##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2006
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file number 000-23277
 CITIZENS BANCORP/OR
  Oregon
(State of Incorporation)
    
    91-1841688
(I.R.S. Employer Identification Number)
 
 
 þ o
  o o þ
 o þ
  Class
    
    Outstanding as of October 27, 2006Common Stock, no par value
    
    4,739,665




---



##### 



PageReferencePART I.  FINANCIAL INFORMATIONITEM 1.  FINANCIAL STATEMENTS  UNAUDITEDCondensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005
    
    1Condensed Consolidated Statements of Income for the three months and the nine months ended September 30, 2006 and 2005
    
    2Condensed Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 2006 and 2005
    
    3Condensed Consolidated Statements of Cash Flows for nine months ended September 30, 2006 and 2005
    
    4Notes to Condensed Consolidated Financial Statements
    
    5  9ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    10  16ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk
    
    16ITEM 4.  Controls and Procedures
    
    16PART II.  OTHER INFORMATIONITEM 1.  Legal Proceedings
    
    17ITEM 1A.  Risk Factors
    
    17ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds
    
    17ITEM 3.  Defaults Upon Senior Securities
    
    17ITEM 4.  Submission of Matters to a Vote of Security Holders
    
    17ITEM 5.  Other Information
    
    17ITEM 6.  Exhibits
    
    17SIGNATURES
    
    18Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 ITEM 1
 
 
 September 30, 2006
    
    
    December 31, 2005(Unaudited)AssetsCash and due from banks
    
    $
    16,218
    
    
    $
    18,518Interest bearing deposits in banks
    
    
    2,181
    
    
    
    166Federal funds sold
    
    
    231
    
    
    
    435Securities available for sale
    
    
    44,121
    
    
    
    63,863Securities held to maturity
    
    
    5,888
    
    
    
    7,871Federal Home Loan Bank stock
    
    
    905
    
    
    
    905Loans held for sale
    
    
    131
    
    
    
    548Loans, net
    
    
    257,043
    
    
    
    230,547Premises and equipment
    
    
    8,374
    
    
    
    7,456Accrued interest receivable
    
    
    2,139
    
    
    
    1,852Cash surrender value of life insurance
    
    
    4,376
    
    
    
    4,257Other assets
    
    
    3,044
    
    
    
    2,482Total assets
    
    $
    344,651
    
    
    $
    338,900Liabilities and Shareholders EquityLiabilitiesDeposits:Demand, non-interest bearing
    
    $
    57,283
    
    
    $
    56,608Savings and interest bearing demand
    
    
    163,687
    
    
    
    159,678Time
    
    
    40,035
    
    
    
    37,797Total deposits
    
    
    261,005
    
    
    
    254,083Repurchase agreements
    
    
    32,361
    
    
    
    36,590Other borrowings
    
    
    1,713
    
    
    
    1,878Accrued interest payable
    
    
    87
    
    
    
    62Other liabilities
    
    
    1,740
    
    
    
    3,991Total liabilities
    
    
    296,906
    
    
    
    296,604Shareholders EquityCommon stock (no par value); authorized 10,000,000 shares;
Issued and outstanding: 2006  4,739,246 shares;
2005  4,670,386 shares;
    
    
    30,141
    
    
    
    28,938Retained earnings
    
    
    17,729
    
    
    
    13,606Accumulated other comprehensive loss
    
    
    (125
    )
    
    
    (248
    )Total shareholders equity
    
    
    47,745
    
    
    
    42,296Total liabilities and shareholders equity
    
    $
    344,651
    
    
    $
    338,900
   1




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##### Table of Contents



Nine Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest Income:Loans
    
    $
    13,644
    
    
    $
    12,004
    
    
    $
    4,884
    
    
    $
    4,253Interest bearing deposits
    
    
    109
    
    
    
    41
    
    
    
    37
    
    
    
    9Securities available for sale
    
    
    1,757
    
    
    
    1,201
    
    
    
    719
    
    
    
    389Securities held to maturity
    
    
    220
    
    
    
