    
    10,400
    
    
    
    10,763Income (loss) before income taxes
    
    
    (896
    )
    
    
    2,270
    
    
    
    2,111Income tax expense (credit)
    
    
    (597
    )
    
    
    490
    
    
    
    444Net income (loss)
    
    $
    (299
    )
    
    $
    1,780
    
    
    $
    1,667Basic earnings (loss) per common share
    
    $
    (0.26
    )
    
    $
    1.54
    
    
    $
    1.43Diluted earnings (loss) per common share
    
    $
    (0.26
    )
    
    $
    1.54
    
    
    $
    1.43
  23.




---



##### 



(Dollars in thousands)
 AccumulatedOther
    
    
    Stock
    
    
    
    
    
    
    TotalOutstanding
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    Ownership
    
    
    Treasury
    
    
    ShareholdersShares
    
    
    Common Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Plan Shares
    
    
    Stock
    
    
    EquityBalance at January 1, 2005
    
    
    1,172,782
    
    
    $
    11,095
    
    
    $
    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 & tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (706
    )
    
    
    
    
    
    
    
    
    
    
    (706
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    961Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    (886
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (886
    )Shares acquired for deferred compensation: 1,584 shares
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    (42
    )
    
    
    
    
    
    
    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
    
    
    $
    11,159
    
    
    $
    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 & tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    277
    
    
    
    
    
    
    
    
    
    
    
    277Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,057Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    (879
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (879
    )Shares acquired for deferred compensation: 1,628 shares
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    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
    
    
    $
    11,213
    
    
    $
    12,886
    
    
    $
    (421
    )
    
    $
    (475
    )
    
    $
    (756
    )
    
    $
    22,447
  24.




---



##### 



(Dollars in thousands)
 AccumulatedOther
    
    
    Stock
    
    
    
    
    
    
    TotalOutstanding
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    Ownership
    
    
    Treasury
    
    
    ShareholdersShares
    
    
    Common Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Plan Shares
    
    
    Stock
    
    
    EquityBalance at January 1, 2007
    
    
    1,151,335
    
    
    $
    11,213
    
    
    $
    12,886
    
    
    $
    (421
    )
    
    $
    (475
    )
    
    $
    (756
    )
    
    $
    22,447Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    (299
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (299
    )Change in net unrealized gain (loss) on securities
available for sale, net of reclassification & tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    387
    
    
    
    
    
    
    
    
    
    
    
    387Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    (865
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (865
    )Shares acquired for deferred compensation: 1,558 shares
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    
    
    
    
    Shares divested for deferred compensation: 956 shares
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Purchase of treasury stock
    
    
    (15,320
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (417
    )
    
    
    (417
    )Issuance of treasury stock for
deferred compensation plan
    
    
    381
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    10
    
    
    
    10Balance at December 31, 2007
    
    
    1,136,396
    
    
    $
    11,233
    
    
    $
    11,722
    
    
    $
    (34
    )
    
    $
    (492
    )
    
    $
    (1,163
    )
    
    $
    21,266
  25.




---



##### 



(Dollars in thousands)
 2007
    
    
    2006
    
    
    2005Cash flows from operating activitiesNet income (loss)
    
    $
    (299
    )
    
    $
    1,780
    
    
    $
    1,667Adjustments to reconcile net income (loss) to net cash from
operating activitiesDepreciation
    
    
    1,125
    
    
    
    910
    
    
    
    680Provisions for loan loss
    
    
    1,332
    
    
    
    435
    
    
    
    1,355Deferred income taxes
    
    
    (169
    )
    
    
    294
    
    
    
    (195
    )Gain on sale of securities
    
    
    
    
    
    
    
    
    
    
    (31
    )Loss on sale of repossessed assets
    
    
    51
    
    
    
    61
    
    
    
    53Stock dividends on FHLB stock
    
    
    
    
    
    
    (121
    )
    
    
    (96
    )Net amortization on securities
    
    
    308
    
    
    
    204
    
    
    
    302Amortization of intangible assets
    
    
    4
    
    
    
    17
    
    
    
    137Increased cash value of Bank-owned life insurance
    
    
    (258
    )
    
