Exhibit 13

TRI-STATE 1ST BANC, INC.

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006



|                                                          |  |            
|--------------------------------------------------------- |  | -----------
|                                                          |  | Page Number
|Report of Independent Registered Public Accounting Firm   |  | 1          
|Financial Statements                                      |  |            
|Consolidated Balance Sheet                                |  | 2          
|Consolidated Statement of Income                          |  | 3          
|Consolidated Statement of Changes in Stockholders Equity |  | 4          
|Consolidated Statement of Cash Flows                      |  | 5          
|Notes to Consolidated Financial Statements                |  | 6 29      



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Tri-State 1st Banc, Inc.

We have audited the consolidated balance sheet of Tri-State 1st Banc, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related
consolidated statements of income, changes in stockholders equity, and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Tri-State 1st Banc, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years then ended in conformity with U.S. generally
accepted accounting principles.



|                        
|------------------------
|                        
|/s/ S.R. Snodgrass, A.C.
|Wexford, Pennsylvania   
|March 9, 2007           



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TRI-STATE 1ST BANC, INC.

CONSOLIDATED BALANCE SHEET



|                                                                                 |  |              |            |   |      |   |            |  
|-------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                 |  | December 31, |           
|                                                                                 |  | 2006         |            |   | 2005 |  
|ASSETS                                                                           |  |              |            |   |      |   |            |  
|Cash and due from banks                                                          |  | $            | 5,409,884  |   |      | $ | 6,059,509  |  
|Interest-bearing deposits with other banks                                       |  |              | 91,674     |   |      |   | 40,588     |  
|Federal funds sold                                                               |  |              |           |   |      |   | 1,550,000  |  
|                                                                                 |  |              |            |   |      |   |            |  
|Cash and cash equivalents                                                        |  |              | 5,501,558  |   |      |   | 7,650,097  |  
|Investment securities available for sale                                         |  |              | 24,022,784 |   |      |   | 25,455,135 |  
|Investment securities held to maturity (fair value of $8,151,429 and $8,937,160) |  |              | 8,235,279  |   |      |   | 9,030,439  |  
|Loans                                                                            |  |              | 52,050,527 |   |      |   | 42,856,155 |  
|Less allowance for loan losses                                                   |  |              | 579,974    |   |      |   | 531,873    |  
|                                                                                 |  |              |            |   |      |   |            |  
|Net loans                                                                        |  |              | 51,470,553 |   |      |   | 42,324,282 |  
|Premises and equipment                                                           |  |              | 3,528,919  |   |      |   | 3,798,252  |  
|Bank-owned life insurance                                                        |  |              | 2,426,012  |   |      |   | 2,340,555  |  
|Goodwill                                                                         |  |              | 886,784    |   |      |   | 886,784    |  
|Accrued interest and other assets                                                |  |              | 1,734,671  |   |      |   | 2,172,671  |  
|                                                                                 |  |              |            |   |      |   |            |  
|TOTAL ASSETS                                                                     |  | $            | 97,806,560 |   |      | $ | 93,658,215 |  
|                                                                                 |  |              |            |   |      |   |            |  
|LIABILITIES                                                                      |  |              |            |   |      |   |            |  
|Deposits:                                                                        |  |              |            |   |      |   |            |  
|Non-interest-bearing demand                                                      |  | $            | 14,508,107 |   |      | $ | 16,029,665 |  
|Interest-bearing demand                                                          |  |              | 10,463,023 |   |      |   | 11,161,177 |  
|Money market                                                                     |  |              | 6,074,532  |   |      |   | 5,642,694  |  
|Savings                                                                          |  |              | 17,542,209 |   |      |   | 12,126,622 |  
|Time                                                                             |  |              | 25,475,391 |   |      |   | 30,652,370 |  
|                                                                                 |  |              |            |   |      |   |            |  
|Total deposits                                                                   |  |              | 74,063,262 |   |      |   | 75,612,528 |  
|Short-term borrowings                                                            |  |              | 11,276,794 |   |      |   | 5,982,201  |  
|Other borrowings                                                                 |  |              | 3,093,000  |   |      |   | 2,600,000  |  
|Accrued interest and other liabilities                                           |  |              | 316,829    |   |      |   | 651,669    |  
|                                                                                 |  |              |            |   |      |   |            |  
|TOTAL LIABILITIES                                                                |  |              | 88,749,885 |   |      |   | 84,846,398 |  
|                                                                                 |  |              |            |   |      |   |            |  
|STOCKHOLDERS EQUITY                                                             |  |              |            |   |      |   |            |  
|Common stock, no par value; 3,000,000 shares authorized, 915,764 shares issued   |  |              | 8,195,467  |   |      |   | 8,195,467  |  
|Retained earnings                                                                |  |              | 1,977,995  |   |      |   | 1,988,595  |  
|Treasury stock, at cost (45,957 and 52,530 shares)                               |  |              | (837,179   | ) |      |   | (963,218   | )
|Accumulated other comprehensive loss                                             |  |              | (279,608   | ) |      |   | (409,027   | )
|                                                                                 |  |              |            |   |      |   |            |  
|TOTAL STOCKHOLDERS EQUITY                                                       |  |              | 9,056,675  |   |      |   | 8,811,817  |  
|                                                                                 |  |              |            |   |      |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                       |  | $            | 97,806,560 |   |      | $ | 93,658,215 |  
|                                                                                 |  |              |            |   |      |   |            |  

See accompanying notes to the consolidated financial statements.



2



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TRI-STATE 1ST BANC, INC.

CONSOLIDATED STATEMENT OF INCOME



|                                                    |  |                         |           |      |   |          
|--------------------------------------------------- |  | ----------------------- | --------- | ---- | - | ---------
|                                                    |  | Year Ended December 31,
|                                                    |  | 2006                    |           | 2005
|INTEREST INCOME                                     |  |                         |           |      |   |          
|Loans, including fees                               |  | $                       | 3,782,968 |      | $ | 3,283,528
|Interest-bearing deposits with other banks          |  |                         | 2,238     |      |   | 2,585    
|Federal funds sold                                  |  |                         | 69,975    |      |   | 98,032   
|Investment securities:                              |  |                         |           |      |   |          
|Taxable                                             |  |                         | 1,310,497 |      |   | 1,313,045
|Exempt from federal income tax                      |  |                         | 119,058   |      |   | 214,005  
|                                                    |  |                         |           |      |   |          
|Total interest income                               |  |                         | 5,284,736 |      |   | 4,911,195
|                                                    |  |                         |           |      |   |          
|INTEREST EXPENSE                                    |  |                         |           |      |   |          
|Deposits                                            |  |                         | 1,580,573 |      |   | 1,140,960
|Short-term borrowings                               |  |                         | 283,677   |      |   | 84,455   
|Other borrowings                                    |  |                         | 64,632    |      |   | 119,998  
|                                                    |  |                         |           |      |   |          
|Total interest expense                              |  |                         | 1,928,882 |      |   | 1,345,413
|                                                    |  |                         |           |      |   |          
|NET INTEREST INCOME                                 |  |                         | 3,355,854 |      |   | 3,565,782
|Provision for loan losses                           |  |                         | 182,750   |      |   | 229,686  
|                                                    |  |                         |           |      |   |          
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                         | 3,173,104 |      |   | 3,336,096
|                                                    |  |                         |           |      |   |          
|OTHER OPERATING INCOME                              |  |                         |           |      |   |          
|Service fees on deposit accounts                    |  |                         | 1,006,437 |      |   | 1,083,582
|Investment securities gains, net                    |  |                         |          |      |   | 16,696   
|Earnings on bank-owned life insurance               |  |                         | 85,458    |      |   | 81,963   
|Other                                               |  |                         | 969,730   |      |   | 862,656  
|                                                    |  |                         |           |      |   |          
|Total other operating income                        |  |                         | 2,061,625 |      |   | 2,044,897
|                                                    |  |                         |           |      |   |          
|OTHER OPERATING EXPENSE                             |  |                         |           |      |   |          
|Salaries and employee benefits                      |  |                         | 2,461,705 |      |   | 2,391,098
|Occupancy                                           |  |                         | 471,753   |      |   | 447,058  
|Furniture and equipment                             |  |                         | 366,564   |      |   | 366,959  
|Other                                               |  |                         | 1,531,789 |      |   | 1,455,934
|                                                    |  |                         |           |      |   |          
|Total other operating expense                       |  |                         | 4,831,811 |      |   | 4,661,049
|                                                    |  |                         |           |      |   |          
|Income before income taxes                          |  |                         | 402,918   |      |   | 719,944  
|Income taxes                                        |  |                         | 69,042    |      |   | 131,312  
|                                                    |  |                         |           |      |   |          
|NET INCOME                                          |  | $                       | 333,876   |      | $ | 588,632  
|                                                    |  |                         |           |      |   |          
|EARNINGS PER SHARE                                  |  |                         |           |      |   |          
|Basic                                               |  | $                       | 0.39      |      | $ | 0.68     
|Diluted                                             |  |                         | 0.39      |      |   | 0.68     

See accompanying notes to the consolidated financial statements.



3



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TRI-STATE 1ST BANC, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY



|                                                                                                      |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |           |  
|----------------------------------------------------------------------------------------------------- |  | --------------- |  | ----------- | --------- | ---------------- | - | --------- | ------------- |  | - | ------------------------------------------ | - |  | ----- | -------- | - |  | - | --------- | -
|                                                                                                      |  | Number ofShares |  | CommonStock |           | RetainedEarnings |   |           | TreasuryStock |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Total |         
|Balance, December 31, 2004                                                                            |  | 34,137          |  | $           | 8,195,467 |                  | $ | 1,748,559 |               |  | $ | (630,685                                   | ) |  | $     | 24,747   |   |  | $ | 9,338,088 |  
|Comprehensive income:                                                                                 |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |           |  
|Net income                                                                                            |  |                 |  |             |           |                  |   | 588,632   |               |  |   |                                            |   |  |       |          |   |  |   | 588,632   |  
|Net unrealized loss on securities, net of reclassification adjustment, net of tax benefit of $223,459 |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       | (433,774 | ) |  |   | (433,774  | )
|                                                                                                      |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |           |  
|Total comprehensive income                                                                            |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   | 154,858   |  
|Purchase of treasury stock                                                                            |  | 27,402          |  |             |           |                  |   |           |               |  |   | (499,200                                   | ) |  |       |          |   |  |   | (499,200  | )
|Reissuance of treasury stock                                                                          |  | 9,009           |  |             |           |                  |   |           |               |  |   | 166,667                                    |   |  |       |          |   |  |   | 166,667   |  
|Dividends declared ($0.40 per share)                                                                  |  |                 |  |             |           |                  |   | (348,596  | )             |  |   |                                            |   |  |       |          |   |  |   | (348,596  | )
|                                                                                                      |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |           |  
|Balance, December 31, 2005                                                                            |  | 52,530          |  |             | 8,195,467 |                  |   | 1,988,595 |               |  |   | (963,218                                   | ) |  |       | (409,027 | ) |  |   | 8,811,817 |  
|Comprehensive income:                                                                                 |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |           |  
|Net income                                                                                            |  |                 |  |             |           |                  |   | 333,876   |               |  |   |                                            |   |  |       |          |   |  |   | 333,876   |  
|Net unrealized gain on securities, net of taxes of $66,670                                            |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       | 129,419  |   |  |   | 129,419   |  
|                                                                                                      |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |           |  
|Total comprehensive income                                                                            |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   | 463,295   |  
|Purchase of treasury stock                                                                            |  | 11,445          |  |             |           |                  |   |           |               |  |   | (207,294                                   | ) |  |       |          |   |  |   | (207,294  | )
|Reissuance of treasury stock                                                                          |  | 18,018          |  |             |           |                  |   |           |               |  |   | 333,333                                    |   |  |       |          |   |  |   | 333,333   |  
|Dividends declared ($0.40 per share)                                                                  |  |                 |  |             |           |                  |   | (344,476  | )             |  |   |                                            |   |  |       |          |   |  |   | (344,476  | )
|                                                                                                      |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |           |  
|Balance, December 31, 2006                                                                            |  | 45,957          |  | $           | 8,195,467 |                  | $ | 1,977,995 |               |  | $ | (837,179                                   | ) |  | $     | (279,608 | ) |  | $ | 9,056,675 |  
|                                                                                                      |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |           |  
|                                                                                                      |  |                 |  |             |           |                 
|                                                                                                      |  |                 |  |             |           |                  |   |           |               |  |   | 2006                                       |   |  | 2005  |         
|Components of other comprehensive income (loss):                                                      |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |           |  
|Change in net unrealized gain (loss) on investment securities available for sale                      |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  | $     | 129,419  |   |  | $ | (422,755  | )
|Realized gains included in net income, net of taxes of $5,677 in 2005                                 |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |         |   |  |   | (11,019   | )
|                                                                                                      |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |           |  
|Total                                                                                                 |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  | $     | 129,419  |   |  | $ | (433,774  | )
|                                                                                                      |  |                 |  |             |           |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |           |  

See accompanying notes to the consolidated financial statements.



4



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TRI-STATE 1ST BANC, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS



|                                                                                  |  |                         |            |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                                  |  | Year Ended December 31, |           
|                                                                                  |  | 2006                    |            |   | 2005 |  
|OPERATING ACTIVITIES                                                              |  |                         |            |   |      |   |             |  
|Net income                                                                        |  | $                       | 333,876    |   |      | $ | 588,632     |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |            |   |      |   |             |  
|Provision for loan losses                                                         |  |                         | 182,750    |   |      |   | 229,686     |  
|Depreciation and amortization, net                                                |  |                         | 397,614    |   |      |   | 429,463     |  
|Investment securities gains, net                                                  |  |                         |           |   |      |   | (16,696     | )
|Deferred income taxes                                                             |  |                         | (68,497    | ) |      |   | (68,497     | )
|Earnings on bank-owned life insurance                                             |  |                         | (85,458    | ) |      |   | (81,963     | )
|Decrease (increase) in accrued interest receivable                                |  |                         | (62,007    | ) |      |   | (44,148     | )
|Increase (decrease) in accrued interest payable                                   |  |                         | 48,982     |   |      |   | (490        | )
|Other, net                                                                        |  |                         | (89,622    | ) |      |   | (51,269     | )
|                                                                                  |  |                         |            |   |      |   |             |  
|Net cash provided by operating activities                                         |  |                         | 657,638    |   |      |   | 984,718     |  
|                                                                                  |  |                         |            |   |      |   |             |  
|INVESTING ACTIVITIES                                                              |  |                         |            |   |      |   |             |  
|Investment securities available for sale:                                         |  |                         |            |   |      |   |             |  
|Proceeds from sales                                                               |  |                         |           |   |      |   | 4,682,674   |  
|Proceeds from principal repayments and maturities                                 |  |                         | 2,659,975  |   |      |   | 4,887,033   |  
|Purchases of securities                                                           |  |                         | (1,074,927 | ) |      |   | (4,002,489  | )
|Investment securities held to maturity:                                           |  |                         |            |   |      |   |             |  
|Proceeds from principal repayments and maturities                                 |  |                         | 781,545    |   |      |   | 2,636,502   |  
|Purchases of securities                                                           |  |                         |           |   |      |   | (10,689,865 | )
|Net (increase) decrease in loans                                                  |  |                         | (9,358,706 | ) |      |   | 958,805     |  
|Proceeds from sale of credit card portfolio                                       |  |                         | 482,404    |   |      |   |            |  
|Purchase of premises and equipment                                                |  |                         | (102,227   | ) |      |   | (239,247    | )
|Proceeds from sale of real estate                                                 |  |                         | 119,202    |   |      |   |            |  
|Acquisition of MDH subsidiary                                                     |  |                         |           |   |      |   | (166,667    | )
|                                                                                  |  |                         |            |   |      |   |             |  
|Net cash used for investing activities                                            |  |                         | (6,492,734 | ) |      |   | (1,933,254  | )
|                                                                                  |  |                         |            |   |      |   |             |  
|FINANCING ACTIVITIES                                                              |  |                         |            |   |      |   |             |  
|Net increase (decrease) in deposits                                               |  |                         | (1,549,266 | ) |      |   | 3,306,923   |  
|Net increase in short-term borrowings                                             |  |                         | 5,294,593  |   |      |   | 848,336     |  
|Proceeds from other borrowings                                                    |  |                         | 3,093,000  |   |      |   |            |  
|Repayment of other borrowings                                                     |  |                         | (2,600,000 | ) |      |   | (700,000    | )
|Purchase of treasury stock                                                        |  |                         | (207,294   | ) |      |   | (499,200    | )
|Cash dividends paid                                                               |  |                         | (344,476   | ) |      |   | (348,596    | )
|                                                                                  |  |                         |            |   |      |   |             |  
|Net cash provided by financing activities                                         |  |                         | 3,686,557  |   |      |   | 2,607,463   |  
|                                                                                  |  |                         |            |   |      |   |             |  
|Increase (decrease) in cash and cash equivalents                                  |  |                         | (2,148,539 | ) |      |   | 1,658,927   |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    |  |                         | 7,650,097  |   |      |   | 5,991,170   |  
|                                                                                  |  |                         |            |   |      |   |             |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                          |  | $                       | 5,501,558  |   |      | $ | 7,650,097   |  
|                                                                                  |  |                         |            |   |      |   |             |  

See accompanying notes to the consolidated financial statements.



5



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TRI-STATE 1ST BANC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

Nature of Operations and Basis of Presentation

A summary of significant accounting and reporting policies applied in
the presentation of the accompanying financial statements follows:

Tri-State 1st Banc, Inc. (the Company) is an Ohio
corporation organized as the holding company of 1st National Community Bank (the Bank), Gateminder Corporation (Gateminder), and MDH Investment Management, Inc. (MDH). The Bank is a national banking association
headquartered in East Liverpool, Ohio. The Banks principal sources of revenue emanate from its commercial, commercial mortgage, residential real estate, and consumer loan financing, its investment securities portfolio, as well as a variety of
deposit services offered to its customers through seven branch offices which are located in the tristate area of East Liverpool, Ohio. Gateminder was established by the Company to provide non-banking services to businesses with automated teller
machines (ATMs). Gateminder sells ATM machines and provides the means for processing transactions for businesses. MDH is an investment advisory firm established by the Company to provide investment management and financial planning
services.

The Companys principal assets are represented by its ownership of the Bank, Gateminder, and MDH. The Company, Gateminder,
and MDH are supervised by the Board of Governors of the Federal Reserve System, while the Bank is subject to regulation and supervision by the Office of the Comptroller of the Currency.

The consolidated financial statements of the Company include its wholly owned subsidiaries. All intercompany transactions have been eliminated in
consolidation. The investment in subsidiaries on the parent company financial statements is carried at the Companys equity position in the underlying net assets of each entity. The financial statements have been prepared in conformity with
U.S. generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and
expenses for the period. Actual results could differ significantly from those estimates.

Investment Securities

Investment securities are classified at the time of purchase, based on managements abilities and intention, as securities held to maturity or
available for sale. Debt securities acquired with the ability and intent to hold to maturity are stated at cost adjusted for amortization of premium and accretion of discount, which are computed using the interest method and recognized as
adjustments of interest income. All other debt securities have been classified as available for sale to serve principally for liquidity purposes. Unrealized holding gains and losses for available-for-sale securities are reported as a separate
component of stockholders equity, net of tax, until realized. Realized securities gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income when earned.

Common stock of the Federal Home Loan Bank of Cincinnati (FHLB) and the Federal Reserve Bank represents ownership in
institutions that are wholly owned by other financial institutions. These equity securities are accounted for at cost and are classified as other assets.



6



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|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------

Loans

Loans are reported at their principal amount, net of the allowance for loan losses. Interest on all loans is
recognized as income when earned on the accrual method. The Companys general policy is to stop accruing interest on loans when it is determined that reasonable doubt exists as to the collectibility of additional interest. Payments received on
nonaccrual loans are recorded as income or applied against principal according to managements judgment as to the collectibility of principal.

Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loans yield. The Company is amortizing these amounts over the contractual life of the
related loans.

Allowance for Loan Losses

The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses.
Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses charged to operations. The provision for loan losses is based on
managements periodic evaluation of individual loans, economic factors, past loan loss experience, changes in the composition and volume of the portfolio, and other relevant factors. The estimates used in determining the adequacy of the
allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to changes in the near term.

Impaired loans are commercial and commercial real estate loans for which it is probable the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company
individually evaluates such loans for impairment and does not aggregate loans by major risk classifications. The definition of impaired loans is not the same as the definition of nonaccrual loans, although the two categories
overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility, while not classifying the loan as impaired, provided the loan is not of a commercial or commercial real estate
classification. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash
flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When
foreclosure is probable, impairment is measured based on the fair value of the collateral.

Mortgage loans secured by one-to-four family
properties and all consumer loans are large groups of smaller balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not
classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances concerning the loan, the creditworthiness and payment history of the borrower, the length of the
payment delay, and the amount of shortfall in relation to the principal and interest owed.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets, which range from 3 to 20 years for furniture, fixtures, and equipment and 3 to 40 years for buildings and leasehold improvements. Expenditures for maintenance and repairs are charged against income as incurred.
Costs of major additions and improvements are capitalized.



7



---

|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------

Bank-Owned Life Insurance

Bank-owned life insurance (BOLI) is carried by the Bank at the current cash surrender
values of the underlying policies. The policies are single premium policies that do not carry loads or surrender charges. Income earned on the policies is based on the crediting rate on the individual insurance contracts.