    272
    
    
    
    65
    
    
    
    85Other interest income
    
    
    29
    
    
    
    16
    
    
    
    25
    
    
    
    1Total interest income
    
    
    15,759
    
    
    
    13,534
    
    
    
    5,730
    
    
    
    4,737Interest Expense:Deposits
    
    
    2,689
    
    
    
    1,369
    
    
    
    1,073
    
    
    
    579Borrowed funds
    
    
    141
    
    
    
    150
    
    
    
    73
    
    
    
    91Repurchase agreements
    
    
    756
    
    
    
    608
    
    
    
    272
    
    
    
    154Total interest expense
    
    
    3,586
    
    
    
    2,127
    
    
    
    1,418
    
    
    
    824Net Interest Income
    
    
    12,173
    
    
    
    11,407
    
    
    
    4,312
    
    
    
    3,913Provision for credit losses
    
    
    114
    
    
    
    108
    
    
    
    32
    
    
    
    41Net interest income after provision for credit losses
    
    
    12,059
    
    
    
    11,299
    
    
    
    4,280
    
    
    
    3,872Non-interest Income:Service charges on deposit accounts
    
    
    972
    
    
    
    1,088
    
    
    
    312
    
    
    
    368Gain on sale of assets
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    Merchant bankcard
    
    
    134
    
    
    
    1,296
    
    
    
    38
    
    
    
    455Other
    
    
    652
    
    
    
    658
    
    
    
    216
    
    
    
    232Total non-interest income
    
    
    1,758
    
    
    
    3,134
    
    
    
    566
    
    
    
    1,055Non-interest Expense:Salaries and employee benefits
    
    
    5,020
    
    
    
    4,883
    
    
    
    1,697
    
    
    
    1,627Occupancy and equipment
    
    
    966
    
    
    
    927
    
    
    
    323
    
    
    
    306Merchant bankcard
    
    
    1
    
    
    
    1,109
    
    
    
    
    
    
    
    402Other
    
    
    1,539
    
    
    
    1,514
    
    
    
    535
    
    
    
    515Total non-interest expense
    
    
    7,526
    
    
    
    8,433
    
    
    
    2,555
    
    
    
    2,850Income before income taxes
    
    
    6,291
    
    
    
    6,000
    
    
    
    2,291
    
    
    
    2,077Income taxes
    
    
    2,168
    
    
    
    2,016
    
    
    
    786
    
    
    
    701Net income
    
    $
    4,123
    
    
    $
    3,984
    
    
    $
    1,505
    
    
    $
    1,376Comprehensive income
    
    $
    4,246
    
    
    $
    4,047
    
    
    $
    1,564
    
    
    $
    1,400Earnings per share:Basic
    
    $
    0.87
    
    
    $
    0.86
    
    
    $
    0.32
    
    
    $
    0.30Diluted
    
    $
    0.87
    
    
    $
    0.85
    
    
    $
    0.32
    
    
    $
    0.29Weighted average number of common
Shares outstanding:Basic
    
    
    4,736,758
    
    
    
    4,659,303
    
    
    
    4,743,481
    
    
    
    4,663,772Diluted
    
    
    4,761,115
    
    
    
    4,695,896
    
    
    
    4,762,589
    
    
    
    4,705,640Return on Average Assets
    
    
    1.64
    %
    
    
    1.59
    %
    
    
    1.77
    %
    
    
    1.60
    %Return on Average Equity
    
    
    12.19
    %
    
    
    12.94
    %
    
    
    12.75
    %
    
    
    13.04
    %
   2




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##### Table of Contents



Nine Months Ended September 30, 2005 and 2006Number of
    
    
    
    
    
    
    
    
    
    
    AccumulatedCommon
    
    
    Common
    
    
    
    
    
    
    OtherShares
    
    
    Stock
    
    
    Retained
    
    
    ComprehensiveOutstanding
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance, at December 31, 2004
    
    
    4,620,250
    
    
    $
    28,163
    
    
    $
    10,612
    
    
    