    
    (261
    )
    
    
    (227
    )Stock-based compensation
    
    
    3
    
    
    
    3
    
    
    
    Changes in:Interest receivable
    
    
    79
    
    
    
    111
    
    
    
    (404
    )Interest payable
    
    
    (12
    )
    
    
    68
    
    
    
    27Other assets and liabilities
    
    
    (303
    )
    
    
    (13
    )
    
    
    573Net cash from operating activities
    
    
    1,861
    
    
    
    3,488
    
    
    
    3,841Cash flows from investing activitiesSecurities available for salePurchases
    
    
    (1,537
    )
    
    
    (412
    )
    
    
    (10,506
    )Maturities and repayments
    
    
    4,101
    
    
    
    5,906
    
    
    
    8,069Sales
    
    
    
    
    
    
    
    
    
    
    4,144Net change in loans
    
    
    (1,449
    )
    
    
    31,637
    
    
    
    (15,108
    )Purchase of Bank-owned life insurance
    
    
    
    
    
    
    
    
    
    
    (470
    )Proceeds from sale of OREO and repossessed assets
    
    
    487
    
    
    
    599
    
    
    
    647Proceeds from sale of premises and equipment
    
    
    137
    
    
    
    136
    
    
    
    19Bank premises and equipment expenditures, net
    
    
    (448
    )
    
    
    (4,192
    )
    
    
    (764
    )Net cash from investing activities
    
    
    1,291
    
    
    
    33,674
    
    
    
    (13,969
    )Cash flows from financing activitiesNet change in deposits
    
    
    (11,154
    )
    
    
    1,159
    
    
    
    (669
    )Proceeds from additional FHLB advances
    
    
    5,000
    
    
    
    8,000
    
    
    
    15,000Repayments of FHLB advances
    
    
    
    
    
    
    (40,970
    )
    
    
    (6,630
    )Cash dividends paid
    
    
    (865
    )
    
    
    (879
    )
    
    
    (886
    )Issuance of common stock
    
    
    10
    
    
    
    7
    
    
    
    22Purchase of treasury stock
    
    
    (417
    )
    
    
    (318
    )
    
    
    (361
    )Options exercised
    
    
    
    
    
    
    52
    
    
    
    3Net cash from financing activities
    
    
    (7,426
    )
    
    
    (32,949
    )
    
    
    6,479Net change in cash equivalents and federal funds sold
    
    
    (4,274
    )
    
    
    4,213
    
    
    
    (3,649
    )Cash equivalents and federal funds sold at beginning of year
    
    
    10,818
    
    
    
    6,605
    
    
    
    10,254Cash equivalents and federal funds sold at end of year
    
    $
    6,544
    
    
    $
    10,818
    
    
    $
    6,605Supplemental disclosures:Cash paid for interest
    
    $
    8,382
    
    
    $
    8,421
    
    
    $
    6,276Cash paid for income taxes
    
    
    
    
    
    
    223
    
    
    
    855Non-cash transfer of loans to foreclosed/repossessed assets
    
    
    413
    
    
    
    503
    
    
    
    532
  26.




---



##### 



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
 27.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Premises and Equipment
 Other Real Estate
 Income Taxes
 Long-Term Assets
 Benefit Plans
  Stock Compensation:
 28.




---



##### 



Financial Instruments:
 Fair Values of Financial Instruments
 Comprehensive Income
 Loss Contingencies
 Earnings Per Share
 Industry Segments
 Recent Accounting Pronouncements
 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements
 29.