Intangible Asset

The
intangible asset consists of a premium for the value of the sellers customer listing. This customer list premium, which was developed based upon a specific study, is amortized using the straight-line method over seven years. Annual assessments
of carrying value and remaining amortization periods are made to determine possible carrying value impairment and appropriate adjustments as deemed necessary. This asset is a component of other assets on the Consolidated Balance Sheet.

Goodwill

The Company
accounts for goodwill in accordance with Statement of Financial Accounting Standards (FAS) No. 142, Goodwill and Other Intangible Assets. This statement, among other things, requires a two-step process for testing the
impairment of goodwill on at least an annual basis. This approach could cause more volatility in the Companys reported net income because impairment losses, if any, could occur irregularly and in varying amounts. The Company performs an annual
impairment analysis of goodwill. Based on the fair value of the reporting unit, estimated using the expected present value of future cash flows, no impairment of goodwill was recognized in 2006 or 2005.

Real Estate Owned

Real estate
owned acquired in the settlement of foreclosed loans is carried as a component of other assets at the lower of cost or fair value minus estimated cost to sell. Valuation allowances for estimated losses are provided when the carrying value of the
real estate acquired exceeds the fair value. Direct costs incurred in the foreclosure process and subsequent holding costs incurred on such properties are recorded as expenses of current operations.

Treasury Stock

The
acquisition of treasury stock is recorded under the cost method. At the date of subsequent issue, the treasury stock is redeemed by the cost of such stock on the average cost basis.

Advertising Costs

Advertising
costs are expensed as the costs are incurred. Advertising expenses amounted to $53,592 and $55,913 for 2006 and 2005, respectively.

Earnings Per Share

The Company provides dual presentation of basic and diluted earnings per share. Basic earnings
per share are calculated utilizing net income as reported in the numerator and average shares outstanding in the denominator. The computation of diluted earnings per share differs in that the dilutive effects of any stock options, warrants, and
convertible securities are adjusted in the denominator.

Employee Benefits

Employee benefits include contributions to a defined contribution Section 401(k) plan covering eligible employees. Limited matching contributions are
made for participating employees subject to plan criteria. In addition, an elective contribution is made annually at the discretion of the Board of Directors. The Company also maintains an Employee Stock Ownership Plan (ESOP) covering
substantially all employees and officers. The amount of the contribution to the ESOP is at the discretion of the Board of Directors.



8



---

|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------

Stock Options

In December 2004, the FASB issued FAS No. 123R, Share-Based Payment, which revised FAS 123,
Accounting for Stock-Based Compensation, and superseded APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations. FAS 123R requires the grant-date fair value of all share-based payment awards
that are expected to vest, including employee share options, to be recognized as employee compensation expense over the requisite service period. The Company adopted FAS 123R on January 1, 2006 and applied the modified prospective transition
method. Under this transition method, the Company (1) did not restate any prior periods and (2) are recognizing compensation expense for all share-based payment awards that were outstanding, but not yet vested, as of January 1, 2006,
based upon the same estimated grant-date fair values and service periods used to prepare the FAS 123 pro-forma disclosures.

Prior to
adopting FAS 123R, the Company accounted for share-based payment awards using the intrinsic value method of APB 25 and related interpretations. Under APB 25, the Company did not record compensation expense for employee share options, unless the
awards were modified, because the share options were granted with exercise prices equal to or greater than the fair value of our stock on the date of grant. The following table illustrates the effect on reported net income and earnings per share
applicable to common shareholders for the years ended December 31, 2005 and 2004, had we accounted for our share-based compensation plans using the fair value method of FAS 123:



|                                         |  |      |        
|---------------------------------------- |  | ---- | -------
|                                         |  | 2005
|Net income applicable to common stock    |  | $    | 588,632
|Less pro forma expense related to option |  |      |       
|                                         |  |      |        
|Pro forma net income                     |  | $    | 588,632
|                                         |  |      |        
|Basic net income per common share:       |  |      |        
|As reported                              |  | $    | 0.68   
|Pro forma                                |  |      | 0.68   
|Diluted net income per common share:     |  |      |        
|As reported                              |  | $    | 0.68   
|Pro forma                                |  |      | 0.68   

During the year ended December 31, 2004, the Company accelerated their vesting and all shares
outstanding became fully vested. Therefore, as of December 31, 2006 and 2005, respectively, the Company recorded no compensation expense related to our share-based compensations awards.

FAS 123R requires that the cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based
awards (excess tax benefits) be classified as financing cash flows. Prior to the adoption of FAS 123R, such excess tax benefits were presented as operating cash flows. However, no excess tax benefits have been classified as a financing cash inflow
for the year ended December 31, 2006, in the Consolidated Statements of Cash Flows. There were also no excess tax benefits for the years ended December 31, 2005 and 2004, included in operating cash flows.

For purposes of computing pro forma results, the Company estimated the fair values of stock options using the Black-Scholes option-pricing model. The
model requires the use of subjective assumptions that can materially affect fair value estimates. Therefore, the pro forma results are estimates of results of operations as if compensation expense had been recognized for the stock option plans. The
fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. The fair value of each stock option granted was estimated using the following weighted-average
assumptions:



9



---

|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------

Stock Options (Continued)



|          |  |                       |  |                        |  |                    |  |                        
|--------- |  | --------------------- |  | ---------------------- |  | ------------------ |  | -----------------------
|GrantYear |  | ExpectedDividendYield |  | Risk-FreeInterest Rate |  | ExpectedVolatility |  | ExpectedLife (in years)
|2003      |  | 1.50                  |  | 3.94                   |  | 18.77              |  | 7.01                   
|2004      |  | 2.13                  |  | 3.77                   |  | 18.36              |  | 6.17                   

The weighted average fair value of each stock option granted for 2004 was $3.68.

Income Taxes

The Company, the
Bank, Gateminder and MDH file a consolidated federal income tax return. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to
be realized or settled. As changes in tax laws or rates are enacted, these assets and liabilities are adjusted through the provision for income taxes.

Comprehensive Income

The Company is required to present comprehensive income and its
components in a full set of general-purpose financial statements for all periods presented. The Companys other comprehensive income comprises the net unrealized gains and losses attributable to its investment securities available for sale. The
Company has elected to report the effects of comprehensive income as a part of the Consolidated Statement of Changes in Stockholders Equity.

Cash Flow Information

The Company has defined cash and cash equivalents as those amounts included in the balance
sheet captions Cash and due from banks, Federal funds sold, and Interest-bearing deposits with other banks that have original maturities of less than 90 days. Cash payments for interest expense in 2006 and 2005
were $1,879,900 and $1,345,903, respectively. Cash payments for income taxes in 2006 and 2005 were $185,513 and $253,440, respectively.

Recent Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (FAS) No. 155, Accounting for Certain Hybrid Instruments, an amendment of FASB Statements No. 133 and 140. FAS No. 155 allows financial instruments that have
embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. This statement is effective for all financial
instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. The adoption of this standard is not expected to have a material effect on the Companys results of operations
or financial position.



10



---

|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------

Recent Accounting Pronouncements

In March 2006, the FASB issued FAS No. 156, Accounting for Servicing of
Financial Assets. This statement, which is an amendment to FAS No. 140, will simplify the accounting for servicing assets and liabilities, such as those common with mortgage securitization activities. Specifically, FAS No. 156
addresses the recognition and measurement of separately recognized servicing assets and liabilities and provides an approach to simplify efforts to obtain hedge-like (offset) accounting. FAS No. 156 also clarifies when an obligation to service
financial assets should be separately recognized as a servicing asset or a servicing liability; requires that a separately recognized servicing asset or servicing liability be initially measured at fair value, if practicable; and permits an entity
with a separately recognized servicing asset or servicing liability to choose either of the amortization or fair value methods for subsequent measurement. The provisions of FAS No. 156 are effective as of the beginning of the first fiscal year
that begins after September 15, 2006. The adoption of this standard is not expected to have a material effect on the Companys results of operations or financial position.

In September 2006, the FASB issued FAS No. 157, Fair Value Measurements, which provides enhanced guidance for using fair value to measure
assets and liabilities. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. FAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this standard is not expected to have a material effect on the
Companys results of operations or financial position.

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN
48), Accounting for Uncertainty in Income Taxes. FIN 48 is an interpretation of FAS No. 109, Accounting for Income Taxes, and it seeks to reduce the diversity in practice associated with certain aspects of measurement and
recognition in accounting for income taxes. This interpretation clarifies that management is expected to evaluate an income tax position taken or expected to be taken for likelihood of realization before recording any amounts for such position in
the financial statement. FIN 48 also requires expanded disclosure with respect to income tax positions taken that are not certain to be realized. This Interpretation is effective for fiscal years beginning after December 15, 2006, and will
require management to evaluate every open tax position that exists in every jurisdiction on the date of initial adoption. The Company is currently evaluating the impact the adoption of the standard will have on the Companys results of
operations.

In September 2006, the FASB issued FAS No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R). FAS No. 158 requires that a company recognize the overfunded or underfunded status of its defined benefit post retirement plans (other than multiemployer
plans) as an asset or liability in its statement of financial position and that it recognize changes in the funded status in the year in which the changes occur through other comprehensive income. FAS No. 158 also requires the measurement of
defined benefit plan assets and obligations as of the fiscal year-end, in addition to footnote disclosures. On December 31, 2006, the Company adopted FAS No. 158, except for the measurement provisions, which are effective for fiscal years
ending after December 15, 2008. The adoption of this standard is not expected to have a material effect on the Companys results of operations or financial position.



11



---

|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------

Recent Accounting Pronouncements (Continued)

In September 2006, the FASB reached consensus on the guidance provided
by Emerging Issues Task Force Issue 06-4 (EITF 06-4), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. The guidance is applicable to endorsement
split-dollar life insurance arrangements, whereby the employer owns and controls the insurance policy, that are associated with a postretirement benefit. EITF 06-4 requires that for a split-dollar life insurance arrangement within the scope of the
issue, an employer should recognize a liability for future benefits in accordance with FAS No. 106 (if, in substance, a postretirement benefit plan exists) or Accounting Principles Board Opinion No. 12 (if the arrangement is, in substance,
an individual deferred compensation contract) based on the substantive agreement with the employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company is currently evaluating the impact the adoption of the
standard will have on the Companys results of operations or financial condition.