    ($374
    )
    
    $
    38,401COMPREHENSIVE INCOME:Net Income
    
    
    
    
    
    
    
    
    
    
    3,984
    
    
    
    
    
    
    
    3,984Other comprehensive income, net of tax:Unrealized loss on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    63Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,047Issuance of common stock
    
    
    31,614
    
    
    
    549
    
    
    
    
    
    
    
    
    
    
    
    549Stock grants
    
    
    75
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Stock options exercised
    
    
    13,659
    
    
    
    149
    
    
    
    
    
    
    
    
    
    
    
    149Income tax benefit from stock options
exercised
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Balance, at September 30, 2005
    
    
    4,665,598
    
    
    $
    28,867
    
    
    $
    14,596
    
    
    
    ($311
    )
    
    $
    43,152Balance, at December 31, 2005
    
    
    4,670,386
    
    
    $
    28,938
    
    
    $
    13,606
    
    
    
    ($248
    )
    
    $
    42,296COMPREHENSIVE INCOME:Net Income
    
    
    
    
    
    
    
    
    
    
    4,123
    
    
    
    
    
    
    
    4,123Other comprehensive income, net of tax:Unrealized gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    123Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,246Stock based compensation expense
recognized in earnings
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    42Issuance of common stock
    
    
    64,951
    
    
    
    1,127
    
    
    
    
    
    
    
    
    
    
    
    1,127Stock grants
    
    
    90
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Stock options exercised
    
    
    10,080
    
    
    
    127
    
    
    
    
    
    
    
    
    
    
    
    127Stock repurchase
    
    
    (6,261
    )
    
    
    (94
    )
    
    
    
    
    
    
    
    
    
    
    (94
    )Balance, at September 30, 2006
    
    
    4,739,246
    
    
    $
    30,141
    
    
    $
    17,729
    
    
    
    ($125
    )
    
    $
    47,745
   3




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##### Table of Contents



Nine Months EndedSeptember 30,2006
    
    
    2005Cash Flows from Operating ActivitiesNet income
    
    $
    4,123
    
    
    $
    3,984Adjustments to reconcile net income to netCash provided by operating activities:Provision for credit losses
    
    
    114
    
    
    
    108Depreciation and amortization
    
    
    (47
    )
    
    
    507Origination of loans held for sale
    
    
    (6,835
    )
    
    
    (9,834
    )Proceeds of loans held for sale
    
    
    7,316
    
    
    
    9,325Gain on sale of loans
    
    
    (64
    )
    
    
    (82
    )Gains on sales of assets and securities available for sale
    
    
    
    
    
    
    (92
    )Stock dividends received
    
    
    
    
    
    
    (2
    )Increase in accrued interest receivable
    
    
    (287
    )
    
    
    (443
    )Decrease in accrued interest payable
    
    
    25
    
    
    
    17Stock based compensation expense
    
    
    42
    
    
    
    Other
    
    
    (658
    )
    
    
    (898
    )Net cash provided by operating activities
    
    
    3,729
    
    
    
    2,590Cash Flows from Investing ActivitiesNet (increase) decrease in interest bearing deposits in banks
    
    
    (2,015
    )
    
    
    5,123Net decrease in federal funds sold
    
    
    204
    
    
    
    5,402Proceeds from maturities of available for sale securities
    
    
    55,500
    
    
    
    15,976Proceeds from sales of available for sale securities
    
    
    
    
    
    
    14Proceeds from maturities of securities held to maturity
    
    
    1,995
    
    
    
    1,510Purchases of securities available for sale
    
    
    (35,000
    )
    
    
    (5,431
    )Increase in loans made to customers, net of principal collections
    
    
    (26,609
    )
    
    
    (27,855
    )Purchases of premises and equipment and other
    
    
    (1,459
    )
    
    
    (299
    )Proceeds from sale of premises and equipment
    
    
    
    
    
    
    172Net cash used in investing activities
    
    
    (7,384
    )
    
    
    (5,388
    )Cash Flows from Financing ActivitiesNet increase in deposits
    
    
    6,922
    
    
    