---



##### 



NOTE 2  SECURITIES
  Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses2007Obligations of U.S. Government
and federal agencies
    
    $
    8,530
    
    
    $
    
    
    
    $
    (106
    )Obligations of state and political
subdivisions
    
    
    19,767
    
    
    
    358
    
    
    
    (34
    )Mortgage-backed securities
    
    
    19,021
    
    
    
    2
    
    
    
    (270
    )Total debt securities available for sale
    
    
    47,318
    
    
    
    360
    
    
    
    (410
    )Equity investments
    
    
    2,171
    
    
    
    
    
    
    
    Total securities available for sale
    
    $
    49,489
    
    
    $
    360
    
    
    $
    (410
    )2006Obligations 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
    )
  Fair ValueDue less than one year
    
    $
    1,005Due after one year through five years
    
    
    2,175Due after five years through ten years
    
    
    11,185Due after ten years
    
    
    13,932Mortgage-backed securities
    
    
    19,021Equity securities
    
    
    2,171$
    49,489
  2007
    
    2006
    
    2005Proceeds
    
    $
    
    
    
    $
    
    
    
    $
    4,144Gross gains
    
    
    
    
    
    
    
    
    
    
    42Gross losses
    
    
    
    
    
    
    
    
    
    
    11
 30.




---



##### 



(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
    
    
    $
    (106
    )
    
    $
    8,530State and political subdivisions
    
    
    (20
    )
    
    
    2,718
    
    
    
    (14
    )
    
    
    1,063Mortgage-backed securities
    
    
    (14
    )
    
    
    1,484
    
    
    
    (256
    )
    
    
    17,310Total Available for Sale
    
    $
    (34
    )
    
    $
    4,202
    
    
    $
    (376
    )
    
    $
    26,903
  (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
  NOTE 3  LOANS
  2007
    
    
    2006Commercial loans
    
    $
    138,957
    
    
    $
    136,230Real estate loans  residential
    
    
    7,356
    
    
    
    8,152Construction loans
    
    
    1,224
    
    
    
    965Consumer and credit card loans
    
    
    18,499
    
    
    
    12,440Home equity loans
    
    
    19,160
    
    
    
    17,551Indirect finance loans
    
    
    9,343
    
    
    
    19,084Total loans
    
    $
    194,539
    
    
    $
    194,422
 31.




---



##### 



2007
    
    
    2006Year-end loans with no allocated allowance for loan losses
    
    $
    1,715
    
    
    $
    1,843Year-end loans with allocated allowance for loan losses
    
    
    1,730
    
    
    
    424Total
    
    $
    3,445
    
    
    $
    2,267Amount of the allowance for loan losses allocated
    
    $
    436
    
    
    $
    76
 2007
    
    2006
    
    2005Average of impaired loans during the year
    
    $
    2,560
    
    
    $
    2,370
    
    
    $
    1,452Income recognized on impaired loans
    
    
    137
    
    
    
    14
    
    
    
    2Cash-basis interest recognized on impaired loans
    
    
    137
    
    
    
    14
    
    
    
    2
  2007
    
    2006Loans past due over 90 days still on accrual
    
    $
    5
    
    
    $
    283Nonaccrual loans
    
    
    3,445
    
    
    
    1,984
 NOTE 4  ALLOWANCE FOR LOAN LOSS
  2007
    
    
    2006
    
    
    2005Beginning balance
    
    $
    2,015
    
    
    $
    2,755
    
    
    $
    2,503Provision for loan loss
    
    
    1,332
    
    
    
    435
    
    
    
    1,355Loans charged off
    
    
    (1,287
    )
    
    
    (1,474
    )
    
    
    (1,440
    )Recoveries of loans previously charged off
    
    
    351
    
    
    
    299
    
    
    
    337Ending balance
    
    $
    2,411
    
    
    $
    2,015
    
    
    $
    2,755
 32.




---



##### 



NOTE 5  PREMISES AND EQUIPMENT
  2007
    
    
    2006Land
    
    $
    1,191
    
    
    $
    1,191Buildings
    
    
    8,390
    
    
    
    8,429Furniture and equipment
    
    
    4,748
    
    
    
    4,754Construction in process
    
    
    118
    
    
    
    Total
    
    
    14,447
    
    
    
    14,374Accumulated depreciation
    
    
    5,759
    
    
    
    4,872Premises and equipment, net
    
    $
    8,688
    
    
    $
    9,502
 NOTE 6  DEPOSITS
  2008
    
    $
    88,8812009
    
    
    18,8822010
    
    
    5,4442011
    
    
    9472012
    
    
    1,5222013 and thereafter
    
    
    648$
    116,324
 NOTE 7  FHLB ADVANCES
  CurrentInterestRate
    
    
    2007
    
    
    2006FHLB daily variable advance, with monthly interest payments: matures March 2008
    
    
    4.26
    %
    
    $
    5,000
    
    
    
    Total FHLB advances
    
    
    
    
    
    $
    5,000
    
    
    $
    
 33.