In September 2006, the FASB reached consensus on the
guidance provided by Emerging Issues Task Force Issue 06-5(EITF 06-5), Accounting for Purchases of Life InsuranceDetermining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for
Purchases of Life Insurance. EITF 06-5 states that a policyholder should consider any additional amounts included in the contractual terms of the insurance policy other than the cash surrender value in determining the amount that could be realized
under the insurance contract. EITF 06-5 also states that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by
certificate in a group policy). EITF 06-5 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact the adoption of the standard will have on the Companys results of operations or
financial condition.



|2. | EARNINGS PER SHARE
|-- | ------------------

There are no convertible
securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income will be used as the numerator. The following table sets forth the composition
of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.



|                                                                                                         |  |         |   |  |         |  
|-------------------------------------------------------------------------------------------------------- |  | ------- | - |  | ------- | -
|                                                                                                         |  | 2006    |   |  | 2005    |  
|Weighted-average common shares                                                                           |  | 915,764 |   |  | 915,764 |  
|Average treasury stock shares                                                                            |  | (58,010 | ) |  | (44,521 | )
|                                                                                                         |  |         |   |  |         |  
|Weighted-average common shares outstanding used to calculate basic earnings per share                    |  | 857,754 |   |  | 871,243 |  
|Additional common stock equivalents (stock options) used to calculate diluted earnings per share         |  |        |   |  |        |  
|                                                                                                         |  |         |   |  |         |  
|Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share |  | 857,754 |   |  | 871,243 |  
|                                                                                                         |  |         |   |  |         |  



12



---

|2. | EARNINGS PER SHARE (Continued)
|-- | ------------------------------

Options to purchase
49,787 shares of common stock at prices from $18.40 to $20.36 were outstanding during 2006 and options to purchase 60,137 shares of common stock at prices from $18.40 to $20.36 were outstanding during 2005, respectively, but were not included in the
computation of diluted earnings per share because to do so would have been antidilutive.



|3. | INVESTMENT SECURITIES
|-- | ---------------------

The amortized cost and fair
value of investment securities available for sale are as follows:



|                                                 |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|------------------------------------------------ |  | ------------- | ---------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | ----------
|                                                 |  | 2006         
|                                                 |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|U.S. government agency securities                |  | $             | 12,729,611 |                      | $ | 3,848                 |  | $ | (248,819   | ) |  | $ | 12,484,640
|Obligations of states and political subdivisions |  |               | 3,139,973  |                      |   | 33,722                |  |   | (806       | ) |  |   | 3,172,889 
|Mortgage-backed securities                       |  |               | 7,576,848  |                      |   | 2                     |  |   | (184,459   | ) |  |   | 7,392,391 
|                                                 |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|Total debt securities                            |  |               | 23,446,432 |                      |   | 37,572                |  |   | (434,084   | ) |  |   | 23,049,920
|Mutual funds                                     |  |               | 1,000,000  |                      |   |                      |  |   | (27,136    | ) |  |   | 972,864   
|                                                 |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|Total                                            |  | $             | 24,446,432 |                      | $ | 37,572                |  | $ | (461,220   | ) |  | $ | 24,022,784
|                                                 |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|                                                 | 
|                                                 |  | 2005         
|                                                 |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|U.S. government agency securities                |  | $             | 13,726,058 |                      | $ |                      |  | $ | (396,704   | ) |  | $ | 13,329,354
|Obligations of states and political subdivisions |  |               | 2,245,107  |                      |   | 55,838                |  |   |           |   |  |   | 2,300,945 
|Mortgage-backed securities                       |  |               | 9,103,708  |                      |   | 20                    |  |   | (252,761   | ) |  |   | 8,850,967 
|                                                 |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|Total debt securities                            |  |               | 25,074,873 |                      |   | 55,858                |  |   | (649,465   | ) |  |   | 24,481,266
|Mutual funds                                     |  |               | 1,000,000  |                      |   |                      |  |   | (26,131    | ) |  |   | 973,869   
|                                                 |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|Total                                            |  | $             | 26,074,873 |                      | $ | 55,858                |  | $ | (675,596   | ) |  | $ | 25,455,135
|                                                 |  |               |            |                      |   |                       |  |   |            |   |  |   |           



13



---

|3. | INVESTMENT SECURITIES (Continued)
|-- | ---------------------------------

The amortized
cost and fair value of investment securities held to maturity are as follows:



|                                                 |  |               |           |                      |   |                       |  |   |            |   |  |   |          
|------------------------------------------------ |  | ------------- | --------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | ---------
|                                                 |  | 2006         
|                                                 |  | AmortizedCost |           | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|U.S. treasury securities                         |  | $             | 98,662    |                      | $ |                      |  | $ | (1,708     | ) |  | $ | 96,954   
|U.S. government agency securities                |  |               | 5,497,791 |                      |   |                      |  |   | (39,486    | ) |  |   | 5,458,305
|Obligations of states and political subdivisions |  |               | 518,172   |                      |   | 3,114                 |  |   | (122       | ) |  |   | 521,164  
|Mortgage-backed securities                       |  |               | 2,120,654 |                      |   |                      |  |   | (45,648    | ) |  |   | 2,075,006
|                                                 |  |               |           |                      |   |                       |  |   |            |   |  |   |          
|Total                                            |  | $             | 8,235,279 |                      | $ | 3,114                 |  | $ | (86,964    | ) |  | $ | 8,151,429
|                                                 |  |               |           |                      |   |                       |  |   |            |   |  |   |          
|                                                 | 
|                                                 |  | 2005         
|                                                 |  | AmortizedCost |           | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|U.S. treasury securities                         |  | $             | 98,267    |                      | $ |                      |  | $ | (1,549     | ) |  | $ | 96,718   
|U.S. government agency securities                |  |               | 5,507,105 |                      |   |                      |  |   | (59,654    | ) |  |   | 5,447,451
|Obligations of states and political subdivisions |  |               | 841,118   |                      |   | 10,658                |  |   |           |   |  |   | 851,776  
|Mortgage-backed securities                       |  |               | 2,583,949 |                      |   |                      |  |   | (42,734    | ) |  |   | 2,541,215
|                                                 |  |               |           |                      |   |                       |  |   |            |   |  |   |          
|Total                                            |  | $             | 9,030,439 |                      | $ | 10,658                |  | $ | (103,937   | ) |  | $ | 8,937,160
|                                                 |  |               |           |                      |   |                       |  |   |            |   |  |   |          

The following table shows the Companys gross unrealized losses and fair value, aggregated by
investment category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2006 and 2005.



|                                                 |  |                         |           |                       |                          |         |            |       |                       |            |  |            |          |                       |  |   |            |  |   |          |  
|------------------------------------------------ |  | ----------------------- | --------- | --------------------- | ------------------------ | ------- | ---------- | ----- | --------------------- | ---------- |  | ---------- | -------- | --------------------- |  | - | ---------- |  | - | -------- | -
|                                                 |  | 2006                    |          
|                                                 |  | Less than Twelve Months |           |                       | Twelve Months or Greater |         |            | Total |                      
|                                                 |  | Fair Value              |           | GrossUnrealizedLosses |                          |         | Fair Value |       | GrossUnrealizedLosses |            |  | Fair Value |          | GrossUnrealizedLosses | 
|U.S. treasury securities                         |  | $                       |          |                       | $                        |        |            |       | $                     | 96,953     |  | $          | (1,708   | )                     |  | $ | 96,953     |  | $ | (1,708   | )
|U.S. government agency securities                |  |                         | 987,336   |                       |                          | (12,039 | )          |       |                       | 16,451,698 |  |            | (276,266 | )                     |  |   | 17,439,034 |  | $ | (288,305 | )
|Obligations of states and political subdivisions |  |                         | 371,149   |                       |                          | (928    | )          |       |                       |           |  |            |         |                       |  |   | 371,149    |  |   | (928     | )
|Mortgage-backed securities                       |  |                         |          |                       |                          |        |            |       |                       | 9,457,582  |  |            | (230,107 | )                     |  |   | 9,457,582  |  |   | (230,107 | )
|                                                 |  |                         |           |                       |                          |         |            |       |                       |            |  |            |          |                       |  |   |            |  |   |          |  
|Total debt securities                            |  |                         | 1,358,485 |                       |                          | (12,967 | )          |       |                       | 26,006,233 |  |            | (508,081 | )                     |  |   | 27,364,718 |  |   | (521,048 | )
|Mutual funds                                     |  |                         |          |                       |                          |        |            |       |                       | 972,864    |  |            | (27,136  | )                     |  |   | 972,864    |  |   | (27,136  | )
|                                                 |  |                         |           |                       |                          |         |            |       |                       |            |  |            |          |                       |  |   |            |  |   |          |  
|Total                                            |  | $                       | 1,358,485 |                       | $                        | (12,967 | )          |       | $                     | 26,979,097 |  | $          | (535,217 | )                     |  | $ | 28,337,582 |  | $ | (548,184 | )
|                                                 |  |                         |           |                       |                          |         |            |       |                       |            |  |            |          |                       |  |   |            |  |   |          |  



14



---

|3. | INVESTMENT SECURITIES (Continued)
|-- | ---------------------------------



|                                  |  |                         |            |                       |                          |          |            |       |                       |            |  |            |          |                       |  |   |            |  |   |          |  
|--------------------------------- |  | ----------------------- | ---------- | --------------------- | ------------------------ | -------- | ---------- | ----- | --------------------- | ---------- |  | ---------- | -------- | --------------------- |  | - | ---------- |  | - | -------- | -
|                                  |  | 2005                    |           
|                                  |  | Less than Twelve Months |            |                       | Twelve Months or Greater |          |            | Total |                      
|                                  |  | Fair Value              |            | GrossUnrealizedLosses |                          |          | Fair Value |       | GrossUnrealizedLosses |            |  | Fair Value |          | GrossUnrealizedLosses | 
|U.S. treasury securities          |  | $                       | 96,719     |                       | $                        | (1,549   | )          |       | $                     |           |  | $          |         |                       |  | $ | 96,719     |  | $ | (1,549   | )
|U.S. government agency securities |  |                         | 9,997,738  |                       |                          | (151,058 | )          |       |                       | 8,779,068  |  |            | (305,300 | )                     |  |   | 18,776,806 |  |   | (456,358 | )
|Mortgage-backed securities        |  |                         | 7,340,363  |                       |                          | (158,065 | )          |       |                       | 4,023,692  |  |            | (137,430 | )                     |  |   | 11,364,055 |  |   | (295,495 | )
|                                  |  |                         |            |                       |                          |          |            |       |                       |            |  |            |          |                       |  |   |            |  |   |          |  
|Total debt securities             |  |                         | 17,434,820 |                       |                          | (310,672 | )          |       |                       | 12,802,760 |  |            | (442,730 | )                     |  |   | 30,237,580 |  |   | (753,402 | )
|Mutual funds                      |  |                         |           |                       |                          |         |            |       |                       | 973,869    |  |            | (26,131  | )                     |  |   | 973,869    |  |   | (26,131  | )
|                                  |  |                         |            |                       |                          |          |            |       |                       |            |  |            |          |                       |  |   |            |  |   |          |  
|Total                             |  | $                       | 17,434,820 |                       | $                        | (310,672 | )          |       | $                     | 13,776,629 |  | $          | (468,861 | )                     |  | $ | 31,211,449 |  | $ | (779,533 | )
|                                  |  |                         |            |                       |                          |          |            |       |                       |            |  |            |          |                       |  |   |            |  |   |          |  

The policy of the Company is to evaluate for other-than-temporary impairment when the fair value
has been significantly below cost for three consecutive quarters. For fixed maturity investments with unrealized losses due to interest rates where the Company has the positive intent and ability to hold the investment for a period of time
sufficient to allow a market recovery, declines in value below cost are not assumed to be other than temporary. There are 56 positions that are temporarily impaired at December 31, 2006. The Company reviews its position quarterly and has
asserted that at December 31, 2006, the declines outlined in the above table represent temporary declines and the Company does have the intent and ability either to hold those securities to maturity or to allow a market recovery.