    28,259Net decrease in repurchase agreements and other borrowings
    
    
    (4,394
    )
    
    
    (16,445
    )Payment of dividends, net of dividends reinvested
    
    
    (1,206
    )
    
    
    (1,576
    )Exercised stock options
    
    
    127
    
    
    
    149Repurchase and retirement of common stock
    
    
    (94
    )
    
    
    Net cash provided by financing activities
    
    
    1,355
    
    
    
    10,387Net (decrease) increase in cash and due from banks
    
    $
    (2,300
    )
    
    $
    7,589Cash and Due from BanksBeginning of period
    
    
    18,518
    
    
    
    13,562End of period
    
    $
    16,218
    
    
    $
    21,151Supplemental Disclosure of Cash Flow InformationInterest paid
    
    $
    3,561
    
    
    $
    2,110Income taxes paid
    
    
    1,950
    
    
    
    2,135Supplemental Schedule of Non-cash Investing and Financing ActivitiesFair value adjustment of securities available for sale, net of tax
    
    
    123
    
    
    
    63Issuance of common stock through dividend reinvestment plan
    
    
    1,127
    
    
    
    549
   4




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5




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##### Table of Contents



Weighted Average
    
    
    AggregateNumber of
    
    
    Weighted Average
    
    
    Remaining
    
    
    Intrinsic ValueShares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    (in thousands)Stock options outstanding, December 31, 2005
    
    
    151,651
    
    
    $
    14.17Granted
    
    
    
    
    
    
    Exercised
    
    
    (10,080
    )
    
    $
    12.65Forfeited
    
    
    (2,940
    )
    
    $
    16.66Stock options outstanding, September 30, 2006
    
    
    138,631
    
    
    $
    14.23
    
    
    
    6.38
    
    
    $
    631Stock options exercisable September 30, 2006
    
    
    98,733
    
    
    $
    13.38
    
    
    
    5.84
    
    
    $
    380
  Weighted Average
    
    
    AggregateNumber of
    
    
    Weighted Average
    
    
    Remaining
    
    
    Intrinsic ValueShares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    (in thousands)Stock options outstanding, December 31, 2004
    
    
    172,541
    
    
    $
    14.14Granted
    
    
    
    
    
    
    Exercised
    
    
    (13,659
    )
    
    $
    10.91Forfeited
    
    
    (2,157
    )
    
    $
    17.30Stock options outstanding, June 30, 2005
    
    
    156,725
    
    
    $
    14.14
    
    
    
    7.30
    
    
    $
    537Stock options exercisable June 30, 2005
    
    
    80,730
    
    
    $
    12.74
    
    
    
    6.30
    
    
    $
    377
   Nine Months Ended
    
    
    Three Months Ended(dollars in thousands)
    
    September 30, 2005
    
    
    September 30, 2005Net income, as reported
    
    $
    3,984
    
    
    $
    1,376Less total stock-based
employee compensation
expense determined under
fair value based methods
for all qualifying awards
    
    
    (97
    )
    
    
    (32
    )Pro forma net income
    
    $
    3,887
    
    
    $
    1,344Earnings per share:Basic  as reported
    
    $
    0.86
    
    
    $
    0.30Basic  pro forma
    
    $
    0.83
    
    
    $
    0.29Diluted  as reported
    
    $
    0.85
    
    
    $
    0.29Diluted  pro forma
    
    $
    0.83
    
    
    $
    0.29
    6




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##### Table of Contents



Nine Months EndedSeptember 30,(dollars in thousands)
    
    2006
    
    
    2005Net income
    
    $
    4,123
    
    
    $
    3,984Weighed average shares outstanding  basic
    
    
    4,737
    
    
    
    4,659$
    0.87
    
    
    $
    0.86Incremental shares arising from stock-based compensation
    
    
    24
    
    
    
    37Weighted average shares outstanding  diluted
    
    
    4,761
    
    
    