---



##### 



NOTE 8  INCOME TAXES
  2007
    
    
    2006
    
    
    2005Current provision
    
    $
    (428
    )
    
    $
    196
    
    
    $
    639Deferred provision (benefit)
    
    
    (169
    )
    
    
    294
    
    
    
    (195
    )Total income tax expense (credit)
    
    $
    (597
    )
    
    $
    490
    
    
    $
    444
  2007
    
    
    2006Items giving rise to deferred tax assetsAllowance for loan losses in excess of tax reserve
    
    $
    487
    
    
    $
    355Deferred compensation
    
    
    183
    
    
    
    141Unrealized loss on securities available for sale
    
    
    17
    
    
    
    217Nonaccrual loan interest
    
    
    79
    
    
    
    27Other
    
    
    48
    
    
    
    3Total
    
    
    814
    
    
    
    743Items giving rise to deferred tax liabilitiesDepreciation
    
    
    (170
    )
    
    
    (188
    )Deferred loan fees and costs
    
    
    (162
    )
    
    
    (53
    )FHLB stock dividend
    
    
    (280
    )
    
    
    (280
    )Prepaid expenses and other
    
    
    (80
    )
    
    
    (69
    )Total
    
    
    (692
    )
    
    
    (590
    )Net deferred tax benefit/(liability)
    
    $
    122
    
    
    $
    153
  2007
    
    
    2006
    
    
    2005Tax at statutory rates
    
    $
    (305
    )
    
    $
    772
    
    
    $
    717Increase (decrease) in tax resulting from:Tax-exempt income
    
    
    (311
    )
    
    
    (249
    )
    
    
    (233
    )Other
    
    
    19
    
    
    
    (33
    )
    
    
    (40
    )Total income tax expense (credit)
    
    $
    (597
    )
    
    $
    490
    
    
    $
    444
 34.




---



##### 



NOTE 9  STOCK OPTION PLAN
   2007
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    2005Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at
beginning
of year
    
    
    31,819
    
    
    $
    26.04
    
    
    
    34,849
    
    
    $
    25.21
    
    
    
    35,567
    
    
    $
    25.13Granted
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    26.75
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    (2,195
    )
    
    
    23.64
    
    
    
    (193
    )
    
    
    17.57Forfeited or expired
    
    
    (15,491
    )
    
    
    25.33
    
    
    
    (2,835
    )
    
    
    18.23
    
    
    
    (525
    )
    
    
    22.75Outstanding at
end of year
    
    
    16,328
    
    
    $
    26.71
    
    
    
    31,819
    
    
    $
    26.04
    
    
    
    34,849
    
    
    $
    25.21Options exercisable
at year-end
    
    
    14,328
    
    
    
    
    
    
    
    27,613
    
    
    
    
    
    
    
    32,283Weighted average
fair value of
options granted
during the year
    
    
    n/a
    
    
    
    
    
    
    
    4.16
    
    
    
    
    
    
    
    n/a
   Outstanding
    
    
    ExercisableWeighted Average
    
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    Remaining
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Contractual
    
    
    
    
    
    
    ExercisePrices
    
    Number
    
    
    Life
    
    
    Number
    
    
    Price$22 - $25
    
    
    6,078
    
    
    2.79 years
    
    
    6,078
    
    
    
    24.07$26 - $30
    
    
    10,250
    
    
    2.37 years
    
    
    8,250
    
    
    
    28.64Outstanding at year-end
    
    
    16,328
    
    
    
    
    
    
    
    14,328
 35.