The Company has concluded that any impairment of its investment securities portfolio is not other than temporary but is the result of interest rate
changes that are not expected to result in the noncollection of principal and interest during the period.

The amortized cost and fair value
of debt securities by contractual maturity at December 31, 2006, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment
penalties.



|                                       |  |                    |            |                  |   |               |  |            |           |  |   |          
|-------------------------------------- |  | ------------------ | ---------- | ---------------- | - | ------------- |  | ---------- | --------- |  | - | ---------
|                                       |  | Available for Sale |            | Held to Maturity
|                                       |  | AmortizedCost      |            | Fair Value       |   | AmortizedCost |  | Fair Value
|Due in one year or less                |  | $                  | 991,785    |                  | $ | 983,027       |  | $          | 2,994,999 |  | $ | 2,971,539
|Due after one year through five years  |  |                    | 13,504,544 |                  |   | 13,276,829    |  |            | 3,119,068 |  |   | 3,071,815
|Due after five years through ten years |  |                    | 1,112,282  |                  |   | 1,084,722     |  |            | 2,121,212 |  |   | 2,108,075
|Due after ten years                    |  |                    | 7,837,821  |                  |   | 7,705,342     |  |            |          |  |   |         
|                                       |  |                    |            |                  |   |               |  |            |           |  |   |          
|Total                                  |  | $                  | 23,446,432 |                  | $ | 23,049,920    |  | $          | 8,235,279 |  | $ | 8,151,429
|                                       |  |                    |            |                  |   |               |  |            |           |  |   |          



15



---

|3. | INVESTMENT SECURITIES (Continued)
|-- | ---------------------------------

Proceeds from
the sales of securities available for sale and the gross realized gains and losses for the years ended December 31 are as follows:



|                      |  |      |   |      |   |          
|--------------------- |  | ---- | - | ---- | - | ---------
|                      |  | 2006 |   | 2005
|Proceeds from sales   |  | $    |  |      | $ | 4,682,674
|Gross realized gains  |  |      |  |      |   | 90,894   
|Gross realized losses |  |      |  |      |   | 74,198   

Investment securities with an amortized cost of $23,376,778 and $18,073,887 and an fair value of
$22,952,283 and $17,659,693, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, and other purposes as required by law at December 31, 2006 and 2005.



|4. | LOANS
|-- | -----

Major classifications of loans are
summarized as follows:



|                               |  |      |            |      |   |           
|------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                               |  | 2006 |            | 2005
|Commercial and agricultural    |  | $    | 15,800,004 |      | $ | 11,454,356
|Real estate mortgages:         |  |      |            |      |   |           
|Residential                    |  |      | 21,300,822 |      |   | 20,448,708
|Construction                   |  |      | 486,910    |      |   | 244,978   
|Commercial                     |  |      | 3,914,002  |      |   | 5,354,511 
|Consumer                       |  |      | 10,548,789 |      |   | 5,353,602 
|                               |  |      |            |      |   |           
|                               |  |      | 52,050,527 |      |   | 42,856,155
|Less allowance for loan losses |  |      | 579,974    |      |   | 531,873   
|                               |  |      |            |      |   |           
|Net loans                      |  | $    | 51,470,553 |      | $ | 42,324,282
|                               |  |      |            |      |   |           

The Company grants consumer, commercial, and mortgage loans to customers throughout its trade area
that encompasses the immediate tristate area of East Liverpool, Ohio. Although the Company has a diversified loan portfolio at December 31, 2006 and 2005, a substantial portion of its debtors ability to honor their loan agreements is
dependent upon the economic stability of the tristate area.

Loans on which the accrual of interest has been discontinued or reduced,
inclusive of impaired loans, amounted to $1,492,720 and $410,798 as of December 31, 2006 and 2005, respectively. Interest income on loans would have been increased by $70,764 and $23,428 during 2006 and 2005, respectively, if these loans had
performed in accordance with their original terms.



16



---

|4. | LOANS (Continued)
|-- | -----------------

Information with respect to
impaired loans and the related allowance for loan losses for the years ended December 31, 2006 and 2005, are as follows:



|                                              |  |      |           |      |   |        
|--------------------------------------------- |  | ---- | --------- | ---- | - | -------
|                                              |  | 2006 |           | 2005
|Impaired loans:                               |  |      |           |      |   |        
|With a related allowance for loan losses      |  | $    | 981,315   |      | $ | 640,390
|Without a related allowance for loan losses   |  |      | 1,158,517 |      |   |       
|                                              |  |      |           |      |   |        
|Total                                         |  | $    | 2,139,832 |      | $ | 640,390
|                                              |  |      |           |      |   |        
|Allowance for loan losses                     |  | $    | 153,876   |      | $ | 2,689  
|Average recorded investment in impaired loans |  |      | 1,574,347 |      |   | 809,758
|Interest income recognized                    |  |      | 142,786   |      |   | 72,130 

As of December 31, 2006, aggregate loans of $120,000 or more extended to officers, directors,
and related affiliates or associates were $1,451,473. A summary of activity during the year is as follows:



|           |  |           |         |                 |   |         |  |   |          
|---------- |  | --------- | ------- | --------------- | - | ------- |  | - | ---------
|2005       |  | Additions |         | AmountCollected |   | 2006   
|$1,282,636 |  | $         | 642,433 |                 | $ | 473,596 |  | $ | 1,451,473



|5. | ALLOWANCE FOR LOAN LOSSES
|-- | -------------------------

Changes in the allowance
for loan losses for the years ended December 31 are as follows:



|                                |  |      |         |      |   |        
|------------------------------- |  | ---- | ------- | ---- | - | -------
|                                |  | 2006 |         | 2005
|Balance, January 1              |  | $    | 531,873 |      | $ | 501,301
|Add:                            |  |      |         |      |   |        
|Provision charged to operations |  |      | 182,750 |      |   | 229,686
|Recoveries                      |  |      | 78,978  |      |   | 69,584 
|Less loans charged off          |  |      | 213,627 |      |   | 268,698
|                                |  |      |         |      |   |        
|Balance, December 31            |  | $    | 579,974 |      | $ | 531,873
|                                |  |      |         |      |   |        



17



---

|6. | PREMISES AND EQUIPMENT
|-- | ----------------------

Major classifications of
premises and equipment are summarized as follows at December 31:



|                                   |  |      |           |      |   |          
|---------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                   |  | 2006 |           | 2005
|Land and improvements              |  | $    | 445,372   |      | $ | 440,918  
|Buildings and improvements         |  |      | 3,021,958 |      |   | 3,001,371
|Leasehold improvements             |  |      | 610,474   |      |   | 608,619  
|Furniture, fixtures, and equipment |  |      | 2,492,202 |      |   | 2,404,295
|Construction in progress           |  |      |          |      |   | 28,949   
|                                   |  |      |           |      |   |          
|                                   |  |      | 6,570,006 |      |   | 6,484,152
|Less accumulated depreciation      |  |      | 3,041,087 |      |   | 2,685,900
|                                   |  |      |           |      |   |          
|Total                              |  | $    | 3,528,919 |      | $ | 3,798,252
|                                   |  |      |           |      |   |          

Depreciation and amortization charged to operations was $371,556 in 2006 and $385,260 in 2005.



|7. | INTANGIBLE ASSETS
|-- | -----------------

As part of the acquisition of
MDH, $140,219 of intangible assets was recorded. During 2006 and 2005 , respectively, $20,031 of amortization expense was recorded. The estimated amortization of the intangible assets is $20,031 for each of the years ending 2007, 2008, 2009, 2010,
and 2011.



|8. | GOODWILL
|-- | --------

As of December 31, 2006 and 2005,
goodwill had a net carrying amount of $886,784 resulting from the MDH acquisition on December 22, 2004. There was no impairment of goodwill during 2006 and 2005.



|9. | DEPOSITS
|-- | --------

Time deposits at December 31, 2006,
mature $20,236,746, $4,966,766, $164,607, and $107,272 during 2007, 2008, 2009, and 2010, respectively.

Time deposits include certificates
of deposit in denominations of $100,000 or more. Such deposits aggregated $7,934,368 and $13,968,060 at December 31, 2006 and 2005, respectively.

Maturities on time deposits of $100,000 or more are as follows at December 31, 2006:



|                                    |  |   |          
|----------------------------------- |  | - | ---------
|Within three months                 |  | $ | 4,969,203
|Beyond three but within six months  |  |   | 2,287,939
|Beyond six but within twelve months |  |   | 677,226  
|                                    |  |   |          
|Total                               |  | $ | 7,934,368
|                                    |  |   |          



18



---

|10. | SHORT-TERM BORROWINGS
|--- | ---------------------

Short-term borrowings can
consist of federal funds purchased, securities sold under agreement to repurchase, and FHLB adjustable rate borrowings with terms of 30 days or less.

The outstanding balances and related information for short-term borrowings are summarized as follows:



|                                            |  |        |            |      |      |   |        |   |           |  |      |  
|------------------------------------------- |  | ------ | ---------- | ---- | ---- | - | ------ | - | --------- |  | ---- | -
|                                            |  | 2006   |            |      | 2005 |  
|                                            |  | Amount |            | Rate |      |   | Amount |   | Rate      | 
|Balance at year-end                         |  | $      | 11,276,794 |      | 3.68 | % |        | $ | 5,982,201 |  | 1.25 | %
|Average balance outstanding during the year |  |        | 11,222,727 |      | 2.53 |   |        |   | 6,545,637 |  | 1.29 |  
|Maximum amount outstanding at any month-end |  |        | 14,175,583 |      |      |   |        |   | 9,038,260 |  |      |  

The average balance outstanding during the year represents daily averages. Average interest rates
represent interest expense divided by the related average balance.



|11. | OTHER BORROWINGS
|--- | ----------------

The Banks other
borrowings activities are summarized as follows:

In September 2006, the Company formed a special purpose entity (Entity)
to issue $3,093,000 of floating rate, obligated mandatorily redeemable securities as part of a pooled offering. The rate is determined quarterly and floats based on the three-month LIBOR. At December 31, 2006, the rate was 7.09 percent. The
Entity may redeem them, in whole or in part, at face value after September 15, 2011. The Company borrowed the proceeds of the issuance from the Entity in September 2006 in the form of a $3,093,000 note payable, which is included in the
liabilities section of the Companys balance sheet. Debt issue costs of $93,000 have been capitalized and are being amortized through the first call date.