    4,696Diluted net income per common share
    
    $
    0.87
    
    
    $
    0.85
       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.
       7




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##### Table of Contents



Community Banking 
 Mortgage Department
 Treasury Services
  Nine months ended September 30, 2006Treasury
    
    
    Mortgage
    
    
    Community(Dollars in thousands)
    
    Services
    
    
    Department
    
    
    Banking
    
    
    ConsolidatedInterest income
    
    $
    2,230
    
    
    $
    279
    
    
    $
    13,250
    
    
    $
    15,759Interest expense
    
    
    215
    
    
    
    
    
    
    
    3,371
    
    
    
    3,586Net interest income
    
    
    2,015
    
    
    
    279
    
    
    
    9,879
    
    
    
    12,173Provision for loan losses
    
    
    114
    
    
    
    
    
    
    
    
    
    
    
    114Non-interest income
    
    
    148
    
    
    
    36
    
    
    
    1,574
    
    
    
    1,758Non-interest expense
    
    
    3,843
    
    
    
    124
    
    
    
    3,559
    
    
    
    7,526Income (loss) before income taxes
    
    
    (1,794
    )
    
    
    191
    
    
    
    7,894
    
    
    
    6,291Provision (benefit) for income taxes
    
    
    2,168
    
    
    
    
    
    
    
    
    
    
    
    2,168Net income (loss)
    
    $
    (3,962
    )
    
    $
    191
    
    
    $
    7,894
    
    
    $
    4,123Assets
    
    $
    74,652
    
    
    $
    4,861
    
    
    $
    265,138
    
    
    $
    344,651Loans, Net
    
    $
    5
    
    
    $
    4,837
    
    
    $
    252,332
    
    
    $
    257,174Deposits
    
    $
    1,500
    
    
    
    
    
    
    $
    259,505
    
    
    $
    261,005
 Nine months ended September 30, 2005Treasury
    
    
    Mortgage
    
    
    Community(Dollars in thousands)
    
    Services
    
    
    Department
    
    
    Banking
    
    
    ConsolidatedInterest income
    
    $
    1,649
    
    
    $
    226
    
    
    $
    11,659
    
    
    $
    13,534Interest expense
    
    
    135
    
    
    
    
    
    
    
    1,992
    
    
    
    2,127Net interest income
    
    
    1,514
    
    
    
    226
    
    
    
    9,667
    
    
    
    11,407Provision for loan losses
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    108Non-interest income
    
    
    128
    
    
    
    76
    
    
    
    2,930
    
    
    
    3,134Non-interest expense
    
    
    3,693
    
    
    
    127
    
    
    
    4,613
    
    
    
    8,433Income (loss) before income taxes
    
    
    (2,159
    )
    
    
    175
    
    
    
    7,984
    
    
    
    6,000Provision (benefit) for income taxes
    
    
    2,016
    
    
    
    
    
    
    
    
    
    
    
    2,016Net income (loss)
    
    $
    (4,175
    )
    
    $
    175
    
    
    $
    7,984
    
    
    $
    3,984Assets
    
    $
    97,158
    
    
    $
    3,381
    
    
    $
    248,313
    
    
    $
    348,852Loans, Net
    
    $
    5
    
    
    $
    3,666
    
    
    $
    235,891
    
    
    $
    239,262Deposits
    
    $
    785
    
    
    
    
    
    
    $
    262,956
    
    
    $
    263,741
  8




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##### Table of Contents



Three months ended September 30, 2006Treasury
    
    
    Mortgage
    
    
    Community(Dollars in thousands)
    
    Services
    
    
    Department
    
    
    Banking
    
    
    ConsolidatedInterest income
    
    $
    881
    
    
    $
    105
    
    
    $
    4,744
    
    
    $
    5,730Interest expense
    
    
    71
    
    
    
    
    
    
    
    1,347
    
    
    
    1,418Net interest income
    
    
    810
    
    
    
    105
    
    
    
    3,397
    
    
    
    4,312Provision for loan losses
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Non-interest income
    
    
    76
    
    
    