---



##### 



NOTE 10  SALARY DEFERRAL  401(k) PLAN
  NOTE 11  COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES
      2007
    
    
    2006Commitments to extend commercial credit
    
    $
    14,478
    
    
    $
    12,757Commitments to extend consumer credit
    
    
    11,653
    
    
    
    11,655Standby letters of credit
    
    
    282
    
    
    
    2,156$
    26,413
    
    
    $
    26,568
 2007
    
    
    2006Fixed rate
    
    $
    5,435
    
    
    $
    813Variable rate
    
    
    20,978
    
    
    
    25,755$
    26,413
    
    
    $
    26,568
 36.




---



##### 



NOTE 12  REGULATORY MATTERS
   Capital to risk-weighted assets
    
    Tier 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
    
    
    Capitalized(In thousands)
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal capital (to risk weighted assets)Bank
    
    $
    23,538
    
    
    
    11.1
    %
    
    $
    16,927
    
    
    
    8.0
    %
    
    $
    21,158
    
    
    
    10.0
    %Tier 1 capital (to risk weighted assets)Bank
    
    $
    21,127
    
    
    
    10.0
    %
    
    $
    8,463
    
    
    
    4.0
    %
    
    $
    12,695
    
    
    
    6.0
    %Tier 1 capital (to average assets)Bank
    
    $
    21,127
    
    
    
    7.9
    %
    
    $
    10,710
    
    
    
    4.0
    %
    
    $
    13,387
    
    
    
    5.0
    %
  Minimum Required
    
    
    Minimum RequiredFor Capital
    
    
    To Be WellActual
    
    
    Adequacy Purposes
    
    
    Capitalized(In thousands)
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal capital (to risk weighted assets)Bank
    
    $
    23,366
    
    
    
    11.0
    %
    
    $
    16,988
    
    
    
    8.0
    %
    
    $
    21,235
    
    
    
    10.0
    %Tier 1 capital (to risk weighted assets)Bank
    
    $
    21,351
    
    
    
    10.1
    %
    
    $
    8,494
    
    
    
    4.0
    %
    
    $
    12,741
    
    
    
    6.0
    %Tier 1 capital (to average assets)
Bank
    
    $
    21,351
    
    
    
    7.4
    %
    
    $
    11,608
    
    
    
    4.0
    %
    
    $
    14,510
    
    
    
    5.0
    %
 37.




---



##### 



NOTE 13  RELATED PARTY TRANSACTIONS
  2007Beginning balance
    
    $
    1,949New loans and advances
    
    
    96Change in status
    
    
    (59
    )Payments
    
    
    (104
    )Ending balance
    
    $
    1,882
  NOTE 14  FAIR VALUES OF FINANCIAL INSTRUMENTS
  2007

    
    2006Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assetsCash equivalents and federal funds sold
    
    $
    6,544
    
    
    $
    6,544
    
    
    $
    10,818
    
    
    $
    10,818Securities available for sale
    
    
    49,489
    
    
    
    49,489
    
    
    
    51,773
    
    
    
    51,733Loans, net of allowance for loan loss
    
    
    192,128
    
    
    
    193,765
    
    
    
    192,407
    
    
    
    192,772Accrued interest receivable
    
    
    1,250
    
    
    
    1,250
    
    
    
    1,329
    
    
    
    1,329Financial liabilitiesDemand and savings deposits
    
    $
    (122,186
    )
    
    $
    (122,186
    )
    
    $
    (124,501
    )
    
    $
    (124,501
    )Time deposits
    
    
    (116,324
    )
    
    
    (116,509
    )
    
    
    (125,164
    )
    
    
    (125,041
    )Borrowed funds
    
    
    (5,000
    )
    
    
    (5,013
    )
    
    
    
    
    
    
    Accrued interest payable
    
    
    (386
    )
    
    
    (386
    )
    
    
    (398
    )
    
    
    (398
    )
 38.