The Bank maintains a credit arrangement which includes a revolving line of credit with the FHLB. Under this credit arrangement, the Bank has a remaining borrowing capacity of approximately $40.4 million at
December 31, 2006, which is subject to annual renewal and typically incurs no service charges. Under terms of a blanket agreement, collateral for the FHLB borrowings must be secured by certain qualifying assets of the Bank that consist
principally of first mortgage loans.



19



---

|12. | OTHER EXPENSES
|--- | --------------

The following is an analysis of
other expenses:



|                                           |  |      |           |      |   |          
|------------------------------------------ |  | ---- | --------- | ---- | - | ---------
|                                           |  | 2006 |           | 2005
|Stationery, printing, and supplies         |  | $    | 114,488   |      | $ | 115,756  
|State franchise tax                        |  |      | 98,274    |      |   | 95,800   
|Postage                                    |  |      | 71,132    |      |   | 64,818   
|ATM and debit card processing and supplies |  |      | 106,775   |      |   | 91,232   
|Advertising and public relations           |  |      | 76,090    |      |   | 70,903   
|Other                                      |  |      | 1,065,030 |      |   | 1,017,425
|                                           |  |      |           |      |   |          
|Total                                      |  | $    | 1,531,789 |      | $ | 1,455,934
|                                           |  |      |           |      |   |          



|13. | INCOME TAXES
|--- | ------------

The provision for income taxes
consists of:



|         |  |      |         |   |      |   |         |  
|-------- |  | ---- | ------- | - | ---- | - | ------- | -
|         |  | 2006 |         |   | 2005 |  
|Current  |  | $    | 85,032  |   |      | $ | 199,809 |  
|Deferred |  |      | (15,990 | ) |      |   | (68,497 | )
|         |  |      |         |   |      |   |         |  
|Total    |  | $    | 69,042  |   |      | $ | 131,312 |  
|         |  |      |         |   |      |   |         |  

The components of the net deferred tax assets (liabilities) are as follows at December 31:



|                                      |  |      |         |      |   |        
|------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                      |  | 2006 |         | 2005
|Deferred tax assets:                  |  |      |         |      |   |        
|Allowance for loan losses             |  | $    | 151,653 |      | $ | 157,143
|Net unrealized loss on securities     |  |      | 144,040 |      |   | 210,711
|Other                                 |  |      | 29,410  |      |   | 24,034 
|                                      |  |      |         |      |   |        
|Gross deferred tax assets             |  |      | 325,103 |      |   | 391,888
|                                      |  |      |         |      |   |        
|Deferred tax liabilities:             |  |      |         |      |   |        
|Premises and equipment                |  |      | 66,980  |      |   | 104,220
|Deferred loan fees                    |  |      | 35,427  |      |   | 39,828 
|FHLB stock dividend                   |  |      | 47,054  |      |   | 41,376 
|Other                                 |  |      | 41,758  |      |   | 21,899 
|                                      |  |      |         |      |   |        
|Gross deferred tax liabilities        |  |      | 191,219 |      |   | 207,323
|                                      |  |      |         |      |   |        
|Net deferred tax assets (liabilities) |  | $    | 133,884 |      | $ | 184,565
|                                      |  |      |         |      |   |        

No valuation allowance was established at December 31, 2006 and 2005, in view of the
Companys ability to carryback to taxes paid in previous years and certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Companys earnings potential.



20



---

|13. | INCOME TAXES (Continued)
|--- | ------------------------

The reconciliation of the
federal statutory rate and the Companys effective income tax rate is as follows:



|                                      |  |        |         |   |                   |       |   |        |   |         |                   |  |       |  
|------------------------------------- |  | ------ | ------- | - | ----------------- | ----- | - | ------ | - | ------- | ----------------- |  | ----- | -
|                                      |  | 2006   |         |   | 2005              |      
|                                      |  | Amount |         |   | % of PretaxIncome |       |   | Amount |   |         | % of PretaxIncome | 
|Provision at statutory rate           |  | $      | 136,992 |   |                   | 34.0  | % |        | $ | 244,781 |                   |  | 34.0  | %
|Effect of tax-free income             |  |        | (83,703 | ) |                   | (20.8 | ) |        |   | (85,244 | )                 |  | (11.9 | )
|Other                                 |  |        | 15,753  |   |                   | 3.9   |   |        |   | (28,225 | )                 |  | (3.9  | )
|                                      |  |        |         |   |                   |       |   |        |   |         |                   |  |       |  
|Actual tax expense and effective rate |  | $      | 69,042  |   |                   | 17.1  | % |        | $ | 131,312 |                   |  | 18.2  | %
|                                      |  |        |         |   |                   |       |   |        |   |         |                   |  |       |  



|14. | EMPLOYEE BENEFITS
|--- | -----------------

Savings Plan

The Bank maintains a trusteed Section 401(k) plan for all eligible employees. The Bank makes matching contributions for eligible
employees of 25 percent of the employee contributions annually, to a maximum of 12 percent of base salary. The Bank also makes discretionary contributions as determined annually by the Board of Directors. The Banks total contribution to this
plan was $26,610 in 2006 and $31,472 in 2005.

ESOP

The Company also maintains an ESOP covering substantially all employees and officers. The Trustee has discretionary authority to purchase shares of common
stock of the Company in the open market. The amount of the contribution to the ESOP is at the discretion of the Board of Directors with benefits vesting over a seven-year period. Contributions of $12,000 were recorded during 2005. There were no
contributions recorded during 2006. The Trustee held 9,220 shares of the Companys common stock at December 31, 2006 and 2005, respectively.

Stock Option Plan

The Company maintains stock option plans for the directors, officers, and
key employees. The stock options typically have expiration terms of five or ten years, are subject to certain extensions and early terminations, and are fully vested on the grant date. The per share exercise price of a stock option granted shall, at
a minimum, equal the fair market value of a share of common stock on the date the option is granted.

The following table presents share
data related to the outstanding options:



|                                  |  |         |   |  |                               |       |      |        |   |                               |   |      
|--------------------------------- |  | ------- | - |  | ----------------------------- | ----- | ---- | ------ | - | ----------------------------- | - | -----
|                                  |  | 2006    |   |  | Weighted-AverageExercisePrice |       | 2005 |        |   | Weighted-AverageExercisePrice
|Outstanding, at beginning of year |  | 60,137  |   |  | $                             | 19.23 |      | 66,725 |   |                               | $ | 19.21
|Granted                           |  |        |   |  |                               |      |      |       |   |                               |   |     
|Exercised                         |  |        |   |  |                               |      |      |       |   |                               |   |     
|Forfeited                         |  | (10,350 | ) |  |                               | 19.07 |      | (6,588 | ) |                               |   | 19.06
|                                  |  |         |   |  |                               |       |      |        |   |                               |   |      
|Outstanding, at end of year       |  | 49,787  |   |  |                               | 19.27 |      | 60,137 |   |                               |   | 19.23
|                                  |  |         |   |  |                               |       |      |        |   |                               |   |      
|Exercisable, at end of year       |  | 49,787  |   |  |                               | 19.27 |      | 60,137 |   |                               |   | 19.23
|                                  |  |         |   |  |                               |       |      |        |   |                               |   |      



21



---

|14. | EMPLOYEE BENEFITS (Continued)
|--- | -----------------------------

The following table
summarizes the characteristics of stock options outstanding at December 31, 2006:



|                  |  |               |       |                                 |        |                        |      |                      |   |      
|----------------- |  | ------------- | ----- | ------------------------------- | ------ | ---------------------- | ---- | -------------------- | - | -----
|Grant Date        |  | ExercisePrice |       | OutstandingandExercisableShares |        | ContractualAverageLife |      | AverageExercisePrice
|August 25, 1999   |  | $             | 19.20 |                                 | 13,268 |                        | 2.73 |                      | $ | 19.20
|August 24, 2000   |  |               | 20.36 |                                 | 13,269 |                        | 3.65 |                      |   | 20.36
|January 23, 2003  |  |               | 18.40 |                                 | 6,000  |                        | 6.07 |                      |   | 18.40
|December 12, 2003 |  |               | 18.80 |                                 | 7,250  |                        | 6.95 |                      |   | 18.80
|November 19, 2004 |  |               | 18.75 |                                 | 10,000 |                        | 7.89 |                      |   | 18.75
|                  |  |               |       |                                 |        |                        |      |                      |   |      
|                  |  |               |       |                                 | 49,787 |                        |      |                      |   |      
|                  |  |               |       |                                 |        |                        |      |                      |   |      



|15. | COMMITMENTS
|--- | -----------

In the normal course of business, the
Company makes various commitments not reflected in the accompanying consolidated financial statements. The Company offers such products to enable its customers to meet their financing objectives. The instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Companys exposure to credit loss is represented by the contractual amounts as disclosed below. Losses, if any, are charged to the reserve for
off-balance sheet risk.

The off-balance sheet commitments comprise the following at December 31:



|                             |  |      |           |      |   |          
|---------------------------- |  | ---- | --------- | ---- | - | ---------
|                             |  | 2006 |           | 2005
|Commitments to extend credit |  | $    | 6,702,830 |      | $ | 8,361,891
|Standby letters of credit    |  |      | 1,259,496 |      |   | 1,134,471

These instruments involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the Consolidated Balance Sheet. The Companys exposure to credit loss, in the event of nonperformance by the other parties to the financial instruments, is represented by the contractual amounts as disclosed. The
Company minimizes its exposure to credit loss under these commitments by subjecting them to credit approval and review procedures and collateral requirements as deemed necessary. Commitments generally have fixed expiration dates within one year of
their origination.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer
to a third party. Performance letters of credit represent conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts.
The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized over the coverage period. For secured
letters of credit, the collateral is typically Bank deposit instruments or customer business assets.

The Company presently leases three
branch bank buildings and one office building under separate operating leases that expire in various years through 2016. Rent expense for 2006 and 2005 was $117,407 and $111,308.

Minimum future rental payments under noncancelable operating leases having remaining terms in excess of one year as of December 31, 2006, for each of
the next five years and in the aggregate, thereafter, are $103,871, $41,233, $20,400, $6,000 and $500 for the years ended December 31, 2007, 2008, 2009, 2010 and 2011, respectively.