    11
    
    
    
    479
    
    
    
    566Non-interest expense
    
    
    1,344
    
    
    
    40
    
    
    
    1,171
    
    
    
    2,555Income (loss) before income taxes
    
    
    (490
    )
    
    
    76
    
    
    
    2,705
    
    
    
    2,291Provision (benefit) for income taxes
    
    
    786
    
    
    
    
    
    
    
    
    
    
    
    786Net income (loss)
    
    $
    (1,276
    )
    
    $
    76
    
    
    $
    2,705
    
    
    $
    1,505
 Three months ended September 30, 2005Treasury
    
    
    Mortgage
    
    
    Community(Dollars in thousands)
    
    Services
    
    
    Department
    
    
    Banking
    
    
    ConsolidatedInterest income
    
    $
    525
    
    
    $
    88
    
    
    $
    4,124
    
    
    $
    4,737Interest expense
    
    
    66
    
    
    
    
    
    
    
    758
    
    
    
    824Net interest income
    
    
    459
    
    
    
    88
    
    
    
    3,366
    
    
    
    3,913Provision for loan losses
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    41Non-interest income
    
    
    69
    
    
    
    23
    
    
    
    963
    
    
    
    1,055Non-interest expense
    
    
    1,178
    
    
    
    42
    
    
    
    1,630
    
    
    
    2,850Income (loss) before income taxes
    
    
    (691
    )
    
    
    69
    
    
    
    2,699
    
    
    
    2,077Provision (benefit) for income taxes
    
    
    701
    
    
    
    
    
    
    
    
    
    
    
    701Net income (loss)
    
    $
    (1,392
    )
    
    $
    69
    
    
    $
    2,699
    
    
    $
    1,376
  9




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ITEM 2
 
   .
            10




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##### Table of Contents



September 30, 2006
    
    
    December 31, 2005
    
    
    September 30, 2005Commercial
    
    $
    26,859
    
    
    
    10.3
    %
    
    $
    22,478
    
    
    
    9.6
    %
    
    $
    21,258
    
    
    
    8.8
    %Agriculture
    
    
    19,844
    
    
    
    7.6
    %
    
    
    18,249
    
    
    
    7.8
    %
    
    
    25,045
    
    
    
    10.4
    %Real EstateConstruction
    
    
    17,177
    
    
    
    6.6
    %
    
    
    11,049
    
    
    
    4.7
    %
    
    
    6,889
    
    
    
    2.8
    %1-4 Family
    
    
    26,193
    
    
    
    10.1
    %
    
    
    22,787
    
    
    
    9.8
    %
    
    
    22,440
    
    
    
    9.3
    %Multi-family
    
    
    25,360
    
    
    
    9.7
    %
    
    
    25,419
    
    
    
    10.9
    %
    
    
    24,943
    
    
    
    10.3
    %Commercial
    
    
    124,428
    
    
    
    47.8
    %
    
    
    116,180
    
    
    
    49.7
    %
    
    
    121,341
    
    
    
    50.2
    %Farmland
    
    
    17,267
    
    
    
    6.6
    %
    
    
    14,046
    
    
    
    6.0
    %
    
    
    16,031
    
    
    
    6.6
    %Consumer Loans
    
    
    3,185
    
    
    
    1.2
    %
    
    
    3,502
    
    
    
    1.5
    %
    
    
    3,958
    
    
    
    1.6
    %260,313
    
    
    
    100
    %
    
    
    233,710
    
    
    
    100
    %
    
    
    241,905
    
    
    
    100
    %Less: net deferred loan fees
    
    
    (420
    )
    
    
    
    
    
    
    (413
    )
    
    
    
    
    
    
    (447
    )Total Loans
    
    
    259,893
    
    
    
    
    
    
    
    233,297
    
    
    
    
    
    
    
    241,458Less: allowance for credit losses
    
    
    (2,850
    )
    
    
    
    
    
    
    (2,750
    )
    
    
    
    
    
    
    (2,787
    )Net Loans
    
    $
    257,043
    
    
    