---



##### 



NOTE 15  OTHER COMPREHENSIVE INCOME
  2007
    
    
    2006
    
    
    2005Unrealized holding gains and losses
on available-for-sale securities
    
    $
    587
    
    
    $
    420
    
    
    $
    (1,039
    )Less reclassification adjustments for gains
and losses later recognized in income
    
    
    
    
    
    
    
    
    
    
    31Net unrealized gains and losses
    
    
    587
    
    
    
    420
    
    
    
    (1,070
    )Tax effect
    
    
    200
    
    
    
    143
    
    
    
    (364
    )Other comprehensive income (loss)
    
    $
    387
    
    
    $
    277
    
    
    $
    (706
    )
 NOTE 16  EARNINGS PER SHARE
  2007
    
    
    2006
    
    
    2005Weighted average shares outstanding during the year
    
    
    1,140,370
    
    
    
    1,157,192
    
    
    
    1,165,853Dilutive effect of stock options
    
    
    
    
    
    
    1,983
    
    
    
    2,716Weighted average shares considering dilutive effect
    
    
    1,140,370
    
    
    
    1,159,175
    
    
    
    1,168,569
  NOTE 17  PARENT CORPORATION STATEMENTS
  CONDENSED BALANCE SHEETS   (Dollars in thousands)
 2007
    
    
    2006ASSETSCash on deposit with subsidiary
    
    $
    38
    
    
    $
    31Investment in common stock of subsidiaries
    
    
    21,120
    
    
    
    20,951Other assets
    
    
    108
    
    
    
    1,465Total assets
    
    $
    21,266
    
    
    $
    22,447LIABILITIES AND SHAREHOLDERS EQUITYLiabilities & shareholders equity
    
    $
    21,266
    
    
    $
    22,447
 39.




---



##### 



NOTE 17  PARENT CORPORATION STATEMENTS
 CONDENSED STATEMENTS OF INCOME   (Dollars in thousands)
 2007
    
    
    2006
    
    
    2005INCOMEDividends from Bank subsidiary
    
    $
    1,440
    
    
    $
    2,280
    
    
    $
    886Other income
    
    
    49
    
    
    
    30
    
    
    
    Total income
    
    
    1,489
    
    
    
    2,310
    
    
    
    886EXPENSESProfessional fees
    
    
    89
    
    
    
    79
    
    
    
    32Other
    
    
    75
    
    
    
    63
    
    
    
    32Total expenses
    
    
    164
    
    
    
    142
    
    
    
    64Tax (benefit)
    
    
    (48
    )
    
    
    (38
    )
    
    
    (22
    )Income (loss) before equity in undistributed
earnings of subsidiaries
    
    
    1,373
    
    
    
    2,206
    
    
    
    844Equity in undistributed earnings of subsidiaries
(distribution from subsidiaries in excess of net income)
    
    
    (1,672
    )
    
    
    (426
    )
    
    
    823NET INCOME (LOSS)
    
    $
    (299
    )
    
    $
    1,780
    
    
    $
    1,667
 CONDENSED STATEMENTS OF CASH FLOW   (Dollars in thousands)
 2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (299
    )
    
    $
    1,780
    
    
    $
    1,667Adjustments to reconcile net income (loss) to
net cash from operating activities
Equity in undistributed earnings of subsidiaries
    
    
    1,672
    
    
    
    426
    
    
    
    (823
    )Other
    
    
    (94
    )
    
    
    (1,167
    )
    
    
    42Net cash from operating activities
    
    
    1,279
    
    
    
    1,039
    
    
    
    886CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of BOLI
    
    
    1,454
    
    
    
    
    
    
    
    Capital infusion from/(to) subsidiary
    
    
    (1,454
    )
    
    
    
    
    
    
    273Net cash from investing activities
    
    
    
    
    
    
    
    
    
    
    273CASH FLOWS FROM FINANCING ACTIVITIESIssuance of common stock / options exercised
    
    
    10
    
    
    
    59
    
    
    
    25Treasury repurchase of common stock
    
    
    (417
    )
    
    
    (318
    )
    
    
    (361
    )Cash dividends paid
    
    
    (865
    )
    
    
    (879
    )
    
    
    (886
    )Net cash from financing activities
    
    
    (1,272
    )
    
    
    (1,138
    )
    
    
    (1,222
    )Net change in cash
    
    
    7
    
    
    
    (99
    )
    
    
    (63
    )Cash at beginning of period
    
    
    31
    
    
    
    130
    
    
    
    193Cash at end of period
    
    $
    38
    
    
    $
    31
    
    
    $
    130
 40.