22



---

|16. | FAIR VALUE OF FINANCIAL INSTRUMENTS
|--- | -----------------------------------

The estimated
fair values of the Companys financial instruments are as follows:



|                            |  |               |            |           |   |               |  |           |            |  |   |           
|--------------------------- |  | ------------- | ---------- | --------- | - | ------------- |  | --------- | ---------- |  | - | ----------
|                            |  | 2006          |            | 2005     
|                            |  | CarryingValue |            | FairValue |   | CarryingValue |  | FairValue
|Financial assets:           |  |               |            |           |   |               |  |           |            |  |   |           
|Cash and cash equivalents   |  | $             | 5,501,558  |           | $ | 5,501,558     |  | $         | 7,650,097  |  | $ | 7,650,097 
|Investment securities       |  |               | 32,258,063 |           |   | 32,174,213    |  |           | 34,485,574 |  |   | 34,389,295
|Net loans                   |  |               | 51,470,553 |           |   | 51,599,191    |  |           | 42,324,282 |  |   | 42,783,656
|Bank-owned life insurance   |  |               | 2,426,012  |           |   | 2,426,012     |  |           | 2,340,555  |  |   | 2,340,555 
|Regulatory stock            |  |               | 425,950    |           |   | 425,950       |  |           | 383,250    |  |   | 383,250   
|Accrued interest receivable |  |               | 572,108    |           |   | 572,108       |  |           | 510,101    |  |   | 510,101   
|Financial liabilities:      |  |               |            |           |   |               |  |           |            |  |   |           
|Deposits                    |  | $             | 74,063,262 |           | $ | 74,147,177    |  | $         | 75,612,528 |  | $ | 75,067,956
|Short-term borrowings       |  |               | 11,276,794 |           |   | 11,276,794    |  |           | 5,982,201  |  |   | 5,982,201 
|Other borrowings            |  |               | 3,093,000  |           |   | 3,106,143     |  |           | 2,600,000  |  |   | 2,600,000 
|Accrued interest payable    |  |               | 92,249     |           |   | 92,249        |  |           | 43,267     |  |   | 43,267    

Financial instruments are defined as cash, evidence of an ownership interest in an entity, or a
contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a
forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

If no readily available market exists, the fair value estimates for financial instruments are based upon managements judgment regarding current
economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. Since many of these assumptions result from judgments made by
management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the
estimated fair values are based may have a significant impact on the resulting estimated fair values.



23



---

|16. | FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
|--- | -----------------------------------------------

Since certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

The Company performed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not
available based upon the following assumptions:

Cash and Cash Equivalents, Regulatory Stock, Accrued Interest Receivable, Short-Term
Borrowings, and Accrued Interest Payable

The fair value is equal to the current carrying value.

Bank-Owned Life Insurance

The
fair value is equal to the cash surrender value of the life insurance policies.

Investment Securities

The fair value of investment securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated
using the quoted market price for similar securities.

Loans, Deposits, and Other Borrowings

The fair value of loans is estimated by discounting the future cash flows using a simulation model which estimates future cash flows and constructs
discount rates that consider reinvestment opportunities, operating expenses, non- interest income, credit quality, and prepayment risk. Demand, savings, and money market deposit accounts which are due within 30 days are valued at the amount payable
as of year-end. Fair values for time are estimated using a discounted cash flow calculation that applies contractual costs currently being offered in the existing portfolio to current market rates being offered for deposits of similar remaining
maturities.

Commitments to Extend Credit and Commercial Letters of Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the
net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements
with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are presented in Note 15.



|17. | REGULATORY MATTERS
|--- | ------------------

Cash and Due From
Banks

The district Federal Reserve Bank requires the Bank to maintain certain reserve balances. As of December 31, 2006 and
2005, the Bank had required reserves of $537,000 and $405,000, respectively, consisting of vault cash and a depository amount held with the Federal Reserve Bank.

Loans

Federal law prevents the Company from borrowing from the Bank unless the loans are
secured by specific obligations. Further, such secured loans are limited in amount to 10 percent of the Banks capital.



24



---

|17. | REGULATORY MATTERS (Continued)
|--- | ------------------------------

Dividends

The Bank is subject to a dividend restriction that generally limits the amount of dividends that can be paid by a national bank. Prior
approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds net profits, as defined for the year, combined with its retained net profits for the two preceding
calendar years less any required transfers to surplus. However, the Company is currently required to obtain approval form the Comptroller of the Currency prior to declaring dividends.

Capital Requirements

Federal
regulations require the Company to maintain minimum amounts of capital. Specifically, the Company and the Bank are required to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average
total assets. Management believes, as of December 31, 2006, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

In addition to capital requirements, the Federal Deposit Insurance Corporation Improvement Act (FDICIA) established five capital categories ranging from well capitalized to critically
undercapitalized. Should any institution fail to meet the requirements to be considered adequately capitalized, it would become subject to a series of increasingly restrictive regulatory actions.

As of December 31, 2006 and 2005, the FDIC categorized the Company and the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be classified as a well capitalized financial institution, Total risk-based, Tier 1 risk-based, and Tier 1 Leverage capital ratios must be at least 10 percent, 6 percent, and 5 percent, respectively.

The capital position of the Bank does materially differ from the Companys; therefore, the following table sets forth the Companys capital
position and minimum requirements as of December 31 of the Holding Company



|                                        |  |        |            |       |       |   |        |   |           |  |       |  
|--------------------------------------- |  | ------ | ---------- | ----- | ----- | - | ------ | - | --------- |  | ----- | -
|                                        |  | 2006   |            |       | 2005  |  
|                                        |  | Amount |            | Ratio |       |   | Amount |   | Ratio     | 
|Total Capital(to Risk-Weighted Assets)  |  |        |            |       |       |   |        |   |           |  |       |  
|Actual                                  |  | $      | 11,978,538 |       | 21.10 | % |        | $ | 8,762,485 |  | 17.44 | %
|For Capital Adequacy Purposes           |  |        | 4,540,633  |       | 8.00  |   |        |   | 4,020,560 |  | 8.00  |  
|To Be Well Capitalized                  |  |        | 5,675,791  |       | 10.00 |   |        |   | 5,025,700 |  | 10.00 |  
|Tier I Capital(to Risk-Weighted Assets) |  |        |            |       |       |   |        |   |           |  |       |  
|Actual                                  |  | $      | 11,384,371 |       | 20.06 | % |        | $ | 8,196,627 |  | 16.31 | %
|For Capital Adequacy Purposes           |  |        | 2,270,316  |       | 4.00  |   |        |   | 2,010,280 |  | 4.00  |  
|To Be Well Capitalized                  |  |        | 3,405,475  |       | 6.00  |   |        |   | 3,015,420 |  | 6.00  |  
|Tier I Capital(to Average Assets)       |  |        |            |       |       |   |        |   |           |  |       |  
|Actual                                  |  | $      | 11,384,371 |       | 11.98 | % |        | $ | 8,196,627 |  | 8.88  | %
|For Capital Adequacy Purposes           |  |        | 3,802,549  |       | 4.00  |   |        |   | 3,693,561 |  | 4.00  |  
|To Be Well Capitalized                  |  |        | 4,753,186  |       | 5.00  |   |        |   | 4,616,951 |  | 5.00  |  



25



---

|17. | REGULATORY MATTERS (Continued)
|--- | ------------------------------

Capital
Requirements (Continued)

The capital position of the Bank is set forth in the following table as of December 31:



|                                        |  |        |           |       |       |   |        |   |           |  |       |  
|--------------------------------------- |  | ------ | --------- | ----- | ----- | - | ------ | - | --------- |  | ----- | -
|                                        |  | 2006   |           |       | 2005  |  
|                                        |  | Amount |           | Ratio |       |   | Amount |   | Ratio     | 
|Total Capital(to Risk-Weighted Assets)  |  |        |           |       |       |   |        |   |           |  |       |  
|Actual                                  |  | $      | 9,145,357 |       | 16.12 | % |        | $ | 8,956,706 |  | 17.82 | %
|For Capital Adequacy Purposes           |  |        | 4,538,882 |       | 8.00  |   |        |   | 4,020,560 |  | 8.00  |  
|To Be Well Capitalized                  |  |        | 5,673,602 |       | 10.00 |   |        |   | 5,025,700 |  | 10.00 |  
|Tier I Capital(to Risk-Weighted Assets) |  |        |           |       |       |   |        |   |           |  |       |  
|Actual                                  |  | $      | 8,551,190 |       | 15.07 | % |        | $ | 8,390,848 |  | 16.70 | %
|For Capital Adequacy Purposes           |  |        | 2,269,441 |       | 4.00  |   |        |   | 2,010,280 |  | 4.00  |  
|To Be Well Capitalized                  |  |        | 3,404,161 |       | 6.00  |   |        |   | 3,015,420 |  | 6.00  |  
|Tier I Capital(to Average Assets)       |  |        |           |       |       |   |        |   |           |  |       |  
|Actual                                  |  | $      | 8,551,190 |       | 8.90  | % |        | $ | 8,390,848 |  | 8.99  | %
|For Capital Adequacy Purposes           |  |        | 3,842,754 |       | 4.00  |   |        |   | 3,693,561 |  | 4.00  |  
|To Be Well Capitalized                  |  |        | 4,803,442 |       | 5.00  |   |        |   | 4,616,951 |  | 5.00  |  



|18. | SEGMENT REPORTING
|--- | -----------------

The Company operates two major
businesses engaged in providing banking and investment advisory services. Banking services include community banking through seven branch offices which are located in the tristate area of East Liverpool, Ohio. Investment advisory services include
investment management and financial planning to over 100 clients in 14 states.

Total business segment financial results differ from total
consolidated results. The impact of these differences is reflected in the Intercompany Eliminations and Other categories. Intercompany Eliminations reflects activities conducted among our businesses that are
eliminated in the consolidated results. Other includes residual activities that do not meet the criteria for disclosure as a separate reportable business, such as Gateminder.

Business Segment Products and Services

Community Banking Products and Services

The Bank operates as a full-service community Bank,
offering a variety of financial services to meet the needs of its customers. Services include: accepting demand and time deposits from the general public and, together with borrowings and other funds, using the proceeds to originate secured and
unsecured commercial and consumer loans and provide construction and mortgage loans, as well as home equity and personal lines of credit. In addition, funds are also used to purchase investment securities. The Banks deposits are insured to the
legal maximum amount by the Federal Deposit Insurance Corporation.

MDH Investment Management, Inc.

MDH is headquartered in East Liverpool, Ohio, and provides investment management advisory services to both individuals and trusts in 14 states.



26



---

|18. | SEGMENT REPORTING (Continued)
|--- | -----------------------------

Other

The Other segment includes the parent company and other non-bank subsidiaries and is necessary for purposes of
reconciling to the consolidated amounts.