    
    
    
    $
    230,547
    
    
    
    
    
    
    $
    238,671
  11




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##### Table of Contents



2006
    
    
    2005Balance at beginning of period
    
    $
    2,750
    
    
    $
    2,790Provision charged to operations
    
    
    114
    
    
    
    108Loans recovered
    
    
    3
    
    
    
    6Loans charged off
    
    
    (17
    )
    
    
    (117
    )Balance at end of period
    
    $
    2,850
    
    
    $
    2,787
      Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedSeptember 30, 2006
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable for SaleU.S. Government and Agency SecuritiesTotal
    
    $
    44,327
    
    
    $
    33
    
    
    
    ($239
    )
    
    $
    44,121Held to MaturityState and Municipal SecuritiesTotal
    
    $
    5,888
    
    
    $
    89
    
    
    $
    0
    
    
    $
    5,977
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedDecember 31, 2005
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable for SaleU.S. Government and Agency SecuritiesTotal
    
    $
    64,269
    
    
    $
    92
    
    
    
    ($406
    )
    
    $
    63,863Held to MaturityState and Municipal SecuritiesTotal
    
    $
    7,871
    
    
    $
    146
    
    
    
    ($5
    )
    
    $
    8,012
    12




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##### Table of Contents




    
    $2.3 million decrease in cash and due from banks or (12.4%)
    
    $2.0 million increase in interest bearing deposits in banks or 1,213.9%
    
    $19.7 million decrease in securities available for sale or (30.9%)
    
    $26.5 million increase in net loans or 11.5%
    
    $.918 million increase in premises and equipment or 12.3%
    
    
    $.675 million increase in demand deposits or 1.2%
    
    $4.0 million increase in savings and interest bearing deposits or 2.5%
    
    $2.2 million increase in time certificates of deposits or 5.9%
    
    $4.2 million decrease in repurchase agreements or (11.6%)
    
    $.165 million decrease in other borrowings or (8.8%)
    
    $2.3 million decrease in other liabilities, primarily due to the
payment of the cash dividend to shareholders or (56.4%)
   September 30, 2006
    
    
    December 31, 2005
    
    
    September 30, 2005Demand, non-interest bearing
    
    $
    57,283
    
    
    
    21.9
    %
    
    $
    56,608
    
    
    
    22.3
    %
    
    $
    64,089
    
    
    
    24.3
    %Interest bearing demand
    
    
    34,284
    
    
    
    13.1
    %
    
    
    36,289
    
    
    
    14.3
    %
    
    
    37,393
    
    
    
    14.2
    %Money market and savings
    
    
    129,403
    
    
    
    49.6
    %
    
    
    123,389
    
    
    
    48.6
    %
    
    
    123,566
    
    
    
    46.9
    %Time certificates
    
    
    40,035
    
    
    
    15.3
    %
    
    
    37,797
    
    
    
    14.9
    %
    
    
    38,693
    
    
    
    14.7
    %Total deposits
    
    $
    261,005
    
    
    
    100
    %
    
    $
    254,083
    
    
    
    100
    %
    
    $
    263,741
    
    
    
    100
    %
  September 30, 2006
    
    
    December 31, 2005
    
    
    September 30, 2005Treasury tax and loan deposit note
    
    $
    1,713
    
    
    $
    1,878
    
    
    $
    1,743Federal Home Loan Bank  short term borrowings
    
    
    
    
    
    
    
    
    
    
    5,000Repurchase agreements
    
    
    32,361
    
    
    
    36,590
    
    
    
    33,971Total borrowings
    
    
    34,074
    
    
    
    38,468
    
    
    
    40,714
    13




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14




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##### Table of Contents



15




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##### Table of Contents



September 30, 2006
    
    
    December 31, 2005Adequately
    
    
    Well
    
    
    
    
    
    
    Adequately
    
    
    WellCapitalized
    
    
    Capitalized
    
    
    
    
    