---



##### 



NOTE 18  QUARTERLY INFORMATION
  2007
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Total interest income
    
    $
    4,447
    
    
    $
    4,481
    
    
    $
    4,496
    
    
    $
    4,458Total interest expense
    
    
    2,050
    
    
    
    2,080
    
    
    
    2,155
    
    
    
    2,086Net interest income
    
    $
    2,397
    
    
    $
    2,401
    
    
    $
    2,341
    
    
    $
    2,372Provision for loan losses
    
    
    276
    
    
    
    435
    
    
    
    240
    
    
    
    381Net income (loss)
    
    $
    61
    
    
    $
    (169
    )
    
    $
    60
    
    
    $
    (251
    )Basic earnings (loss) per common share
    
    
    0.06
    
    
    
    (0.15
    )
    
    
    0.05
    
    
    
    (0.22
    )Diluted earnings (loss) per common share
    
    
    0.06
    
    
    
    (0.15
    )
    
    
    0.05
    
    
    
    (0.22
    )
 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
    
    $
    515
    
    
    $
    511
    
    
    $
    309
    
    
    $
    445Basic earnings per common share
    
    
    0.44
    
    
    
    0.44
    
    
    
    0.27
    
    
    
    0.39Diluted earnings per common share
    
    
    0.44
    
    
    
    0.44
    
    
    
    0.27
    
    
    
    0.39
 SHAREHOLDER INFORMATION
  Dividends2007
    
    Declared
    
    Low Bid
    
    High BidThree months ended March 31
    
    $
    0.19
    
    
    $
    26.00
    
    
    $
    27.55Three months ended June 30
    
    
    0.19
    
    
    
    25.75
    
    
    
    27.00Three months ended September 30
    
    
    0.19
    
    
    
    25.00
    
    
    
    27.20Three months ended December 31
    
    
    0.19
    
    
    
    25.00
    
    
    
    32.00
 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
   41.




---



##### 



Performance Graph
  
 12/31/02
    
    
    12/31/03
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/06
    
    
    12/31/07Commercial Bancshares
    
    
    $
    100.00
    
    
    
    $
    116.53
    
    
    
    $
    121.55
    
    
    
    $
    128.12
    
    
    
    $
    132.95
    
    
    
    $
    130.30Russell 3000
    
    
    $
    100.00
    
    
    
    $
    131.06
    
    
    
    $
    146.71
    
    
    
    $
    155.69
    
    
    
    $
    180.16
    
    
    
    $
    189.42SNL $100M  $500M Pink Sheets
    
    
    $
    100.00
    
    
    
    $
    135.83
    
    
    
    $
    164.17
    
    
    
    $
    182.32
    
    
    
    $
    199.57
    
    
    
    $
    178.22SNL Banks < $500M
    
    
    $
    100.00
    
    
    
    $
    145.97
    
    
    
    $
    168.49
    
    
    
    $
    178.39
    
    
    
    $
    187.41
    
    
    
    $
    152.17
 42.




---



##### 



COMMERCIAL BANCSHARES, INC.
  
   
   
  info@rtco.com  www.rtco.com
   43.




---



##### 



BOARD OF DIRECTORS
 Michael A. Shope  Chairman
    
    Retired CFO, Walbro CorporationNorwalk, OhioRobert E. Beach
    
    President and CEO of CommercialBancshares, Inc. and the CommercialSavings Bank, Upper Sandusky, 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
    
    State Certified General AppraiserProfessional Appraisal ServiceFindlay, OhioKurt D. Kimmel
    
    President/Co-owner, Kimmel CleanersUpper Sandusky, OhioStanley K. Kinnett
    
    President and CEO, Dixie-SouthernDuette, FloridaMichael A. Mastro
    
    General Partner, TLM, LimitedGeneral Partner, TLM II, LimitedPresident, Micalo, Inc.President, ALMA, Inc.President, Lomi Enterprises, LLCPresident, BWWFindlay, OhioRichard Sheaffer
    
    President, R.A. Sheaffer, Inc.Morral, Ohio
 44.