The following tables provide financial information for these segments of the Company.



|                          |  |                  |            |     |   |           |  |   |                          |   |  |              |             |   |  |   |           
|------------------------- |  | ---------------- | ---------- | --- | - | --------- |  | - | ------------------------ | - |  | ------------ | ----------- | - |  | - | ----------
|                          |  | CommunityBanking |            | MDH |   | Other     |  |   | IntercompanyEliminations |   |  | Consolidated
|Interest income           |  | $                | 5,284,736  |     | $ |          |  | $ | 1,608                    |   |  | $            | (1,608      | ) |  | $ | 5,284,736 
|Interest expense          |  |                  | 1,863,275  |     |   |          |  |   | 67,215                   |   |  |              | (1,608      | ) |  |   | 1,928,882 
|Provision for loan losses |  |                  | 182,750    |     |   |          |  |   |                         |   |  |              |            |   |  |   | 182,750   
|Other operating income    |  |                  | 1,417,383  |     |   | 512,735   |  |   | 137,507                  |   |  |              | (6,000      | ) |  |   | 2,061,625 
|Other operating expense   |  |                  | 4,254,380  |     |   | 360,186   |  |   | 223,245                  |   |  |              | (6,000      | ) |  |   | 4,831,811 
|Income taxes              |  |                  | 53,707     |     |   | 56,745    |  |   | (41,410                  | ) |  |              |            |   |  |   | 69,042    
|Net income                |  |                  | 348,006    |     |   | 95,804    |  |   | 315,678                  |   |  |              | (425,612    | ) |  |   | 333,876   
|Total assets              |  |                  | 96,705,346 |     |   | 1,185,418 |  |   | 12,271,487               |   |  |              | (12,355,691 | ) |  |   | 97,806,560



|19. | PARENT COMPANY
|--- | --------------

Following are condensed financial
statements for the parent company:

CONDENSED BALANCE SHEET



|                                           |  |              |            |      |   |          
|------------------------------------------ |  | ------------ | ---------- | ---- | - | ---------
|                                           |  | December 31,
|                                           |  | 2006         |            | 2005
|ASSETS                                     |  |              |            |      |   |          
|Cash                                       |  | $            | 2,639,984  |      | $ | 15,607   
|Investment in subsidiaries                 |  |              | 9,385,014  |      |   | 9,076,984
|Loans                                      |  |              | 20,000     |      |   | 20,000   
|Other assets                               |  |              | 114,892    |      |   | 32,559   
|                                           |  |              |            |      |   |          
|TOTAL ASSETS                               |  | $            | 12,159,890 |      | $ | 9,145,150
|                                           |  |              |            |      |   |          
|OTHER LIABILITIES                          |  | $            | 10,215     |      | $ | 333,333  
|OTHER BORROWINGS                           |  |              | 3,093,000  |      |   |         
|STOCKHOLDERS EQUITY                       |  |              | 9,056,675  |      |   | 8,811,817
|                                           |  |              |            |      |   |          
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |  | $            | 12,159,890 |      | $ | 9,145,150
|                                           |  |              |            |      |   |          



27



---

|19. | PARENT COMPANY (Continued)
|--- | --------------------------

CONDENSED STATEMENT OF
INCOME



|                                                                                            |  |                         |           |   |      |   |          |  
|------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | -------- | -
|                                                                                            |  | Year Ended December 31, |          
|                                                                                            |  | 2006                    |           |   | 2005 |  
|INCOME                                                                                      |  | $                       | 252,019   |   |      | $ | 534,619  |  
|EXPENSES                                                                                    |  |                         | 124,165   |   |      |   | 53,927   |  
|                                                                                            |  |                         |           |   |      |   |          |  
|Earnings before income taxes                                                                |  |                         | 127,854   |   |      |   | 480,692  |  
|Income tax expense (benefit)                                                                |  |                         | (27,410   | ) |      |   | 17,000   |  
|                                                                                            |  |                         |           |   |      |   |          |  
|Earnings before equity in undistributed earnings of subsidiaries                            |  |                         | 155,264   |   |      |   | 497,692  |  
|Equity in undistributed earnings of subsidiaries                                            |  |                         | 178,612   |   |      |   | 90,940   |  
|                                                                                            |  |                         |           |   |      |   |          |  
|NET INCOME                                                                                  |  | $                       | 333,876   |   |      | $ | 588,632  |  
|                                                                                            |  |                         |           |   |      |   |          |  
|                                                                                           
|CONDENSED STATEMENT OF CASH FLOWS                                                           | 
|                                                                                            | 
|                                                                                            |  | Year ended December 31, |          
|                                                                                            |  | 2006                    |           |   | 2005 |  
|OPERATING ACTIVITIES                                                                        |  |                         |           |   |      |   |          |  
|Net income                                                                                  |  | $                       | 333,876   |   |      | $ | 588,632  |  
|Adjustment to reconcile net income to net cash provided by (used for) operating activities: |  |                         |           |   |      |   |          |  
|Equity in undistributed earnings of subsidiaries                                            |  |                         | (178,612  | ) |      |   | (90,940  | )
|Other, net                                                                                  |  |                         | (72,116   | ) |      |   | (12,692  | )
|                                                                                            |  |                         |           |   |      |   |          |  
|Net cash provided by (used for) operating activities                                        |  |                         | 83,148    |   |      |   | 485,000  |  
|                                                                                            |  |                         |           |   |      |   |          |  
|INVESTING ACTIVITIES                                                                        |  |                         |           |   |      |   |          |  
|Acquisition of MDH subsidiary                                                               |  |                         |          |   |      |   | (166,667 | )
|Decrease in loans                                                                           |  |                         |          |   |      |   | 465,000  |  
|                                                                                            |  |                         |           |   |      |   |          |  
|Net cash provided by investing activities                                                   |  |                         |          |   |      |   | 298,333  |  
|                                                                                            |  |                         |           |   |      |   |          |  
|FINANCING ACTIVITIES                                                                        |  |                         |           |   |      |   |          |  
|Cash dividends paid                                                                         |  |                         | (344,476  | ) |      |   | (348,596 | )
|Purchase of treasury stock                                                                  |  |                         | (207,295  | ) |      |   | (499,200 | )
|Proceeds from other borrowings                                                              |  |                         | 3,093,000 |   |      |   |         |  
|                                                                                            |  |                         |           |   |      |   |          |  
|Net cash provided by (used for) financing activities                                        |  |                         | 2,541,229 |   |      |   | (847,796 | )
|                                                                                            |  |                         |           |   |      |   |          |  
|Net increase (decrease) in cash                                                             |  |                         | 2,624,377 |   |      |   | (64,463  | )
|CASH AT BEGINNING OF YEAR                                                                   |  |                         | 15,607    |   |      |   | 80,070   |  
|                                                                                            |  |                         |           |   |      |   |          |  
|CASH AT END OF YEAR                                                                         |  | $                       | 2,639,984 |   |      | $ | 15,607   |  
|                                                                                            |  |                         |           |   |      |   |          |  



28



---

|20. | QUARTERLY DATA (Unaudited)
|--- | --------------------------

The following is a
summary of the unaudited quarterly results of operations:



|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|--------------------------------------------------- |  | ------------------ | --------- | --------- | - | ------------- |  | ------------ | --------- |  | - | ---------
|                                                    |  | Three Months Ended
|                                                    |  | March 2006         |           | June 2006 |   | September2006 |  | December2006
|Total interest income                               |  | $                  | 1,268,735 |           | $ | 1,321,157     |  | $            | 1,350,568 |  | $ | 1,344,276
|Total interest expense                              |  |                    | 378,124   |           |   | 435,169       |  |              | 531,296   |  |   | 584,293  
|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|Net interest income                                 |  |                    | 890,611   |           |   | 885,988       |  |              | 819,272   |  |   | 759,983  
|Provision for loan losses                           |  |                    | 47,500    |           |   | 43,500        |  |              | 46,500    |  |   | 45,250   
|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|Net interest income after provision for loan losses |  |                    | 843,111   |           |   | 842,488       |  |              | 772,772   |  |   | 714,733  
|Total noninterest income                            |  |                    | 463,212   |           |   | 538,014       |  |              | 521,467   |  |   | 538,932  
|Total noninterest expense                           |  |                    | 1,196,187 |           |   | 1,233,606     |  |              | 1,193,014 |  |   | 1,209,004
|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|Income before income taxes                          |  |                    | 110,136   |           |   | 146,896       |  |              | 101,225   |  |   | 44,661   
|Income taxes                                        |  |                    | 14,300    |           |   | 32,700        |  |              | 11,700    |  |   | 10,342   
|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|Net income                                          |  | $                  | 95,836    |           | $ | 114,196       |  | $            | 89,525    |  | $ | 34,319   
|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|Per share data:                                     |  |                    |           |           |   |               |  |              |           |  |   |          
|Net income                                          |  |                    |           |           |   |               |  |              |           |  |   |          
|Basic                                               |  | $                  | 0.11      |           | $ | 0.13          |  | $            | 0.10      |  | $ | 0.04     
|Diluted                                             |  |                    | 0.11      |           |   | 0.13          |  |              | 0.10      |  |   | 0.04     
|Weighted-average shares outstanding                 |  |                    |           |           |   |               |  |              |           |  |   |          
|Basic                                               |  |                    | 859,492   |           |   | 857,889       |  |              | 856,300   |  |   | 856,303  
|Diluted                                             |  |                    | 859,505   |           |   | 858,018       |  |              | 856,300   |  |   | 856,303  



|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|--------------------------------------------------- |  | ------------------ | --------- | --------- | - | ------------- |  | ------------ | --------- |  | - | ---------
|                                                    |  | Three Months Ended
|                                                    |  | March 2005         |           | June 2005 |   | September2005 |  | December2005
|Total interest income                               |  | $                  | 1,168,292 |           | $ | 1,250,499     |  | $            | 1,264,714 |  | $ | 1,227,414
|Total interest expense                              |  |                    | 295,577   |           |   | 341,527       |  |              | 353,492   |  |   | 354,816  
|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|Net interest income                                 |  |                    | 872,715   |           |   | 908,972       |  |              | 911,222   |  |   | 872,598  
|Provision for loan losses                           |  |                    | 30,000    |           |   | 57,000        |  |              | 72,500    |  |   | 50,500   
|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|Net interest income after provision for loan losses |  |                    | 842,715   |           |   | 851,972       |  |              | 838,722   |  |   | 822,098  
|Total noninterest income                            |  |                    | 484,248   |           |   | 474,832       |  |              | 535,483   |  |   | 550,328  
|Total noninterest expense                           |  |                    | 1,129,169 |           |   | 1,149,691     |  |              | 1,139,314 |  |   | 1,242,281
|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|Income before income taxes                          |  |                    | 177,794   |           |   | 177,113       |  |              | 234,891   |  |   | 130,145  
|Income taxes                                        |  |                    | 22,700    |           |   | 32,700        |  |              | 58,100    |  |   | 17,812   
|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|Net income                                          |  | $                  | 155,094   |           | $ | 144,413       |  | $            | 176,791   |  | $ | 112,333  
|                                                    |  |                    |           |           |   |               |  |              |           |  |   |          
|Per share data:                                     |  |                    |           |           |   |               |  |              |           |  |   |          
|Net income                                          |  |                    |           |           |   |               |  |              |           |  |   |          
|Basic                                               |  | $                  | 0.18      |           | $ | 0.17          |  | $            | 0.20      |  | $ | 0.13     
|Diluted                                             |  |                    | 0.18      |           |   | 0.17          |  |              | 0.20      |  |   | 0.13     
|Weighted-average shares outstanding                 |  |                    |           |           |   |               |  |              |           |  |   |          
|Basic                                               |  |                    | 880,045   |           |   | 876,457       |  |              | 870,437   |  |   | 858,283  
|Diluted                                             |  |                    | 880,045   |           |   | 876,457       |  |              | 870,437   |  |   | 858,283  



29