    
    Capitalized
    
    
    CapitalizedRatio
    
    
    Standards
    
    
    Standards
    
    
    Ratio
    
    
    Standards
    
    
    StandardsTier 1 Leverage CapitalCompany
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    12.39
    %
    
    
    4
    %
    
    
    5
    %Bank
    
    
    14.04
    %
    
    
    4
    %
    
    
    5
    %
    
    
    12.37
    %
    
    
    4
    %
    
    
    5
    %Tier 1 Risk Based CapitalCompany
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    15.57
    %
    
    
    4
    %
    
    
    6
    %Bank
    
    
    16.12
    %
    
    
    4
    %
    
    
    6
    %
    
    
    15.56
    %
    
    
    4
    %
    
    
    6
    %Total Risk Based CapitalCompany
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    16.58
    %
    
    
    8
    %
    
    
    10
    %Bank
    
    
    17.09
    %
    
    
    8
    %
    
    
    10
    %
    
    
    16.57
    %
    
    
    8
    %
    
    
    10
    %
 
      
  a)
    
    Evaluation of Disclosure Controls and Procedures:An evaluation of the Companys disclosure
controls and procedures (as defined in Section 13(a)-15(e) and 15d-15(e)) of the Securities
Exchange Act of 1934 was carried out under the supervision and with the participation of the
Companys Chief Executive Officer, Chief Financial Officer and several other members of the
Companys senior management as of the end of the period covered by this quarterly report. The
Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures as currently in effect are effective in ensuring that the
information required to be disclosed by the Company in the reports it files or submits under
the Act is (1) accumulated and communicated to the Companys management (including the Chief
Executive Officer and Chief Financial Officer) in a timely manner, and (2) recorded,
processed, summarized and reported within the time periods specified in the SECs rules and
forms.
 b)
    
    Changes in Internal Controls:There were no significant changes in the Companys internal
controls or in other factors that could significantly affect the Companys internal controls
subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in
such controls requiring corrective actions. As a result, no corrective actions were taken.
  16




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##### Table of Contents



PART II. OTHER INFORMATION
 
   
   
  (c)
    
    The following table provides information about repurchases of common stock by
the Company during the quarter ended September 30, 2006:
 Total Number of Shares
    
    
    Maximum Number of SharesTotal Number of
    
    
    
    
    
    
    Purchased as Part of
    
    
    Remaining at Period End thatShares
    
    
    Average Price
    
    
    Publicly Announced
    
    
    May Be Purchased Under thePeriod
    
    Purchased (1)
    
    
    Paid per Share
    
    
    Plans or Programs
    
    
    Plans or Programs7/1/06  7/31/06
    
    
    629
    
    
    $
    15.00
    
    
    
    
    
    
    
    236,7378/1/06  8/31/06
    
    
    2,589
    
    
    $
    15.00
    
    
    
    
    
    
    
    234,1489/1/06  9/30/06
    
    
    2,958
    
    
    $
    15.00
    
    
    
    
    
    
    
    231,190Total for Quarter
    
    
    6,176
    
    
    
    
    
    
    
    
 (1)
    
    On July 17, 2001, the Board of Directors of the Company approved the
repurchase of 209,474 of its outstanding shares and on April 15, 2003 approved an
additional 207,514 shares, for a total repurchase of 416,988 outstanding shares.
Repurchases are made from time to time on the open market. The Boards authorization
has no expiration date.
 
   
   
   
   31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes Oxley Act of 2002.32.1
    
    Chief Executive Officer certification pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.32.2
    
    Chief Financial Officer certification pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
  17




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##### Table of Contents



Date: November 10, 2006
    By:
    /s/ William V. HumphreysWilliam V. HumphreysPresident and
Chief Executive OfficerDate:  November 10, 2006
    By:
    /s/ Lark E. WyshamLark E. WyshamExecutive Vice President and
Chief Financial Officer  18




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##### Table of Contents



ExhibitNo.
    
    Description31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes Oxley Act of 2002.32.1
    
    Chief Executive Officer certification pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.32.2
    
    Chief Financial Officer certification pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
  19